Alibaba and the 40 “disrupters”
The Chinese e-commerce Alibaba Group has developed a unique model thanks to its holistic approach to services. It is now focusing its development strategy on globalizing its operations.
This column was previously published in L’Opinion, on 8th october
“We typically spend eight to ten years incubating, nurturing and growing a new business.” This was said not by the head of some American private equity fund but by Daniel Zhang, president of Alibaba, in reference to his group’s cloud and logistics businesses which have just managed to break even after being in operation for ten and eight years respectively.
This long-term vision — the only one that can create oligopolies on the Chinese market under the benevolent eye of the government — conflicts with our Western concept of digital unicorns’ very rapid success. It shows a truly industrial approach that tests the patience of investors who are first asked to finance a new product or service, then the creation of a community of users. This is followed by the monetization phase, and only then can profits be made. In the West, even though a group like Amazon has managed to persuade its investors of the need to finance such an approach, very few European investors these days seem to be in tune with this new world.
The originality of Alibaba’s approach is also based on new “disruptive” business models, in contrast to the classic Western blueprints. Ant Group — its financial arm, whose IPO is predicted to be valued at $230 billion — is a good example. By concentrating on the three most profitable niches of Western banks — payments, non-mortgage loans to individuals and SMEs, and asset management — Ant Group has opted for a highly unusual model. In fact, although payments are excessively profitable in the West, they do not generate any profit in China and are above all seen as a source of client-data that then enable the cross-selling of loans and savings products. Whereas digital check-out is marking the end of the customer relationship for us, payment in China is being transformed into a digital check-in signaling the beginning of a long-term customer relationship made possible by the data gathered.
Whereas digital check-out is marking the end of the customer relationship for us, payment in China is being transformed into a digital check-in signaling the beginning of a long-term customer relationship made possible by the data gathered.
A holistic approach. Finally, the Alibaba model is also unique in its holistic approach to services that supplement its incredible e-commerce sales totaling a trillion dollars annually, i.e. 15% of the whole of Chinese consumption. Its range of services include financing from the Ant group, IT infrastructure from Alibaba Cloud, and logistics from Cainiao and Ali Express. In the near future, the factory digitalized by the XunXi in-house platform will make it possible to produce small, personalized runs extremely quickly; and the B2C localisation-based services will reshape the last mile distribution. There are undoubtedly more surprises in store from the gang of the forty “disrupters” in Alibaba’s galaxy.
The group has announced that the strategic development of their operations will be taking a new direction through globalization. Initially, this will focus on South-East Asia, and then on other emerging markets, based on the concept of “money for value”, which the artificial intelligence revolution will put in practice over the next three to four years.
But the fact that the 40% share of the cloud market held by Alibaba accounts for only 9% of the global market — while two-thirds are still controlled by Amazon and Microsoft — is a reminder that the USA is still leading in the technological war, notably in the field of new “data-as-a-service” applications. In face of American domination and Chinese ambition, Europe will only survive by coming up with a real strategy for producing digital content to nourish the Chinese and American distribution platforms in the best possible way.
