Ali CEO Wu Yongming: Our strategic priorities and business strategies for the future
Tonight, we released our results for the second quarter of fiscal year 2024. At the analysts' conference call, Alibaba Group CEO Wu Yongming fully explained Alibaba's strategic plan for the new stage of development for the first time.
Wu Yongming said that the driving force for the development of the industry in the future will be the driving force of technology represented by AI, and Ali will have three important priority directions for the future:Technology-driven internet platform business, AI-driven technology business, global business network. Ali will maintain an entrepreneurial mentality, invest more resolutely, make more decisive trade-offs, seize new opportunities brought about by changes in AI technology with a more flexible governance mechanism, and create more customer value.
Wu Yongming gave a complete introduction to the development strategies and priorities of each business group. Taobao and Tmall with”UsersPrioritize”, Adhere to the strategy of consumer classification and price power; Alibaba Cloud insists”AI-driven, public cloud first”, Driven by AI+ cloud computing on two wheels; an international digital business group is committed to buildingThe world's leading digital supply chain networkWith AI+ digital retail's core technical capabilities, we hope to achieve breakthroughs in key emerging regional markets in the next few years; Cainiao will increase investment in technology and accelerate constructionGlobal intelligent logistics network; Local life has evolved from Gaode and Hungry to technological services to destinations and homes, seize AI development opportunities, and advance with ecology; Big Entertainment will continue to adhere to the leading content strategy.
He also announced Ali's first batch of strategic innovation businesses —1688, idle fish, spike, quark. The strategic innovation business described aboveIt operates as an independent subsidiary, breaks the previous positioning restrictions within the group, and uses a more independent strategy to face the broadest market. The Group will continue to invest on a cycle of 3-5 years.
The following is the full text of Ng Wing-ming's speech：
Hello everyone, and welcome to this quarter's results conference call.
This is my first time as the CEO of Alibaba Group to communicate with you on a performance conference call. In addition to introducing the progress of various businesses over the past quarter, I would also like to take this opportunity to share with you some thoughts the new management team has had on Alibaba's future development strategy and business strategy after thorough consideration.
After 24 years of development, Alibaba has now become a group covering e-commerce, cloud computing, local lifestyle, logistics, entertainment, new retail, and many innovative businesses. Today, the whole society stands at the beginning of a new era. Rapidly developing technology is profoundly reshaping all products, all industries, and all life scenarios. It can be said that all predictions for the future today are underestimated.
As the penetration rate of Internet users reaches its peak, the driving force driving the development of the industry will be the driving force of technology represented by AI. Therefore, I have identified the key priorities of the Ali Group for the next ten years in the following three directions:Technology-driven internet platform business, AI-driven technology business, and a global business network.
In the face of a huge and complex business system and rapidly changing market and technology trends, we would like to use the followingThree key steps to transform Alibaba and face the future：
Establishing highly flexible and quick decisions
Governance mechanism and incentive system
Today, Ali is facing rapidly developing new technology and new changes in the market. No matter how successful past business models were, we must return to zero, awaken the mindset of starting a new business, and maintain a highly flexible decision-making mechanism. Therefore, we initiated corporate governance reforms this year and continue to accelerate the construction of a flexible decision-making system.We hope that in the future, all of Ali's business lines will be based on independent business units, more independent and market-oriented.
Based on this, we are exploring the establishment of a corresponding incentive system to balance the independence and synergy of business groups to achieve maximum synergy in development.
Arrange strategic priorities for existing businesses
Maintain long-term focus and strong investment in core business
After years of commercial experimentation, we deeply feel that excellent business models are extremely scarce.
Facing the future, we will sort out the priorities of existing businesses according to market size, business model and product competitiveness.Defining core business and non-core business. For our core business, we will maintain long-term focus, maintain strong resources and R&D investment, continuously improve the user experience, ensure that products and services always keep up with user needs and iteratively evolve, and maintain long-term vitality and competitiveness. For non-core businesses, the value of these assets will be realized through rapid profit or various other capitalization methods.
