On the day after Jack Ma returned to the public spotlight in China, Alibaba announced that it is to split into six new business units to better respond to external worries and internal conflict.
Photo by Kuang Da
By CHENG Lu
Alibaba announced on Tuesday that it plans to split into six semi-independent business units, claiming that this will help the company to better respond to external uncertainties and internal challenges.
The six units will be Cainiao (smart logistics), cloud, digital media and entertainment, global e-commerce, local services, and Taobao-Tmall. More units may emerge as the market develops and expands.
Rumors of a breakup of the company began to circulate on Tuesday morning. It can be no coincidence that just the previous day, Jack Ma showed his face in China for the first time in more than a year.
The founder of Alibaba and by some distance China’s most recognizable entrepreneur has been playing a game of “Where’s Waldo?” since he “disappeared” over a year ago, popping up in Australia, Japan and Thailand.
By Tuesday afternoon, the rumors of divisions had been crushed by the weight of hard facts. CEO Daniel Zhang sent out a memo telling everyone that they had new (unspecified) jobs, for new (unspecified) employers and that perhaps the mightiest force in the history of global trade was no more.
Each unit will have its own CEO and board of directors. "The fundamental reason for the reform is to make our organization nimbler, decision-making shorter and responses faster," Zhang said.
E-commerce brings in about 70 percent of Alibaba’s revenue. Cainiao, the cloud business and e-commerce may be valued higher if they are listed separately. All of the new business units will be free to explore their own fundraising and their own IPOs. All six units should be able to access lower capital costs and wider fundraising options than before.
The whole group has a market cap of around US$265 billion. If the goodies are split more or less equally between the six new entities, each will have a worth of US$40 billion – US$50 billion. That’s small beans in today’s market. Competing with Alibaba in e-commerce alone, Pinduoduo is valued at US$92 billion.
Local services and digital media, both newer and smaller than e-commerce, will have plenty of leeway in decision-making and be encouraged to find their own ways forward.
However, without the support of the rest of the group, they might find themselves going exceptionally tough against well-established and mighty rivals such as Meituan and Douyin. They might find things even tougher facing down a myriad of newer, smaller, smarter businesses, hungry for much more than crumbs from Alibaba’s table.
While the Alibaba board may claim to know what’s going on, employees certainly do not. Trivial details– how much will I be paid, who am I working for, where’s my desk - are still to be worked out. It’s pretty safe to assume that many of Alibaba’s fairy tales are about to have very non-fairy-tale endings.
The timing of the announcement may indicate that the moves have the founder’s blessing.
Alibaba has gone through several major restructurings in the past quarter of a century.
Alipay, the fintech arm, was spun off in 2005 and eventually became Ant Group. In 2010, the consumer-facing and enterprise-facing sides of e-commerce, along with search, became separate departments of Taobao, which a year later split into three different sites.
In 2012, facing competition from JD.com, Alibaba split its seven named business units into 25. At that time Jack Mall still appeared to be in charge of the business. He called the upheaval “the most difficult organizational and cultural transformation in Alibaba’s 13-year history."
With Ma taking a step back, Zhang took over as CEO in 2015. Since then, Zhang’s organizational skills have been credited with the quick launches of some of Alibaba’s most successful products including Juhuasuan (group buying) and Freshippo (groceries).
In an attempt to take back control of the bureaucratic monster he created, Zhang has already tried various ways to delegate responsibility.
Since wresting the helm away from Ma, Zhang has since devoted most of his energy to building an enormous middle office to centrally manage data and technology. It’s not yet clear whether this was a good idea or not - recently the middle office has been criticized as exaggeratedly cumbersome - but what is clear is that the new divisions will be organized completely differently and obsessive central processing will be a thing of the past.
“Tech companies seem to depend on technology, but it is strategies, resources and execution that determine outcomes,” Zhang said in the memo. “All competition in business, in the end, is about organization.”
The cloud arm was given a high level of autonomy in 2019, followed by domestic e-commerce, global e-commerce and local services in 2021. Freshippo and Fliggy (travel booking) were then allowed their own HR policies.
Some wonder whether Alibaba has grown too big to fend off unwelcome attention from younger, fitter rivals such as Pinduoduo and Douyin. Things were done at a very relaxed pace when Alibaba was the only game in town.
“Even the simplest project can have many different teams involved. If they disagree, nothing comes of it,” said an Alibaba insider.