Source: LatePost.

In May 2021, catching up with the rise of community group buying and live streaming e-commerce, Alibaba announced in its annual report that it would spend the extra money it makes in the future on strategic areas. The then CFO, Wu Wei, said that if Alibaba continues to pursue maintaining profits without falling, "real long-term investors will think that Alibaba is very foolish. As you can see, so many competitors are making huge investments."

Three years later, at the May 2024 earnings call, Alibaba CFO Xu Hong explicitly stated that Alibaba is closely monitoring return on investment (ROI) and ensuring that investments bring good ROIs, so the company's investment strategy has "high discipline."

A senior executive recently told subordinates that the biggest challenge for Taobao is to compete with its own past and become a better self, "instead of becoming like its competitors." In other words, Alibaba management does not want to endlessly pursue low prices.

However, e-commerce business will continue to receive more investment. The goal of Taobao Tmall Group has changed from chasing daily active users (DAUs) and order volume with low prices to pursuing retail trade's most critical data - gross merchandise volume (GMV) from 2023 onwards.

In addition to Taobao, international business, and cloud computing, the three clear and largest businesses, other more businesses will need to reduce losses and achieve profitability as soon as possible.

To expand e-commerce shares, GMV is still the first indicator of Taobao Tmall.

We learned that in 2024, GMV (transaction volume) is the most concerned indicator for Taobao, with attention paid to two points - the growth of Taobao's own market share and the comparison of competitors' growth rates.

Alibaba is still the number one, but the gap between it and its competitors is narrowing. In 2018, Alibaba's share of China's e-commerce market was close to 70%, but it has now dropped to about 40%. Alibaba's Chinese retail GMV is in the 8 trillion level, Pinduoduo's is in the 4 trillion level, JD.com's is in the 3 trillion level, and Douyin E-commerce's is in the 2.6 trillion level.

GMV most directly represents the market position of an e-commerce platform. For Alibaba, maintaining the first position in e-commerce cannot be lost, and increased investment and the sacrifice of some profits are necessary in exchange for the growth of GMV.

We learned that in the past, Alibaba would invest in splash screen ads for the top 100 mobile applications for its major promotions. Now, the investment scope has been expanded to the top 500. During this year's June 18 promotion period, Taobao distributed more large coupons and category coupons than in previous years, spending a lot of money on beauty and skincare, sports and outdoor categories where Douyin has an advantage, and increasing investment in the "ten billion subsidy" column.

According to Goldman Sachs' report, during the May 20-June 18, 2024 period, Taobao's GMV growth rate was between 10% and 15%, far better than the previous two years' big promotions. The growth rates of Pinduoduo and Douyin E-commerce, which are smaller than Alibaba in size, were 15%-20% and over 20%, respectively.

Alibaba's content e-commerce team has gone through personnel cuts before, and business leader Cheng Dao has recently transferred positions. We have learned that Taobao management believes that the content team spent a lot of money but did not change the proportion of GMV and business efficiency.

Some strategic businesses now have clear targets, such as requiring Xianyu (Alibaba's second-hand marketplace) to double its GMV within three years.

At the end of 2021, Alibaba Group stopped pursuing GMV growth as its goal. In the following two years, DAUs (daily active users), DACs (daily active consumers), and other user indicators were given a more important position to comply with Alibaba's focus on "user experience"; during the 2023 Singles' Day sales, order volume became a new assessment indicator for Taobao Tmall's GMV growth.

GMV growth is the result, and how to achieve it is the problem. We learned that internally, Taobao believes that the growth of platform transaction volume should be a natural result of the growth of average unit price, DAC, and order volume.

Under this formula, low-price strategies and new user zero-yuan purchases are all means of increasing a particular element.

For Taobao, the hardest part is the balance. If the average unit price is too low, more people will come to buy things, and GMV should have some growth, but if the price is too low, can the growth continue?

In the past year, Taobao has been simplifying.

After serving as CEO of Taotian Group for a year, Wu Yongming's most important action was to "continuously simplify"—streamline the organization, simplify processes and focus on strategy.

We have learned that Taotian's core business has been further streamlined and concentrated on four executives. They are Wu Jia, the head of user platform and Alibaba Mama business unit; Liu Bo, the head of Tmall business unit and content e-commerce business unit; Chen Weiye, the head of Taobao platform business unit, Taotian merchant platform business unit, and customer satisfaction department; and Liu Yiman, the head of industrial belt and small-to-medium merchant business unit.

According to multiple Alibaba insiders, the biggest difference in Wu Yongming's organizational adjustment is that he replaced the company's senior executives and even its partners.

The resources invested by Alibaba in a mid- to high-level employee may be equivalent to that of dozens or even more frontline employees. At Alibaba, many managers have been promoted due to their seniority and the organization has become bloated over time. It was difficult to replace them before because every old Alibaba employee had complex relationships behind them.

Now Alibaba is in a stage of slow growth and maintaining its size. There are fewer new businesses, and the company needs fewer employees than before. Currently, Taotian has about 260,000 employees. In comparison, PDD Holdings' domestic main station has only about 6,000 employees. "Having too many people can sometimes lead to confusion," said one Alibaba insider.

Processes are also being simplified for faster decision-making. We have learned that a business executive had a question during a meeting, and immediately called Wu Yongming on the spot to get an answer and make a decision.

Wu Yongming's most important simplification for Taotian is "strategic focus". At the beginning of this year, he pointed out internally that Taotian does not need new business models. "We have taken too many new directions in Taobao, which has actually led to insufficient investment and attention to basic e-commerce requirements," he said.

In late May 2023, Alibaba founder Jack Ma said in a communication meeting with only a few business executives that Taotian Group's future is to "return to Taobao, return to users, and return to the internet." We have learned that during this communication meeting, he spent most of his time reviewing the initial concept of Taobao - "the almighty Taobao."

In internal communications with employees, several Alibaba managers have already mentioned several times this year that Taotian's biggest challenge is to compete with its past self and become a better version of itself, "rather than becoming a competitor."

Alibaba has an absolute advantage in product diversity. On this basis, Taotian needs to improve its product conversion efficiency. The core is to segment users and match different product supply, prices and service experiences to achieve the best solution rather than a universal solution.

At present, we can observe two segmentation actions: for Alibaba's most powerful purchasing group, Taotian uses the 88VIP membership to cater to them. The total number of members has reached 35 million, and this year it has provided them with benefits intensively, using its scale to demand discounts from brand owners. For users who value cost-effectiveness, Taotian uses its Taofactory's "semi-managed + direct-operated flagship stores" model to explore industrial belts and further reduce product prices.

An Alibaba insider said, "In the current stage of China's internet industry, streamlining and execution seem to be a simpler and more effective strategy."

And it's not just Alibaba that thinks so.

Editor/Lambor