Inside Alibaba – Jack Ma’s Digital Innovation Factory

by Rowan Gibson

Inside Alibaba - Jack Ma's Digital Innovation Factory

Artificial intelligence. Augmented reality. Facial recognition. Connected “internet” vehicles. Global virtual marketplaces. App-based digital payment systems. Pharmaceutical e-commerce. Humanoid robots. Giant vending machines for cars. This is not just the magical stuff of today’s digital-driven, transformation economy. It’s a snapshot of the cutting-edge innovation work currently underway at one of the world’s most exciting and admired companies: the Chinese tech titan, Alibaba Group.

In many ways, Alibaba could be described as a digital innovation factory – a powerhouse that seems to be as efficient at pumping out and rapidly commercializing new technology ideas, services, and ventures as other Chinese factories might be at producing sports shoes, syringes, or electrical appliances.

Unfortunately, in the western world, the vague notion persists that Alibaba is merely a Chinese mash-up of Amazon and eBay – an e-commerce giant with a formidable lock on its own local market and big ambitions to expand globally. But the reality is that the company has long been far more than that.

Alibaba’s “Digital Lifestyle” Ecosystem

Starting out in 1999 as a B2B web portal for connecting local Chinese manufacturers with potential customers overseas, Alibaba today has the distinction of being the largest e-commerce company in the world, with $430 billion in gross merchandise volume (surpassing all US retailers, including Amazon, Walmart, and eBay combined), and a market cap that has exceeded US $500 billion.

The clue to understanding Alibaba is to look at it not as a company but as a complex, fully integrated, and ever-growing ecosystem of digital services, entrepreneurial merchants, and innovative new technologies, offering customers a seamless and continuously evolving digital immersion experience across multiple channels and online platforms.

Over 500 million Chinese customers have made Alibaba’s Taobao platform part of their daily shopping habits, making it by far China’s largest consumer-to-consumer online marketplace. More than 150 million daily visitors browse the platform’s virtual shops every day, where over a billion products are listed, and easily buy what they want using Alibaba’s now-ubiquitous digital payment system, Alipay. Taobao is so popular – and offers such a broad range of products that cater to every need – that it has achieved an amazing 95 percent penetration rate in China’s consumer-to-consumer online retail market. According to Deborah Weinswig, Managing Director of research company Fung Global Retail Tech, Taobao is now making a “shift from a traditional online transactions platform to a lifestyle destination platform.”

Another major part of Alibaba’s ecosystem is Tmall – formerly known as Taobao Mall – which is China’s largest business-to-consumer (B2C) platform, giving both global and local Chinese brands and retailers frictionless access to the Chinese market. The platform, which now features over 70,000 international and Chinese brands, has an almost 60 percent share of the Chinese B2C online retail market (more than double that of its closest competitor, JD.com), and over 500 million monthly active users. It is also one of the world’s top 20 most visited websites. One of its main attractions for brands (including names like Apple, Coca-Cola, Nike, Zara, and L’Oreal) is the way Tmall leverages and integrates smart technologies like big data analytics, virtual reality and augmented reality to create personal engagement with consumers as part of their digital lifestyle. Another is the seemingly never-ending online consumer events that Tmall hosts throughout the year to generate online traffic.

When you take the runaway success of Taobao and Tmall and then add Alipay digital payment, and Weibo (which is like a Chinese version of Twitter), Laiwang social messaging, Alibaba Cloud, which serves businesses with e-commerce data processing, data customization and e-commerce data mining (and that has outperformed major cloud computing players including Amazon, Microsoft and Google in revenue growth), digital video services (and Chinese distribution of Hollywood blockbuster franchises like Mission Impossible and Star Trek) as well as its own movie production via Alibaba Pictures, location-based mapping (like Google Maps, enabled by the acquisition of Auto Navi), Ant financial services, Alimama data-based online advertising, a logistics system that can deliver products to consumers within two hours, a media portfolio that includes the South China Morning Post, and so much more, you begin to grasp the immense and growing scope of Alibaba’s “digital lifestyle” ecosystem. Fast Company calls it “one of the most sophisticated and lucrative online retail ecosystems in the world.”

