Where to now for Alibaba in the post-Jack Ma era?

(By Caixin journalists Shen Xinyue, Qu Yunchu, Zhang Erchi, Yang Jinxi, Guan Cong and Denise Jia)

Chinese billionaire Jack Ma, who has rarely been seen in public since irking the government with harsh comments about regulators in 2020, made headlines recently by giving up controlling rights in the company he founded, Ant Group Co., operator of the most popular digital wallet in the world.

Then, as if on cue, the government just days later announced that it was bringing to an end the more than two-year crackdown on the sprawling internet sector, which had scuttled Ant's massive US$37 billion initial public offering (IPO) in November 2020 and led to the delisting of ride-hailing giant Didi Global from New York five months after its debut.

In the years prior, Beijing had grown wary that the country's most valuable companies including Ant affiliate Alibaba Group Holding Ltd., Tencent Holdings and Meituan were engaging in monopolistic behavior and abusing algorithms to attract users.

The tough regulatory regime that would follow, along with challenging economic conditions, sparked a tanking of China tech stocks, wiping out as much as 70% of their market value in Hong Kong and the US.

Now it appears that just as Ma's clash with the government and scrapped IPO heralded the start of Beijing's crackdown, so too would his surrendering control of Ant signal its end, with regulators apparently satisfied they had brought to heel one of China's business titans and the freewheeling internet sector along with him.

All eyes are now on what lies ahead for Ant and Alibaba, which owns 33% of the company and was co-founded by Ma. While Ma was known as a visionary that led his company to the front ranks of the world's internet companies, his successor at Alibaba, CEO Daniel Zhang, is seen as far more pragmatic.

Unsurprisingly, rebuilding trust with the government will be a top priority for Zhang.

And looking at how Ma has agreed to cede control of Ant, whose Alipay overtook Paypal as the world's most used digital wallet in 2013 with 1.3 billion users, according to Techwire Asia, it would seem that Zhang has little to worry about the founder making yet another comeback.

Indeed, it appears in terms of retirement, third time's a charm for Ma, who has twice stepped back from the day-to-day operations of Alibaba, first standing down as CEO in 2013, with Zhang eventually taking the position in 2015 and then filling the chairmanship that Ma vacated in 2019.

As part of a "corporate governance optimisation" plan that Ant announced on 7 January, Ma would no longer be the "control person" who holds 53.46% of the company's voting rights together with several other persons acting in concert. After the adjustment, he will have about 6.2% of the voting rights.

This came just days before Guo Shuqing, Communist Party secretary of the People's Bank of China, announced the winding down of the tech crackdown on 9 January, when he said the special campaign to rectify 14 internet platform companies' financial businesses was basically complete with few remaining issues to resolve.

Further supervision of the sector will be normalised, and support will be given to help platform companies play a bigger role in job creation and global competition, said Guo.

Since this announcement, Alibaba's US-listed shares have risen by 9.3%, extending a surge from a multiyear low in October to around 100%. It also rallied analyst's expectations.

Goldman Sachs Group Inc. added Alibaba to its conviction list in the belief that "the worst is behind" after two years of downward earnings revisions. Meanwhile, Jefferies Financial Group Inc. raised Alibaba's Hong Kong and US share prices, saying that the company will benefit from quality service and competitive pricing as China's economy reopens.

But some doubt Ma's larger-than-life presence will ever be completely gone from the company he founded in 1999.

However, there are clues to indicate this may truly be the end of the road for Ma's leadership. Unlike with previous resignations, Ma did not issue a public statement or open letter.

Several persons close to Ma told Caixin he is "determined to leave."

Before Ma vacated the CEO position at Alibaba, he created the Alibaba Partnership, which enables the company's 38 partners, which included Ma, to own a high proportion of voting shares, with the aim of "collaborating and overriding bureaucracy and hierarchy".

Therefore, no matter how many times Ma announces his retirement, people still believe he is just handing over the day-to-day management to a team of professionals, but still retains control of the Alibaba empire.

In July 2020, before Ant Group was preparing its mega IPO, an investor in Ant told Caixin that Ma was still the actual controller of Alibaba and Ant. But since his public criticism of the nation's banking regulations in late 2020 led to the abrupt suspension of Ant's IPO, which had been poised to be the world's largest ever, the Alibaba Partnership quickly made a decision: Alibaba had to cut ties with Ant.

In July last year, Alibaba removed all Ant executives from the partnership, including chair and CEO Eric Jing and chief technology officer (CTO) Ni Xingjun. The two companies also terminated an existing data sharing agreement.

An "internal" employee two-way channel between the two companies has also been shut down since October, meaning that staff could no longer easily switch posts between the two companies and instead would have to leave one company and then get hired by the other, according to former Alibaba employees.

