SMART BUSINESS

WHAT ALIBABA’S SUCCESS REVEALS

ABOUT THE FUTURE OF STRATEGY

BY MING ZENG

Contents

Figure I-1 3

Figure I-2 4

Table 1-1 5

Table 2-1 6

Figure 3-1 7

Table 4-1 8

Table 6-1 9

Table 8-1 10

Table A-1 11

Figure C-1 12

F I G U R E I - 1

Alibaba’s e-commerce processing capabilities, compared with Visa’s, 2009–2017

Payments processed (per second)

02009

400

200 500 1,200 3,850

1,000 3,200 14,000

42,000

15,000

38,00075,000

85,900

120,000

256,000

80,000

140,000

175,000

325,000

2010 2011 2012 2013 2014 2015 2016 2017

50,000

100,000

150,000

200,000

250,000

300,000

350,000

Transactions processed (per second)

Visa payment processing capability (per second)

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3

F I G U R E I - 2

Singles Day, 2009–2017, Alibaba’s yearly gross merchandise volume

(GMV)

090

45

90

135

180

10 11 12 13Year

GM

V (b

illio

n R

MB

)

14 15 16 17

0.05 0.96 5.2

19.1

35

57.1

91.2

120.7

168.2

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4

TABLE 1-1

Alibaba at a glance

China retail marketplaces

• Taobao Marketplace

• Tmall.com

• Rural Taobao

Cross-border and global marketplaces

• AliExpress

• Tmall Global

• Lazada

Wholesale commerce

• 1688.com (China wholesale)

• Alibaba.com (global wholesale)

Digital media and entertainment*

• Youku Tudou (online video)

• Alibaba Pictures

• Alibaba Music

• Alibaba Sports

• UC Browser (mobile browser)

Local services*

• AutoNavi (mapping and navigation)

• Koubei (local services)

• Ele.me (food delivery)

Finance: Ant Financial, MYbank*

Logistics: Cainiao Network*

Cloud computing: Alibaba Cloud*

*Major investee companies and cooperative partners of Alibaba Group.

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5

TABLE 2-1

The building blocks of a coordinated network

Step Examples from Taobao

Direct connection and interaction

Taobao created the Wangwang instant messenger to con-nect buyers and sellers and created the Taobaoke affi liate marketing platform to connect sellers and small websites.

Role evolution Experienced sellers became Taobao University lecturers; Taobao partners (TPs) emerged as offl ine brands joined the network.

Investment in infrastructure Alipay lowered barriers to trust; the Taobao application programming interface (API) allowed independent service vendors (ISVs) to work with merchants.

Putting business activities online

Taobao’s product database (see chapter 4) allowed for any SKU imaginable to be bought or sold; the web celebs coordi-nated marketing and manufacturing online.

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6

F I G U R E 3 - 1

Data intelligence feedback loop

Data

Data

User FirmAdaptable

productAlgorithm

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TABLE 4-1

The fi ve steps for automating decisions

Step Key action

Datafy the physical world Put capabilities and assets online

Software the business Encode decision-making chains

Get data fl owing Institute application programming interfaces (APIs) to allow data connections

Record data in full Record “live data” in its entirety

Apply machine-learning algorithms Coordinate and optimize

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TABLE 6-1

The three strategic positions in a business ecosystem

Feature

STRATEGIC POSITION

Point Line Plane

Value proposition Selling a function or capability

Creating a product or service

Connecting related parties

Competitive advantage

Expertise Value, cost, and effi ciency

Matching effi ciency

Organizational capabilities

Simple; no complex operations

Streamlining and optimizing workfl ows

Designing systems and institutions to mediate relationships

Core strategy Advance into the next rising plane and fi nd one’s niche in a fast- growing line

Use the resources of robust planes to incorporate strong points

Enable the growth of points and lines

Web- celeb analogy

Factories, clothing designers

Ruhan Taobao, Weibo

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TABLE 8-1

Comparison of traditional, management-focused organizations and enabling organizations

Traditional organization (focused on management)

Smart organization (focused on enabling)

Structure Tree or hierarchy Platform, networked

Information movement (internal)

Integrated from the bottom up, and diffused from the top down

Fully connected, synced, and coordinated in real time

Information movement (external)

A single dedicated communication channel

Fully connected, synced, and coordinated in real time

Decision process

Centralized, executed from the top down

Centrally coordinated by a global metrics evaluation system, locally self-adaptive

Resource appropriation

Centralized, hierarchical breakdown and allocation

Locally self-suffi cient, elastic, based on external environment, provided by common infrastructure

Collaboration mechanism

Specifi c job defi nitions, diffi cult interdepartmental collaboration, ineffi cient information sharing

Self-organized collaborative networks based on a platform, transparent and sharable, collaborative competition, globally optimized to work across the network, iterative and evolving

Value orientation

Profi t driven Innovation driven, focused on growth

Risk perception Focused on minimizing risks, avoiding mistakes; information and data strictly controlled, not shared

Focused on transparency, effi ciency, and freedom of innovations; trial-and-error approaches; inability to innovate is the biggest risk

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TABLE A- 1

Alibaba’s timeline

Year Milestone Chinese internet users (millions)

1999 Alibaba.com founded 9

2003 Taobao launched 80

2004 Wangwang and Alipay launched 94

2007 Alimama launched; Alibaba.com lists in Hong Kong 210

2008 Taobao Mall launched (name later changed to Tmall) 298

2009 Alibaba Cloud founded 384

2010 AliExpress launched 457

2013 Cainiao Network and Small and Micro Financial Servic-es Group (later Ant Financial) set up

618

2014 Alibaba goes public in the United States 649

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F I G U R E C -1

Strategic positioning of businesses

Network coordination

Smartecosystems

Dat

a in

telli

gen

ce

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12