In July 2016, Alibaba Group and SAIC (Shanghai Automotive Industry Corporation), one of the largest auto manufacturers in China, teamed up to launch the Roewe RX5, a brand new SUV that incorporated Alibaba’s ALIOS operating system and that was dubbed “The world’s first mass-produced internet car.” Just one year later, in July 2017, the Roewe RX5 was already the 6th best-selling SUV in its category in China. And, most importantly, when asked about their buying decision 75% of customers said they purchased the RX5 because of its connectivity. In other words, what they valued most of all was not the car’s design or its comfort, its engine performance, or its safety standards, but the fact that it gave them the connected mobility that would integrate them seamlessly with the rest of Alibaba’s ecosystem, where smartphones, shopping sites, payment systems, video services, IOT-enabled home appliances, wearable devices, and – yes – cars, are all linked together as part of one comprehensive digital immersion experience.

The fact is that, if we want to make an analogy, Alibaba is more like Google, Amazon, Facebook, Twitter, eBay, and Paypal, plus a whole lot more, all rolled into one. That combination has put the company in a unique and very powerful position to drive and lead digital innovation and transformation not just in China, but all around the world.

Unpacking the Success Story

Combine all the various areas of expertise mentioned above and you have a conglomerate big enough to provide stiff competition to all of its direct and indirect competitors, whether they are large international companies or local players. Considering that it’s not every day you see a relatively small ecommerce startup establish itself at the very top of the ladder, let’s take a look at some of the factors that drove Alibaba’s success in the market.

  • Flexible Business Model: Alibaba has never made the mistake of developing an overly narrow self-image that pigeonholes the firm in just one particular market sector. Instead, the company’s expanding ecosystem has allowed it to provide many kinds of services to many kinds of businesses in numerous industries and countries, as well as to millions of customers with a broad range of interests and needs, both inside and outside China. This flexible view of the business model has enabled Alibaba to stretch into a wide diversity of new business opportunities.
  • Trusted Financial Model: Alibaba understood from the very beginning that in the sometimes murky world of online transactions, trust, transparency and fairness had to be paramount. This founding principle has enabled the company to establish itself as the leading and most trusted player in Asia’s online peer-to-peer marketplaces.
  • Unconventional Profit Model: Many customers believe that Alibaba’s rapid rise to the top is thanks to its menu-styled pricing method rather than charging subscriptions or admission fees.
  • Support Services: Before any of Alibaba’s competitors in the industry seem to have had an idea about how important support services were, Alibaba realized that ensuring and maintaining a positive customer experience was vital for growth. The company’s comprehensive structure for service and support ensures the satisfaction of its customers everywhere.
  • Target Audience Sensitivity: Every business decision that Alibaba takes, and every innovation it introduces, is precisely designed with the target audience in mind. The company focuses on understanding the evolving needs of its customers and then designing digital solutions from the customer backward. Owning so much data about the buying preferences of so many millions of customers, Alibaba can use the latest technology to effectively innovate based on the most grounded and important customer insights.
  • Integrated Platform Ecosystem: As mentioned above, Alibaba is not just one platform. It is an integration of numerous platforms, all of which are correlated and interactive, that serve a wide and growing audience. This correlation streamlines the user experience and helps the company provide a seamless digital lifestyle across multiple channels and platforms.

Driving Digital Innovation and Transformation

One thing is clear about Alibaba. The company never stands still. The Chinese have a saying that roughly translates into “walking with wings”, which is all about moving swiftly forward to grab new opportunities. This is one of the principles that describes daily life at Alibaba Group. There is always a sense of urgency in the air, based on the understanding that the digital technology world is rapidly developing and that today’s solutions can become obsolete faster than ever before. So complacency is never an option. At Alibaba, everyone is always striving to leap to the next thing, and the next thing, and the next thing.

This explains why the company has put such strong emphasis in recent years on the emerging automotive and urban transportation landscape, viewing the car as “a smartphone on wheels” or as the next mobile appliance. According to Jeff Zhang, Alibaba’s Chief Technology Officer, “Smart operating systems become the second engine of cars, while data is the new fuel.” As he puts it, “E-commerce, financial payments, logistics, entertainment—all of these different application scenarios exist within the Alibaba ecosystem. And the company has algorithm-based, real-time updating based on all of the data collected from its products, from the commerce on its platforms, and around its users.” It is exactly this kind of user-centered data that becomes the new fuel in a world of connected mobility.

With the data Alibaba gathers from its customers, the company is now applying the techniques of AI – including Deep Learning and Machine Learning – to generate high-quality insights into user needs, preferences, and behaviors, and to respond with products and services that are perfectly matched to these users. Alibaba’s expertise at handling excessive web traffic and huge amounts of data is no secret. During last year’s Singles Day, the biggest retail event in the world (far bigger than Black Friday and Cyber Monday combined), which generated a record $25.3 billion (168.2 billion yuan) in sales in just 24 hours, the company’s processors were able to handle 256,000 transactions per second, or well over 15 million transactions per minute, without a single hiccup. Interestingly, about 90 percent of those transactions were done via mobile phone.