Employees also can no longer get access to the other company's intranet, said a person close to Ant's senior management.

"With the blocking of the two companies' intranets, now basic-level employees at both finally feel they are two separate companies," said the person.

These are among the many changes that have been made across the Alibaba universe, including a major reshuffle of senior management announced at the end of last year by chair and CEO Daniel Zhang.

These included Wu Zeming, one of the Alibaba partners, who replaced veteran Cheng Li as CTO, while Zhang Jianfeng stepped down as cloud business head.

Alibaba said Zhang Jianfeng will focus on his role as head of the Alibaba DAMO Academy, which is responsible for Alibaba's proprietary chip development team and Internet of Things initiatives.

In fact, many of Alibaba's veteran managers have left the company in the last three years, such as partner Hu Xi, who stepped down as CTO at Ant Group in August 2020 and Chen Hang, former CEO of Alibaba's workplace collaboration app DingTalk, who left in July 2021 to found his startup HHO.

Former vice president of Alibaba Fan Chi resigned in May 2021 after 11 years at the company.

Since 2021, Alibaba's strategic direction has undergone tremendous adjustments under Zhang's leadership. So too has its business structure and governance framework.

For example, Zhang abandoned the executive rotation system implemented under Ma and instead chose to keep the heads of each business unit stable. In the past during periods of rapid growth, Alibaba used to rotate managers among businesses as frequently as once a year, with the aim of taking advantage of new leaders' fresh perspective to achieve growth targets.

However, Zhang realised that it was no longer appropriate to undergo such frequent personnel and organisational changes, with maintaining stable management and continuity key to building out capacity, said a person close to Alibaba's senior management.

Zhang's personal management style is also very different from Ma's. For example, Ma is known for his forward thinking and likes to speak openly about his grand visions before devising a concreted plan, but loses attention when it comes to implementing a follow-up strategy.

By comparison, Zhang rigorously pays attention to details, and keeps a close eye on the business, according to a number of Alibaba employees who spoke to Caixin.

"I like Zhang better, because he's more pragmatic. Now the internet industry is no longer in the era that was supported by dreams," one employee said.

Ma created a mission culture within Alibaba with a slogan "make it easy to do business anywhere". By comparison, Zhang and Ant chair and CEO Eric Jing talk more about career vision and pragmatic implementation, some employees have said.

"In a very different style from Ma, Zhang and Jing are professional managers who need to figure out how to restructure the new corporate culture and drive people forward," said one Alibaba investor.

With Ma apparently having little desire to return to the helm, it means Zhang can make major changes without any pressure from the company patriarch looking over his shoulder, several observers told Caixin.

In an internal letter sent to all Alibaba employees on 29 December 2022 and subsequently posted online, Zhang chose the word jin (进), which literally means leaping forward or seeking progress, as the theme for 2023. This compares with 2022's ding (定), which means holding steady or remaining calm.

Zhang later explained in an interview with state broadcaster CCTV that the so-called jin strategy means Alibaba's confidence in its developments comes from a "high degree of resonance and consistency with national social development goals".

Thus, it appears clear that Zhang intends to adopt this more pragmatic and stable approach to running the business internally as a key part of efforts to rebuild the company's relationship with the government externally.

"For years, Alibaba's and Ant's communication with the government almost entirely relied on Ma, and all the other senior management members were just executors," said a person close to Alibaba's senior management.

After Ma's exit from the company in 2019, both Alibaba's and Ant's government relations plummeted, and the core reason was that they didn't have a dedicated government relations department, the person said.

Zhang is taking a very proactive approach to this issue, as just two days after Ant announced Ma had ceded control of the company, Alibaba signed a strategic cooperation agreement with the municipal government of Hangzhou, where the company is headquartered.

Zhang pledged the firm will support Hangzhou in building itself into a digital city, as well as enhance its cloud computing, consumer business and overseas expansion, and continuously contribute to its economic and social development.

In another clear sign of the importance Zhang has placed on government relations was Zhang Jianfeng's unexpected stepping down as president of Alibaba Cloud as part of the management reshuffle, with the CEO personally taking the reins. This was because government relations are seen as crucial to the success of Alibaba's cloud business, several observers said.

Since Ma's public criticism of China's financial regulation in October 2020 led to a rare summons by regulators and eventual suspension of Ant's IPO, Alibaba's cloud unit has struggled to win business from the government, with the attitude of some local authorities toward the company changing significantly, a person close to the matter said.

Therefore, Zhang needs to personally reach out to the rebuild relations with the government, the person said.

To make up for his own relative inexperience in the technical side of cloud computing, Zhang added a new position of CTO to Alibaba Cloud and tapped Zhou Jingren, former longtime Microsoft executive and chief scientist of Alibaba Cloud, to the position.