Make a more determined strategic investment for the future
Alibaba Group will play a better role in strategic incubation.On the one hand, invest in businesses and products that meet user needs and AI-driven transformation trends as the first priority; On the other hand, for innovative products facing the future, we will adhere to a long-term approach and resolutely invest, while maintaining strategic patience, and use a three-year evaluation and value inspection cycle to cultivate new business and new momentum for future development for Alibaba.
Next, I will focus on sharing with you the development strategies and development goals of each business group and company for the next three years, and how they will seize market opportunities.
Taotian Group adheres to the “customer first, ecological prosperity, and technology-driven” business development strategy. Despite facing fierce market competition, Taotian Group's revenue continued to grow steadily this quarter, and the DAU growth rate increased.
In the strategic cycle for the next three years, we will further clarify Taobao and Tmall's business priorities —The user comes first. GuThe event will focus on the following three aspects:
Versatile Taobao
Taobao's “omnipotence” is to provide users with a wide variety of products and services. We must firmly establish a comprehensive platform to meet the multi-level consumption needs of the largest consumer group and increase the frequency of consumers' purchases. This is Taobao and Tmall's choice to maintain growth in today's competitive landscape.
Consumption classification and price power
The Chinese consumer market is a consumer market with multi-level value propositions. We not only have the most diverse consumer cohort, but also have the advantage of being made in China, so that in any category, there are enough products with different value propositions to meet the needs of different consumers.
Based on this, we must implement a multi-level marketing strategy within the Taobao app. Taobao is a super app, covering three mainstream sales models: live streaming content-driven model, brand marketing model, and low daily sales model. The Taobao app is the most comprehensive e-commerce platform in China. It has the ability to accommodate multiple product hierarchies and corresponding multiple value propositions, from branded products to white label products. We hope that through the iteration of AI technology and operating models, Taobao will truly become a consumer app in such an inclusive and diverse market.
Furthermore, we must be more determined to implement price power strategies. Whether it is a branded product or an unbranded product, the price force is the greatest gravitational force. We will continue to use the platform model to optimize product efficiency, improve supply chain efficiency, and use price power as the core strategy for products at all levels.
User value trade-off
Taobao will stick to its position as an internet consumer platform, and the Taotian Group will not position itself as a retail company. Starting from consumer platform positioning, we will strategically adhere to a user-first perspective, with improving platform stickiness and customer retention as our core goals. From a business perspective, we will prioritize user purchase frequency over GMV as the most critical goal of platform operation. The frequency of purchases directly reflects users' recognition of the consumer platform.
At the same time, Taobao's diverse monetization products can support our “customer first” strategic transformation. We believe that only more users can bring more market opportunities to merchants, and these investments will form a positive cycle of win-win for users, merchants, and platforms.
Due to various uncertainties in the current external environment, we decided not to proceed with the complete spin-off of the Cloud Intelligence Group after careful evaluation. Alibaba Group will maintain a long-term and firm investment in Alibaba Cloud's strategic direction. At the same time, Cloud Intelligence Group will continue to operate as an independent company and adopt a CEO responsibility system authorized by the board of directors.
This quarter, we saw continued growth in demand for computing power and large model services brought about by the AI boom.
Cloud computing is the infrastructure for the entire digital economy. This is a business model where computing resources have a network effect, and it is also a service model with scale effects. With the advent of the AI era represented by big models, behind the AI transformation and innovation needs of all walks of life, IT investment will grow exponentially, and demand for cloud computing will also expand exponentially, thus creating even greater incremental opportunities for the times.
Cloud Intelligence Group will firmly implement an AI-driven, public cloud-first strategy, and increase technology investment in AI-related software and hardware fields.
AI-driven
The computational paradigm is undergoing fundamental changes, and we are at a technological inflection point where traditional computing is shifting to the central position of AI computing. In the future, customers' incremental demand for cloud computing will be driven by AI demand, and the vast majority of AI computing will mainly run on the cloud.
