Alibaba: We're a data company (But don't compare us to Amazon!)
“Alibaba is a data company.”
So said Alibaba's executive vice chairman Joseph Tsai yesterday, echoing a declaration from company founder Jack Ma at an investor conference last June. Ma hates it when people compare Alibaba to Amazon, but his company has followed Jeff Bezos' navigation into new waters, such as cloud services and entertainment. What's more, like Amazon, Alibaba is finding a resurgence in growth from these markets.
Alibaba's revenue in the last three months of 2016 rose 54% to $7.7 billion, above the $7.3 billion analysts had forecast. Alibaba's revenue growth has averaged 56% for the past three quarters, a pace on par with that of Facebook and a significant improvement over the 33% average growth rate Alibaba had seen during the four quarters before that.
The reason for that improvement in growth has less to do with its core commerce offerings like Tmall and more to do with newer lines of business. Revenue from Alibaba's cloud computing operations rose 115% to $254 million, while digital-media entertainment revenue rose 273% to $585 million. By contrast, core commerce revenue rose 45% to $6.7 billion.
Alibaba may be a big part of the future of e-commerce, but the future of Alibaba, as the company sees it, lies beyond e-commerce. Hence the we're-a-data-company-not-a-ret
In plain language, for you Tmall merchants: Retail is for suckers. A data-driven platform that caters to those same suckers is where you really want to be. It says something about the dire prospects for the global retail industry that the two companies that are dominating it right now – Amazon and Alibaba – are pinning their future growth on revenue streams outside of retail.
On the one hand, Alibaba's aversion to being seen as a retail company seems odd. Seven eighths of its revenue comes from facilitating retail transactions, and 493 million Chinese consumers – equal to 36% of China's population – buy through Alibaba on mobile devices. On the other hand, Alibaba doesn't carry the inventory or sell goods directly, it simply connects buyers with sellers, the way Uber, Lyft or Didi connect people who need a ride with others who are wiling to drive them around.
This gets at Ma's irritation with comparisons to Amazon, which unlike Alibaba incurs expenses for its fulfillment and delivery centers. Alibaba hands this off to subsidiaries, many of which it helped to set up. “To hire people to deliver for us, we need 5 million people to deliver the things we sold,” Ma said in Davos last week. “How can we hire 5 million people? The only way we can do it is to empower the service companies.”
Typically, these service companies are empowered with minority investments from Alibaba – large enough to make Alibaba a powerful partner, still small enough to not be recorded as an expense. It's a big reason why Amazon's non-cloud operating margin is around 4% while Alibaba's commerce business can boast a 64% EBITA margin. Amazon doesn't “empower,” it fully owns.
“The difference between Amazon and us is Amazon is more like an empire. Everything they control themselves," Ma said at Davos. That comment stayed with me. Because if Amazon is an empire, it's an old-school imperialist, deploying its own costly resources to knock down aging bricks and mortars. Ma is right. Amazon is all about controlling the markets it steps into, by any means it has at hand.
Alibaba, by contrast, is every bit an imperialist at heart, only it expands by economic imperialism. It's a case study in the soft power of investment. Strategic, minority stakes in enterprises have pieced together a mosaic of subsidiaries and affiliates into an Alibaba “ecosystem” - now, apparently, a word that signifies an empire within the corporate world. Why control “everything” (as Ma claims Amazon does in the retail transaction) when you can buy a significant portion of control of the companies that truly control everything?
This is the shrewder path to corporate imperialism. It not only demands less capital to achieve a bigger empire, it lets you do so without having to record the costs of running a Ma-ist empire on the income statement you must update for investors every three months. (Admittedly, “empire” here feels like a stretched metaphor, but it's a metaphor Ma himself invoked while trying to dismiss Amazon.)
Every time Alibaba discloses the number of people buying on platforms like Tmall, it's also leaning on investments like Ant Financial, which owns Alipay. Alipay is another data-driven platform, one with around 400 million users (more than double PayPal's 188 million users).
Alipay isn't just the lynchpin of the Alibaba ecosystem. The company has logistics, marketing, and Internet content affiliates orbiting around its core operations, all of which it's weaving more tightly into its empire/ecosystem. It has a significant stake in Didi, Uber (via Didi) and Lyft. And not only ownership of Youku Toudu but investments in media giants like Shanghai Media and the Singapore Post.
The media investments are strategic in the age of data. Alibaba CEO Daniel Zhang said last year it's helping Tmall merchants push targeted ads to consumers on Alibaba-owned content platforms like social network Weibo, browser UCWeb, and streaming-video provider Youku Tudou.
When we invest in Weibo and Youku, the first thing we do is to allow users to log in to those sites using the same ID they use for other Alibaba sites. We hope to be able to recognize our customers across all e-commerce sites and media, enabling merchants to learn about and operate for their target customers.
Alibaba, like its peers Baidu and Tencent, are an all-in ecosystem. The problem is, an everything-at-once, we're-gonna-conquer-it-all mentality lasts about three months in Silicon Valley. “All-in” has a way of decaying into some open philosophy. Alibaba's best hope is to coerce its US investments, like Lyft or Snap, into its all-in ecosystem. More likely, it will become another silent investor passively nodding at growth, aspiring to learn the reasons why.
Here again, Ma is right. Alibaba is no Amazon. Yes, they are both data driven right now, and investing in such. But the more Bezos invests, the more he expands the boundaries of Amazon's dominance. The more Ma expands Alibaba beyond China, the more passive a partner his company becomes. In the meantime, the company that dares not compare itself to Amazon continues to steal from its big brother's playbook.