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The Alibaba office building in Nanjing, Jiangsu province, China, on Aug. 28, 2024.
In November 2023, Jack Ma shared an internal memo at Alibaba, calling on the e-commerce titan he co-founded to “correct its course.” This communication served as a clarion call from one of China’s leading tech figures as the company faced one of its most challenging periods ever.
With its share price nearing all-time lows, a slowdown in growth due to escalating competition, rapid management shifts, and ongoing scrutiny from Beijing, the company’s prospects seemed bleak. Ma himself had largely withdrawn from the public eye.
However, his memorandum appears to have sparked a renewed sense of optimism within Alibaba. The company is now witnessing growth in its primary business sector while positioning itself as a major player in artificial intelligence (AI), rivaling companies like OpenAI and DeepSeek. Furthermore, Alibaba has regained favor with the Chinese government.
This resurgence is reflected in the U.S. stock market, where Alibaba’s shares have surged nearly 60% this year, adding over $100 billion to its market valuation.
“The revival of China’s tech sector is being spearheaded by Alibaba, which investors are viewing as a leading indicator of China’s tech landscape… We concur that Alibaba is poised to capitalize on the demand for AI and cloud services,” remarked Dan Ives, global head of technology research at Wedbush Securities, in an interview with CNBC.
In a recent discussion with CNBC, Alibaba’s chairman and former executives provided insights into the strategic transformations that have initiated the company’s recovery.
Alibaba’s Downfall
The decline of Alibaba was rapid and significant, tracing back to remarks made by Ma in October 2020, where he seemingly criticized Chinese financial regulators. Although these comments initially went unnoticed, Alibaba’s share value reached a peak shortly thereafter, with its market capitalization exceeding $858 billion.
During this time, Alibaba was experiencing tremendous success, solidifying its position as the largest e-commerce entity in China and expanding internationally while its cloud services rapidly grew. The company was also preparing for Ant Group’s initial public offering (IPO), which was expected to raise over $34 billion, breaking records.
However, just days before the highly anticipated IPO, it was unexpectedly canceled, citing changes in China’s regulatory landscape.
In the aftermath, Ma’s empire endured years of intense regulatory scrutiny, as authorities imposed fines and mandated structural reforms for various companies, including Alibaba, in an effort to curb perceived anti-competitive practices.
‘Uncertainty and Confusion’
Throughout 2021, regulatory pressures compounded Alibaba’s difficulties, but the company also faced broader economic uncertainties, particularly as the Chinese economy struggled to rebound from the COVID-19 pandemic. Increased competition from newer e-commerce platforms like Pinduoduo and Douyin (the Chinese version of TikTok) further complicated matters.
In March 2023, Alibaba announced a strategic decision to divide itself into six independent business groups, each capable of raising external funding and pursuing IPOs. This restructuring aimed to enhance agility within the organization.
A leadership overhaul soon followed, with Daniel Zhang stepping down from both CEO and chairman roles in June 2023 to concentrate on his responsibilities in the cloud division. He exited this position just three months later, leading to co-founders Eddie Wu and Joe Tsai taking over as CEO and chairman, respectively.
This period marked one of the most turbulent eras in Alibaba’s history. “A cloud of uncertainty loomed over employees during this time. Many were left unsure of the duration of this tumultuous phase,” stated Brian Wong, a former executive and author of “The Tao of Alibaba,” to CNBC.
As the economic landscape shifted post-COVID, compounded by disrupted supply chains, concerns grew about the future trajectory of Alibaba and the wider market.
Joe and Eddie Steady the Ship
In their new leadership roles, Wu and Tsai aimed to direct Alibaba’s focus back toward its principal businesses in e-commerce and cloud computing, while scaling back on other ambitious initiatives the company had undertaken.
Artificial intelligence became a central focus, with Wu and Tsai advocating for a “startup mentality” to stay competitive. “Large companies often face inertia due to complex decision-making structures; hence, we needed to quickly return to being agile and responsive,” Tsai remarked at the CNBC CONVERGE LIVE event in Singapore. He emphasized that speed in decision-making is crucial against nimble competitors.
Tsai emphasized the need for a streamlined company structure. “Instead of viewing Alibaba as a conglomerate of six distinct units, we reframed our identity to reflect two core segments — e-commerce and cloud computing.” This simplification aimed to facilitate clearer communication and enable faster execution among employees.
