Not every $200 billion enterprise that sets out to reinvent itself has the DNA to pull it off.
Eddie Wu is counting on Alibaba Group’s track record of innovation, artificial intelligence and a $63 billion war chest to propel the internet juggernaut into its next growth phase.
Over 24 years, Alibaba has expanded into e-commerce, cloud computing, local services, logistics, digital media and entertainment, new retail, and more. Wu reviewed its operating businesses after taking the helm in September, and has drawn up a group-wide strategy for the coming decade.
“Rapid technological advances are profoundly reshaping all industries, all products, and all of our daily life scenarios,” Wu told analysts last week on his first post-results conference call as Alibaba’s CEO. “We intend to transform Alibaba and embrace the future.”
He set three priorities for the operating businesses to follow: technology-driven internet platform businesses, AI-driven technology businesses and a global commerce network [see table].
Cutting-edge technology undergirds all three drivers and Wu is looking to develop in-house and industry-leading capabilities as Alibaba redefines itself for the AI era.
Alibaba’s Wu is not alone as he mulls the potential of this year’s technological advances. In EY’s latest survey of 1,200 CEOs, more than two-thirds of respondents see the need to act quickly on generative AI to avoid giving their competitors a strategic advantage. However, 68% of CEOs also report being stymied by uncertainty.
Not all can lean on a long track record of seizing opportunities created by successive waves of new technology.
Alibaba was in the vanguard during the seismic shift from desktop internet access to mobile, the rise of mobile payments and the platform economy. More recently, it has steered the convergence of offline and online retail and the migration of companies, large and small, to the cloud.
From the get-go Wu has focused on the technologies prompting industrial change.
Wu was Alibaba’s technology director at the company’s inception in 1999 and served as the chief technology officer of mobile payments app Alipay from December 2004. In September 2008, he became chief technology officer of China’s largest digital retail app, Taobao.
“No matter how successful our business models have been in the past, we need to turn over a new page and start afresh,” said Wu, who graduated in information engineering at the Zhejiang University of Technology.
In his latest role, he has thrown his weight behind the latest transformative technology, generative AI. Since he stepped in as acting CEO of Cloud Intelligence Group, Alibaba has unveiled an upgrade of its large language model Tongyi Qianwen.
Wu took up the reins as Alibaba’s CEO two months ago, alongside Joe Tsai as Chairman. Together, they are conducting a strategic review of Alibaba’s existing businesses.
Each business will be labeled “core” or “non-core”, based on its market size, business model, and product competitiveness. Core businesses will receive attention and resources. Non-core businesses will be spurred to hit profitability or be monetized to return their capital to shareholders.
“Competition in the Internet and technology sector is a never-ending game. No product ever enjoys a long-term moat,” said Wu.
The new management team has set itself a target of lifting Alibaba’s return on invested capital into the double digits over the next few years, from a lowly single digit as of last fiscal year.
As Wu and Tsai discuss projects with the leaders of Alibaba’s business groups they have very deep pockets to back the most promising proposals. As of Sept. 30, Alibaba had $63 billion net cash at hand.
Together, Wu and Tsai see their roles as balancing the short-term goals of Alibaba’s business units against opportunities for long-term value creation.
To best seize the trio of opportunities that Wu has identified, Alibaba will continue the revamp of its governance started in March to make its businesses more independent and nimbler.
“We need to reawaken our entrepreneurial mindset and improve our decision-making systems,” said Wu.
To temper that centrifugal force, the decision-making mechanisms within the group will continue to evolve and incentives created to strike the right balance between independence and cooperation. Leadership will nurture symbiotic relationships, as between its logistics arm Cainiao and its e-commerce businesses.
While discontinuing the process of fully spinning off the third-largest cloud computing platform globally, Cloud Intelligence Group, Wu sees the potential to create value by marrying its competencies with AI.
“The deep convergence and flywheel effect of AI + cloud computing will be an important impetus and advantage for our future development,” he said.
The 48-year-old Wu returned to Alibaba after starting a venture capital firm in 2015 focused on investing in advanced technologies, enterprise services and digital healthcare.
Venture capitalists are at home sifting through ideas that promise to be the next big thing and discarding gimmicks. They also bring the financial discipline needed to turn a potentially revolutionary idea into an ongoing concern.
Wu is looking to incubate a clutch of promising new businesses within Alibaba’s orbit. Each one will have a three-year window to prove its value and operate as independent subsidiaries.
The first batch comprises 1688.com, Xianyu, DingTalk, and Quark.
1688.com, Alibaba’s oldest business, serves mainstream manufacturers in China. Proving old dogs can still learn new tricks, it could leverage products manufactured in China to expand from B2B transactions into SME and consumer procurement. It also has the service capabilities to support cross-border transactions, said Wu.
Xianyu, also known as IdleFish, is the most popular second-hand goods trading platform among young Chinese consumers. Wu sees potential for it to also become a lifestyle platform for consumers’ hobbies and interests.
Likewise, he sees DingTalk’s capacity to become the best AI smart assistant platform for users. Search and knowledge product Quark could create a revolutionary search product for students and young people.
“In this exciting AI era, Alibaba will resolutely devote itself to driving the technology revolution and product innovation, will continue to incubate innovative businesses and technology products, and will meet new expectations and new demands of this growing market for products and services,” said Wu.
Additional reporting by Elizabeth Utley
To read the transcript of Wu’s speech to analysts, click here