In the future, we will insist on doing two things well:The first is to build the “most open cloud in the AI era” to provide stable and efficient AI infrastructure for the entire industry and support the intelligent transformation of all industries. The second is to create an open and prosperous AI ecosystem.
At the recently concluded Yunqi Conference, we fully upgraded the AI infrastructure, the artificial intelligence platform PAI, released Tongyi Qianzun 2.0 and 8 major industry models with 100 billion parameters, launched a one-stop model application development platform, and initially built a full-stack cloud computing system in the AI era, which will better meet the computing power needs of the AI era.
Public cloud first
This quarter, Alibaba Cloud began actively managing revenue quality, and profitability improved. Alibaba Cloud has advantages in terms of pricing rights, high renewal rates, and provision of cloud computing infrastructure resources and application service products that can be replicated on a large scale. In the future, we will insist on making trade-offs between all products and business models, reducing project-based sales orders, increasing investment in core public cloud products, and continuously improving the revenue quality of cloud services. I believe that adhering to the priority of public clouds will allow us to continue to reap scale effects and technological dividends in the future.
Facing the future, we are very optimistic about the long-term development prospects of combining AI and cloud computing.
We firmly believe that overseas markets have huge room for growth in the next few years. Our core strategies include:
Building the world's leading digital supply chain network
Alibaba already has the richest supply of products in the world and an initial “crossborder+local” global logistics network. In the next few years, we will accelerate the construction of a world-leading digital supply chain network based on several world-leading commodity centers and efficient logistics networks covering major overseas markets.
Build the world's leading AI+ overseas digital retail technology
inInternational Digital Business GroupBuild unified AI digital retail core technical capabilities within the company to promote efficiency improvement and customer experience innovation across platforms and regional markets. For example, solving problems such as cross-language translation and international customer service through AI and other technologies, and driving a large number of merchants to truly move from local to global, which contains huge market opportunities and dividends.
Achieve breakthroughs in key emerging regional markets in the next few years
International Digital Business GroupCurrently, the overall user penetration rate is high in only a few regional markets such as Southeast Asia and Turkey, and there is still huge room for growth in the user penetration rate in most overseas markets. We will build on our existing resources and layout to increase localization investment in some very promising regional markets and obtain definite growth opportunities.
Cainiao continues to focus on expanding the global intelligent logistics network and strengthening comprehensive end-to-end capabilities in cross-border logistics services and solutions. Revenue continued to grow rapidly this quarter.
For the next three years, Cainiao's core strategy is:
1. Accelerate the construction of a global intelligent logistics network, increase investment in logistics technology, seize the historical opportunities of rapid development of cross-border e-commerce, and achieve rapid growth in international business by providing innovative products for cross-border e-commerce platforms and merchants.
2. Adhere to the path of differentiation at home, export technological capabilities, help brands and manufacturers improve the level of digitalization and intelligence in logistics, provide high-quality, multi-platform, and omni-channel supply chain and logistics solutions for brand merchants and consumers, and maintain healthy business development.
Local Life Group's revenue increased 16% year over year this quarter, business scale and efficiency continued to improve, and annual active consumers increased quarterly and month-on-month.
In the next three years, location-based technology services will continue to evolve and grow rapidly in various industries, and will continue to have chemical reactions with 360 businesses, not only in industries that people are currently concerned about, such as takeout, catering, and travel, but also in various TOC industries. We expect that demand for location-based technology services in the TOB industry will also grow rapidly in the future. Therefore, the Group will continue to firmly invest in location-based technology services, and will continue to focus on the two business positions of local lifestyle, namely, developing travel and technology services to destinations with Gaode as the main focus, and developing instantaneous technology services to the home with Hungry as the main focus.
At the same time, the local lifestyle business will also seize the application innovation and capability upgrading opportunities brought by AI, and use “progress with ecology” as the standard for success.