Previously, Alibaba Cloud's main business customers were internet companies, but this sector can no longer provide strong growth as their user size has peaked. In the quarter ended 30 September 2022, Alibaba Cloud's revenue grew 4%, compared with 10% in the prior quarter and an industry average of 30%.

The company said revenue from customers in the internet industry fell 18% due to declining revenue from top customers, while revenue from non-internet industries grew 28% and contributed 58% of overall cloud revenue.

Alibaba has also been struggling with weaker consumption over the past two years as China adhered to a hardline "zero-Covid" policy. Transactions on Alibaba's flagship Taobao and Tmall e-commerce platforms declined year-on-year for three consecutive quarters through to the end of June. The e-commerce business accounts for roughly two-thirds of Alibaba's total revenue.

Then, in perhaps an even clearer indicator of the extent of the problems, the company decided not to disclose full sales results for its signature "Double 11" shopping festival for the first time. This came after forecasts predicted the figure may decline, which would be unprecedented in the event's 14-year history.

An Alibaba employee disclosed to Caixin that the Double 11 sales grew just 1% year-on-year, compared with 14% for the same event in 2021.

Alibaba's e-commerce business is facing increasing competition from rivals including JD.com, Pinduoduo and numerous short-video platforms that also provide livestreaming sales channels.

An e-commerce service provider said clients increasingly paid more attention to platforms other than Tmall in 2022 and brands sought a balance between multiple platforms.

An executive at a domestic beauty brand told Caixin that he started his business by livestreaming on Taobao, but now sales through ByteDance's short video app Douyin, the Chinese version of TikTok, have exceeded those on the Alibaba platform.

After the tax evasion probe into celebrity livestreamers, including Huang Wei, known online as "Weiya", who once singlehandedly moved US$1.2 billion of goods during Alibaba's 2021 Double 11 bonanza, Taobao lost the No. 1 position in livestreaming e-commerce in 2022 and user activity declined significantly.

In light of its domestic troubles Alibaba is looking abroad, with Zhang setting an ambitious goal to have 2 billion annual active users globally by 2036, which, based on its current 1 billion domestic users and 305 million overseas, means it needs to add nearly 700 million.

Alibaba is not alone. Most Chinese e-commerce companies are picking up the pace of internationalisation as they face sluggish domestic user growth and weakening consumption at home.

Alibaba's overseas retail business generated 42.7 billion RMB in revenue in the 2022 fiscal year, contributing about 5% of the group's revenue, according to its latest quarterly report. Together with the wholesale business, its total overseas revenue reached 61.1 billion RMB, about 7% of the total.

"In the next five years, it is expected that the global e-commerce market excluding China may have room for growth of US$3 trillion to US$5 trillion," an employee of Alibaba's overseas operation told Caixin. "Based on China's current share in the world, Chinese sellers can grow about US$2 trillion overseas."

Alibaba engages in two segments of the overseas market: cross-border e-commerce and working with local suppliers. The first refers to the sales of products made in China in foreign markets, while the second is sales of locally made products.

Jiang Fan, formerly president at Taobao and Tmall, was appointed in December 2021 to lead Alibaba's overseas e-commerce operations as part of a broad restructuring. Jiang, 37, is the youngest member of Alibaba's partners and widely seen as a potential successor to Zhang.

Jiang's strategy is relatively conservative, a person familiar with Alibaba's global business told Caixin. AliExpress, Alibaba's international e-commerce platform, used to rely on its partner Cainiao's overseas logistics network. But after Jiang took over, it now focuses on building warehouses in China, which cost less but slow down logistics.

In the past, AliExpress usually picked overseas markets where Amazon doesn't have a strong dominance, such as Spain and Poland. In 2022, AliExpress ramped up investments in South Korea as it sought to gain more share in markets with bigger buying power.

Alibaba spent 10 billion won (US$7.27 million) in South Korea last year to lower product prices and market products on subways, Gary Topp, European commercial and marketing director at AliExpress, told CNBC.

The key market for the entire cross-border e-commerce sector is still in the US.

In the US market, AliExpress can't compete with the same low-price strategy, as Taobao was branded a "notorious market" for counterfeit goods in 2018 by the Office of the US Trade Representatives, a cross-border e-commerce retailer said. AliExpress needs to pick unique products sold on its platform to avoid too much overlap of products with Temu, and at the same time be able to compete with Amazon, the retailer said.

Hu Jingyi and Bloomberg contributed to this report.

This article was first published by Caixin Global as "Cover Story: Where to Now for Alibaba in the Post-Jack Ma Era?". Caixin Global is one of the most respected sources for macroeconomic, financial and business news and information about China.

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