Bottom line: Alibaba’s vague road map in its latest chairman and CEO annual shareholder letter is too far off to be meaningful, but does chart its aspirations to change from its current form to something more like an IT services company.
Alibaba (NYSE: BABA) founder Jack Ma and his heir apparent Daniel Zhang have just laid out their vision for the e-commerce giant in their latest annual letter to shareholders, and I have to say it’s at once very grand while also being quite short on detail. There are some lofty goals revealed inside, headlined by a new plan with some targets for what the company hopes to achieve by 2036. Never mind that that’s nearly 20 years away, which is like an eternity when it comes to the Internet.
At the same time, there’s a very general road map for how we get there, all of which I’ll detail shortly. Alibaba has actually executed relatively well so far on some of its road map, which roughly has it transforming from a mere e-commerce company to something more like an IT services provider. But nearly all of that diversification has been within its highly protected domestic market so far, and it’s far from clear it can replicate that model into its nascent international operations.
All that said, let’s jump right in and explore the latest insight in the two messages which thankfully are relatively brief, for anyone who wants to take a look. (Ma’s message; Zhang’s message) Not surprisingly, there’s quite a bit of fluff contained within, which is standard fare for this kind of thing that is meant for investors rather than bloggers like me who follow the company much more closely.
The headline numbers in both messages are the 2036 goals, which are for Alibaba to serve 2 billion customers globally, host 10 million small and medium-sized businesses on its platforms, and create 100 million jobs. Again, it’s worth pointing out that these numbers are almost meaningless, since the 18-year time frame before the given date is like an eternity in today’s fast-moving Internet world. By comparison, Alibaba itself is only 19 years old.
But if we want to read just a little between the lines, Alibaba’s big goal here is clearly its desire to go global. At best the company can probably hope to serve perhaps half of China’s market, which should number around 1 billion if we exclude people too young and too old to use the Internet. That means that at best Alibaba can probably hope for 500 million customers in China, leaving 1.5 billion for the rest of the world.
Finding those customers could be challenging. But to get there, Alibaba is also making clear in these two letters that it sees itself transforming into a more integrated services provider from its current status as a one-trick pony in e-commerce. That will require a pretty big transformation, and the company is already investing heavily in logistics and cloud services that would be part of its future offerings.
All the Right Buzzwords
It says it’s also going to invest heavily in artificial intelligence (AI) and the Internet of things, which envisions a highly connected world of the future where humans and devices can talk to each other, and devices themselves can run much of the show. I personally do believe this is the wave of the future, and that some companies will certainly be able to position themselves at the center of this brave new world.
Whether Alibaba will be among those companies is another story. If I were taking bets, I would certainly put US giants like Amazon (Nasdaq: AMZN), Apple (Nasdaq: AAPL) and IBM (NYSE: IBM) in the running to emerge as leaders in this kind of futuristic landscape. Alibaba, on the other hand, has shown far less acumen for winning customers outside China. The company’s cloud services are one of its businesses that’s more widely available worldwide, though I suspect most of its customers still come from China.
Alibaba’s Ant Financial affiliate is also quite successful in terms of offering consumer-oriented financial services via its Alipay. Likewise, its Cainiao logistics unit also seems to be quite proficient at coordinating lots of different companies on a partner basis. But again, all of this is in the highly protected and somewhat unique China market.
At the end of the day, this 2036 road map seems more like signals to the market of a very general picture of where Alibaba would ideally like to be if the company is still around when that date comes. The vision itself looks admirable, and Alibaba is certainly one of the few Chinese companies around now that could potentially pull it off. Still, I would probably only give the company a 20 percent chance of attaining the future status it seeks, which is actually fairly decent odds given how much things will almost inevitably change over that time frame.