Dawen Entertainment Group's revenue grew healthily this quarter, and the synergy benefits of various businesses continued to improve. Due to the strong recovery of the offline cultural consumer market, Damai.com's quarterly GMV grew strongly, and profitability continued to improve year over year; Youku's total number of paid online shows broke records; and the two films co-produced by Alibaba Pictures ranked in the top two summer box office.
For the next three years, Dawen Entertainment Group's core strategies include:
1. With AI and other technological innovations, standardization, processization, and digital intelligence of the film and television production side will basically be realized within three years. Train a new generation of creators and promote the upgrading of the entertainment industry. Launch innovative consumer-side applications and expand business boundaries.
2. Youku will adhere to the leading content strategy, increase the proportion of homemade content, and strengthen members' mentality through stable and differentiated exclusive content. Alibaba Pictures will maintain its offline scene coverage and market share advantage, and continue to launch homemade content such as leading movies and performances. As a leading entertainment company, Alibaba Entertainment Group will achieve stable profits as soon as possible as a whole.
We also announced that Alibaba Group will continue to invest in and incubate future-oriented strategic innovative businesses. We have clear selection criteria for this: sufficient market space; unique market positioning; in line with user demand trends and the Group's “AI-driven” strategy.
Today, I would like to introduce you to our first batch of strategically innovative businesses. They are-1688, idle fish, spike, quark。
1688 is Alibaba's longest-standing business, serving mainstream manufacturers in the Chinese manufacturing industry. It has a solid foundation and great potential for secondary entrepreneurship in the new era. Starting with the most competitive products made in China, it is expected to expand from B2B business to procurement for small and medium-sized enterprises and consumers, and also has service capabilities to support cross-border transactions.
Idle Fish is a favorite idle trading platform for young Chinese consumers. We believe that the future of Idle Fish is far more than that; it is a lifestyle platform that can carry the tastes and pleasures of consumers.
With the advent of the AI era, DingTalk has gained unprecedented imagination. As the most efficient enterprise collaboration tool in China, facing the future, we believe that in the AI era, everyone and enterprises will have personalized intelligent assistants, and DingTalk is expected to become the best AI intelligent assistant platform for users.
Quark is a search and knowledge product loved by the younger generation. We believe that in the big model era, aimed atFor student cohort and young people, Quark has huge opportunities to create innovative search products.
The strategic innovation business described above,The organization will operate as an independent subsidiary, and the business will break the previous positioning restrictions within the group and use a more independent strategy to face the widest range of markets. The Group will continue to invest on a cycle of 3-5 years.
Facing the exciting AI era, Alibaba will resolutely participate in the technological revolution and product innovation, continue to create and incubate innovative businesses and technological products to meet the new expectations and needs of the ever-expanding market for products and services.
Competition in the internet and technology industry is an endless game, and there may not be a long-term moat for any product. Successful tech companies must have the ability to move through the tech cycle. Over the past 24 years, Ali has firmly grasped development opportunities in the PC and mobile internet era. There have been successes and failures, as well as experiences and lessons in the process.
Today, Alibaba has become a diversified business group with annual revenue of 125 billion US dollars and free cash flow of 27 billion US dollars. We have the privilege of supporting the transactions and execution of tens of millions of small and medium-sized enterprises; we have the third largest cloud computing platform in the world. The deep integration of “AI+ cloud computing” and two-wheel drive is an important driving force and advantage for our future development.
Today, we have reached the beginning of a new technological era represented by AI. The world will change dramatically in the next ten years, and huge uncertainties and opportunities will appear at the same time. Alibaba is embarking on a new entrepreneurial journey and is fully prepared to fully invest in technological change. We have sufficient leading resources, strong cash flow, flexible governance mechanisms, and excellent talent reserves. I believe it can inspire new momentum in existing businesses and create more new development opportunities.
*Full statement slightly abridged
Risk Disclaimer: The above content only represents the author's view. It does not represent any position or investment advice of Futu. Futu makes no representation or warranty.Read more
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