This morning (13 Aug), Lazada held a town hall where CEO James Dong revealed that the company had achieved positive EBITDA in July 2024 – the first since the company’s founding in 2012.
“This EBITDA-positive status proves the effectiveness of Lazada’s business strategy, and Lazada will continue to increase active investment in the Southeast Asian market under a sustainable operating model.” Dong said in the town hall.
This is a morale boost that Lazada team members as well as its ecosystem have needed since long. Many brands, enablers and other ecosystem players have come to us over the years for our opinion on whether Lazada was still committed to the region.
Alibaba seems committed to Lazada: over the past year alone, media have reported four cash infusions from Alibaba to Lazada totaling US$2 billion.
So what is the strategy here?
In January, we wrote a commentary arguing that “With big layoffs, Lazada is digging in”. The logic behind the layoffs, which made media headlines across Southeast Asia, was fairly clear to us: conserve resources, make the organisation agile, and dig in for the long term.
The environment Lazada operates in changed drastically over the last two years: new competitors have emerged in Southeast Asia, and been aggressive; Lazada’s ultimate parent, Lazada’s ultimate parent Alibaba Group kickstarted its biggest transformation in history; and the burgeoning generative AI has the potential of massively transforming ecommerce platforms of the future.
Incumbent platforms in Southeast Asia, including Shopee and Lazada, had to change. Leadership of Lazada and its immediate parent, Alibaba International Digital Commerce Group (AIDC), probably understood well that Lazada needed to improve its operational efficiency, by a wide margin.
The question is how.
Few outside observers noted that amongst the various subsidiaries of Alibaba Group, Lazada is probably the most complex. Lazada operates local marketplaces in six distinctive markets, where supplies of merchandise have to be organised locally in each market.
As we have argued in the book Seeing the Unseen: Behind Chinese tech giants’ global venturing, allocating resources, people and crucially leadership attention is very challenging in this setting. Not to mention that many resources need to be allocated, and decisions made, at the parent (AIDC or Alibaba) level.
Lazada also has a lot of legacy complexities, dating back from its Rocket Internet days (2012-2016), where different cultures and expectations were layered on top of each other. Alibaba’s acquisition and subsequent organisational changes before the pandemic added to the complexities. Trust everyone in the ecosystem would have felt that.
In the Momentum Works Ecommerce in Southeast Asia 2024 report, we summarised the strategies and key focuses of each major ecommerce platform in Southeast Asia. Lazada has clearly narrowed its focal areas to: supply chain and user experience:
For Lazada, as well as for Alibaba Group as a whole, transformation is difficult, and painful. Many decisions had to be made, and people/teams affected, without knowing the full extent of what the future might hold, or how competitors might react.
In certain instances, we have seen that decisions had to be reversed (as we have seen at Alibaba Group level last year). However, once an anchor has been found (such as the profitability milestone), people will be motivated that they are on the right track, and some of the short term pain might translate into long term competitiveness.
A constant challenge for Lazada will be balancing centralisation and localisation. There is no good answer here – and those at the steering wheel will need to balance it well, dynamically.
Now, in addition to Shopee, one more player has demonstrated that profit for an ecommerce platform in Southeast Asia is possible. TikTok Shop since this year has als been pushing for efficiency, ROI and eventually profitability in the region.
Even Temu, which many believe are burning crazy money, is reining in its spending and “probably already achieving profitability, or very close to”, according to some investor friends who have been tracking. Temu just entered its 3rd market (Thailand) in Southeast Asia, and is still looking for ways to crack the region’s biggest prize – Indonesia.
This in the short term might be painful for many ecosystem players: fewer discounts or price support. However, over the longer term, it makes Southeast Asia’s ecommerce ecosystem more robust, platforms more competitive, and consumer service levels elevated.
It is a long journey though. Be patient.
