Signage for Alibaba Group Holding Ltd. covers the facade of the New York Stock Exchange on November 11, 2015.
Brendan McDermid | Portal
BEIJING – It's been a turbulent 12 months for Alibaba, casting doubt on the tech giant's future just as artificial intelligence is on the rise.
The company's cloud computing division was poised to capitalize on AI's growth for investors through a stock market listing until Alibaba withdrew those plans in November. The group's U.S. market value fell below that of e-commerce rival PDD, reflecting the troubles in the industry that propelled Alibaba onto the global stage with the world's largest initial public offering in 2014.
At the political level, Alibaba has been a poster child for China's crackdown on internet technology companies – in 2021 the company was fined a record $2.8 billion for alleged monopolistic behavior. Slowing economic growth hasn't helped his business either.
But the scrapped cloud IPO plans and management shakeup last year reflect larger problems for a company that has served as a model for foreign investors in China. Alibaba stock has fallen from more than $300 in 2020 to under $77 per share, a decline of 75%.
“I think there are some deep internal problems. And so now there has to be … a clear internal struggle about how they get out of this, because they're really floundering,” said Duncan Clark, an early adviser to Alibaba and now chairman of Beijing-based investment adviser BDA.
“The core for me is their declining market position, what they're doing in terms of video and livestreaming and how they're responding to Douyin, plus how they're dealing with all these different groups and all the management turmoil,” Clark said. “Basically, it’s a mess.”
Douyin, the domestic Chinese version of ByteDance's TikTok, has established itself as a platform for the booming livestream sales industry in China. Chinese consumers, increasingly bargain-hunting, have also turned to bargain hunting on Pinduoduo.
Founded in 1999 by Jack Ma, Alibaba is a much older company than ByteDance or PDD.
“From a personnel perspective, there are people who leave the company because they may feel like the company is so big and bureaucratic, that's a reality,” said Brian Wong, former vice president of Alibaba Group and author of the published “Tao of Alibaba “. in November 2022.
Management restructuring with a focus on the cloud
Are they too big? That was the government's accusation before, but now the question is: are they flexible enough and able to compete sufficiently in the market?
Duncan Clark
BDA, Chairman
“Are they too big? That was the government's accusation before, but now the question is: are they nimble enough and able to compete sufficiently in the market?” he said. Clark also wrote “Alibaba: The House That Jack Ma Built,” published in 2016.
Cloud competition from Huawei
Alibaba is an industry leader in the cloud business.
According to Canalys, the company remained the largest player in China's cloud market in the third quarter, followed by Huawei and Tencent.
However, the research firm predicted that Huawei's market share would gradually increase, said analyst Yi Zhang.
She noted that the telecommunications company was founded in 2022 to focus on improving its engagement with business partners – through the strategy of building an ecosystem of experts and developers. By contrast, she said Alibaba and Tencent's cloud units only began pursuing a similar strategy in 2023.
Such an approach can pay dividends in a slowing cloud services market that, according to Canalys, “relies heavily on government and state-owned companies to drive growth.”
Chinese business news site 36kr reported in January last year, citing sources, that government customers had signed cloud deals with Huawei after almost buying from Alibaba.
Alibaba and Huawei did not respond to a request for comment for this story. Alibaba in November blamed U.S. restrictions on chip sales to China for its decision to abandon its cloud IPO.
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Alibaba said its cloud business revenue rose just 2% year-over-year in the quarter ended Sept. 30. Since the quarter ended June, the company has included cloud revenue from business with other parts of Alibaba Group.
BDA's Clark said his firm's investigations found that Alibaba was trying to grow its cloud business by taking away large customers from third-party providers. These resellers were other companies that had acted as distributors or agents for Alibaba Cloud and received commissions.
“It may be like a botched go-to-market strategy or reseller strategy because a lot of these resellers … were very upset and some of them will now be working with other players,” Clark said. “They should be able to focus on smaller companies and not the big ones that have been taken away, but that hasn't happened. It’s a very tough market.”
Global IPO market collapse
Alibaba still plans to list its logistics business Cainiao and its grocery chain Freshippo. But it was a tough IPO market, especially for Chinese companies looking to go public overseas.
The Information reported in November, citing sources, that an international investment firm was only willing to value Alibaba's cloud unit at less than $25 billion, well below the $40 billion the company had sought.
Alibaba “has a huge base to build on in terms of customers and data, and that is a treasure trove for any AI operation. They still have some amazing minds in the organization,” said former executive Wong.
“I think all the raw materials are there, the only question is how they work.” [execute] This at a time of critical moment,” he said, pointing out that he believes Alibaba is “getting its house to prepare for the next big thing.”