Driving digital innovation and transformation also means exploring completely new fields. As an example, Alibaba has recently invested in two of the three leading startups in China that specialize exclusively in facial recognition. One application of this technology is an automatic payment service called “Smile to Pay” which has been debuted at KFC in the eastern Chinese city of Hangzhou. Based on the use of a sophisticated 3-D camera that scans a customer’s face to verify his or her identity, the new service allows customers who are registered to the Alipay app to pay for their food order just by smiling at one of the restaurant’s self-service screens to authorize the purchase. On a similar note, customers of Pizza Hut may have come across the humanoid robot, Pepper, helping them place their order and make the payment. It turns out that Alibaba has invested over $100 million in Pepper’s manufacturer, Softbank Robotics in Japan, representing a 20% stake in the company.

This year, Alibaba also teamed up with Ford to unveil a giant, 5-storey fully automated car vending machine in China’s southern city of Guangzhou, that contains over 40 new cars and is completely unmanned. Users of Tmall and Taobao can simply select a car on the mobile app, verify their identity and authorize the payment via facial recognition, and the car will be dispensed from the vending machine using robots. The whole process takes less than 10 minutes.

Visionary Ambitions

Of course, it’s impossible to understand Alibaba without considering its visionary founder, Jack Ma, and his ambitions not just for the company but for China and the world. Indeed, it is precisely these visionary ambitions that drove a once-penniless English teacher to eventually become the Chinese kingpin of technology and the richest person in Asia, presiding over a $300 billion empire.

Jack Ma of Alibaba

According to the Washington Post, Jack Ma is “a larger-than-life figure who has been likened to the godfather of Chinese entrepreneurship, and has attracted the loyalty of employees and customers alike with a showmanship that exudes elegance.” On numerous occasions, he has expressed his inspiring view of the future and of the motivation that he believes must accompany and drive all technological progress:

“Just as the internet is revolutionizing retail, we at Alibaba believe it will eventually do the same to fundamentally information-driven industries such as finance, education and healthcare. Once this change happens – once we are all connected – I believe the spirit of equality and transparency at the heart of the internet will make it possible for Chinese society to leapfrog in its development of a stronger institutional and social infrastructure. Our water has become undrinkable, our food inedible, our milk poisonous and worst of all the air in our cities is so polluted that we often cannot see the sun. Twenty years ago, people in China were focusing on economic survival. Now, people have better living conditions and big dreams for the future. But these dreams will be hollow if we cannot see the sun.”

As Alibaba pursues a strategy of aggressive global growth and technological innovation, Jack Ma also reminds his employees that “we have the responsibility to have a good heart, and to do something good. Make sure that everything you do is for the future.” He believes that technology “should support human beings. Technology should always do something that enables people, not disables people.” And he warns that “Global trade must be simple and modernized; it must be inclusive, so everyone has the same opportunity. The next generation of globalization must be inclusive.”

Will Jack Ma achieve his big ambition of making China and the world a better place while expanding Alibaba’s global business to $1 trillion in gross merchandise value by 2020, and serving two billion customers by 2036? (As Forbes points out, that would effectively make Alibaba the world’s fifth largest economy, with sales eclipsed only by the GDP of the U.S., China, Japan and the EU). Only time will tell. But one thing we know right now is that Alibaba Group is a company we should all be watching very closely and learning from, especially as an outstanding example of how to drive digital innovation and transformation.

With that goal in mind, why not join me in China at our next exclusive 3-day TLN masterclass in association with Alibaba Group, called “Leading Digital Transformation”. You’ll gain insights into exactly how Alibaba is pushing the frontiers of digital technology across their entire ecosystem, and you’ll learn how to apply these lessons in practical ways inside your own organization to drive digital innovation and transformation. Don’t miss this unique opportunity to find out how you can radically rethink and reinvent your own products, services, strategies, processes, and business models to compete successfully in an age of digital disruption.

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Rowan_GibsonsRowan Gibson (rg@rowangibson.com) is recognized as one of the world’s foremost thought leaders on innovation. He is the internationally bestselling author of 3 major books, an award-winning keynote speaker in 60 countries, and a cofounder of Innovation Excellence. His new book is The Four lenses of Innovation. On Twitter he is @RowanGibson.

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