The management also introduced younger employees into decision-making roles, allowing room for learning through experience. “This approach encourages them to take calculated risks and gain insights from any potential missteps,” Tsai explained.
Furthermore, they decided against the planned listing of Cainiao, Alibaba’s logistics segment, pivoting from earlier commitments.
“Eddie has received significant praise for effectively refining existing operations and fostering new developments. The decision to support him has proven to be beneficial,” noted Duncan Clark, an early Alibaba advisor, in correspondence with CNBC.
Changing Political Winds
Post-cancellation of the Ant Group IPO in late 2020, Ma largely vanished from the public lens, becoming emblematic of governmental efforts to rein in the influence of private corporations and entrepreneurs.
This regulatory tightening also resulted in diminished investments, erasing substantial value from the Chinese technology sector and contributing to a marked decline in venture capital flows.
In a nation where government backing is critical for businesses, the perception of Beijing as adversarial to private sectors dampened spirits within tech circles. Yet, as China grappled with ongoing economic challenges, the function of technology in revitalizing the economy became increasingly prominent.
In February 2023, Chinese President Xi Jinping convened a rare meeting with business leaders, encouraging them to “show their talents,” a move interpreted as a renewed endorsement of private entrepreneurship.
Ma, among other prominent private sector figures, attended this notable meeting, signaling a shift in his relationship with China’s political echelons.
“Xi’s meeting with Jack Ma sent a clear message about the Chinese government’s current priorities — fostering AI development and nurturing private enterprises as key drivers of economic growth,” commented Chelsey Tam, a senior analyst at Morningstar, via email to CNBC.
This positive political engagement has underpinned Alibaba’s recent stock performance and appears to have revitalized the company’s confidence toward hiring and future investments.
Tsai reflected, “This development has emboldened us to reinvest our earnings back into capital expenditures and workforce expansion,” referencing a strategic commitment of over $50 billion towards AI infrastructure in the upcoming three years announced in February.
AI Success
Much of Alibaba’s stock price increase this year can be attributed to a surge of enthusiasm surrounding AI advancements and investor interest in how major Chinese tech companies are integrating this technology into their offerings.
Alibaba is among the leaders in this segment, launching its first AI model, Tongyi Qianwen (or Qwen), shortly after the rise of ChatGPT. The company has since rolled out a series of models designed for various tasks, including text and image generation from user inputs.
Significantly, Alibaba has adopted an open-source model for its AI offerings, allowing developers to utilize and enhance their technologies, a strategy that has propelled its success. Several widely-used models on platforms like Hugging Face leverage Alibaba’s Qwen.
“Since early 2023, Alibaba has been consistently delivering impactful open-source models that perform exceptionally well across diverse applications,” Tiezhen Wang, a machine learning engineer at Hugging Face, remarked.
Although Alibaba was proactive in the AI development race, the emergence of DeepSeek has intensified competition. This firm claimed that its AI model was trained at a fraction of the cost of industry giants, causing stock market turbulence across the sector.
“DeepSeek’s entry into the AI landscape illustrated that Chinese tech is actively innovating in this field, which bodes well for Alibaba as demand for AI solutions is evident in China,” added Ives from Wedbush Securities.
AI Competition Ramps Up
Alibaba’s initial AI models appeared before DeepSeek’s announcements, but the level of competition in China is accelerating. Major tech players such as Baidu and Tencent are also making significant strides in AI development.
However, a pivotal question remains: how will Alibaba monetize its freely available open-source AI models? Insights from investors, AI specialists, and company executives suggest that the answer lies within Alibaba’s cloud computing services.
Utilizing open-source models encourages community engagement among developers, thereby amplifying both the capabilities and global reach of these technologies.
Increased accessibility to AI tools and the resulting demand can ultimately drive growth in Alibaba’s cloud computing division. The company profits by offering centralized platforms and computing resources essential for running AI applications, even when those applications do not utilize its own models.
“Our cloud computing arm stands to gain significantly from the AI revolution, as each model training or inference undertaken necessitates robust cloud infrastructure, which we provide,” explained Tsai.
Moreover, Alibaba’s cloud segment demonstrated notable growth in the December quarter compared to previous periods.
“The shift in perspective is crucial; Alibaba should no longer be seen merely as a struggling e-commerce entity but as a robust cloud and AI company positioned to take advantage of emerging opportunities,” Clark emphasizes.
“This marks a significant narrative transformation.”
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