Last November 11th was Singles Day in China, an unofficial national holiday that was originally designed to celebrate single men and women (hence a date full of ones, 11/11). Of course, what started at Nanjing University 25 years ago has evolved into something else entirely: the largest shopping day of the year.
At the center of this commercial fever is Alibaba, the Chinese e-commerce behemoth. It is Alibaba which has made Singles Day what it is today, and it’s the company that has reaped the greatest reward from it. In a 24-hour period this past November 11th, the company brought in $30 billion in sales on its shopping sites Taobao and Tmall. That’s more than twice what Black Friday and Cyber Monday earned, combined. Put another way: Alibaba had more sales in a single day than McDonald’s had for an entire year.
It’d be easy to let such stunning figures define Alibaba as solely a digital marketplace. But going forward, Alibaba is aiming to do far more than get consumers to part with their money on high-profile shopping days. While it has rivals in the e-commerce space (like JD.com, which is a tenth the size of Alibaba), its main rival in almost every move it now makes is social-networking company Tencent, owner of the super-app WeChat that has become ubiquitous in the daily lives of over one billion people. The reason is data.
From e-commerce giant to data juggernaut
“Data is the blood of the new economy,” Daniel Zhang, Alibaba Group CEO, said in 2016 at a computing conference in Hangzhou, where the company is based. While the company hasn’t officially moved away from the e-commerce moniker it’s best known for, even Ma was contemplating a shift at that same conference, preferring the term “data technology company” to the more restrictive label of e-commerce.
From the routes and frequency of people’s shared bike rides, to their daily carbon-emissions saving step counts, from how long they considered buying a new skirt on Taobao, to how many takeout bowls of sour-spicy suan la fen noodles or sticks of charred chuan’r lamb kebabs they ordered from the corner shop that week, Alibaba wants to wring every drop out of data it can from the consumer.
A network like no other
Of course a billion plus consumers is a huge statistical advantage. In the coming years Alibaba aims to add at least a billion more consumers outside of China and use its services to support ten million businesses worldwide, essentially setting itself up as a full-on operating system for e-commerce and global business. Want to get your oysters from Brittany to Beijing faster and with fewer sales losses? Partner with Alibaba. You’re a Thai farmer with acres of coconuts and no direct market access? Cut out the middlemen and directly sell through Alibaba’s online and offline stores.
The stated aim: to make it easy to do business anywhere.
Alibaba is using data as a window on consumers in China through an increasingly diversified set of businesses and platforms. Knowing how many raw oysters or coconuts are sold in a 24-hour period on an average Monday in a certain section of Shanghai can go a long way in terms of efficiency, targeted sales, and future planning for both the harvester and the seller.
Data is why Alibaba is spending billions investing in a diverse array of companies: from genetics testing to bike sharing company Ofo to something called the FlyZoo Hotel—complete with robot hosts and facial recognition to let you into your room, to a recent $14.5 million investment in a shared umbrella service and an undisclosed investment in an intelligent car-washing machine.
“Literally everything that has a tech or software component, that interacts digitally with another business or consumer or whatever—it creates data. Data is the byproduct. The key is actually using what’s created, that’s where it gets exciting,” said James Hull, a China-based investor and co-host of the China Tech Investor podcast from Technode. “Data on its own is blah. Data with a channel to sell something, [that’s] more interesting.”
Data-driven logistics
To support the new retail and manufacturing strategies, Alibaba pumped $14 billion into its logistics arm Cainiao this past June to expand on its ability to handle the nearly 10 million domestic packages as well as the one million parcels transiting customs each day. The network will support automated and intelligent warehouses and utilize everything from artificial intelligence to facial recognition, so you won’t so much as sign for a delivery as just show your face for it. A Cainiao robotic warehouse using 700 automated vehicles was opened in Wuxi just ahead of the shopping day this year, which Cainiao VP Ben Wang claimed can handle up to 50% more orders in a day than traditional facilities.
A virtual test market
Alibaba has also launched a TMall Innovation Center [TMIC] to harness all the data being generated across its businesses in order to serve its big brand customers more strategically. Several companies such as Mars, Mattel, and Johnson & Johnson have established partnerships with Alibaba on exclusive product launches for the Chinese market timed around Singles Day as ways to test the waters on products before later fine-tuning them for wider launches.
“TMIC is able to provide the data and distill insights from the data in a short amount of time. This essentially gives you a quicker response time,” Ellie Xie, president of Johnson & Johnson Consumer in China, recently said through Alibaba’s news arm. “This model gives you a fast reality check on the product you are creating and more time to modify the product based on real consumer behaviors.”
What this means is that the rollout of a new product can now take months instead of years by real-time monitoring and analysis of the data, an Alibaba spokesperson told me. For example, Mars launched a trial of a spicy Snickers bar between August 2017 and March 2018 by using data and analysis from the innovation center, hitting annual sales goals for the product in six months. The chili-pepper infused version is now on store shelves across China, and increasingly, wherever there’s a market for numbed taste buds. I even grabbed one recently on a trip home for the holidays at a Walmart in Scottsdale, Arizona.
Reaching out to rural customers
Besides the typical Taobao and Tmall customers from urban areas, Alibaba is also seeking to deepen its reach to over 500 million last-mile rural consumers in China through the Rural Taobao platform, particularly in helping farmers get products to consumers in an easier, more efficient way, and possibly reaching those consumers more directly than rivals.
Through Alibaba Cloud and the company’s ET Agricultural Brain platform, farmers are able to get real-time information on crop growth, weather conditions, and pest problems. And through sharing their information, farmers can create a feedback loop for insights into more modern, smart agriculture—something the government is also firmly behind as the population ages and fewer people want to farm the land.
Alibaba and Tencent go to war over data
That quest for payments and the data derived through those transaction is central to the battle between e-commerce Alibaba and social-networking giant Tencent, the Shenzhen-based company with the super-app WeChat that is basically a universe inside a messaging app. Chatting, talking, messaging, online and offline payments, utilities, and even charity donations can all be done inside WeChat, an app that hit 1 billion active users early in 2018.
Living in China I often find myself using only the WeChat app throughout the day. Though I have it on my phone, I hardly ever use Alipay, basically because WeChat grabbed me first. Operated by affiliate Ant Financial, Alipay is making swift gains on its rival, adding 200 million users in the past year alone, but WeChat is still the go-to choice for many.
Tencent can gather data on shopping habits through its WeChat pay option, as well as from discussions around products on its social networking segments. Alibaba is coming from behind on the social networking side, but its advantages in collecting data from retail and financial services is tremendous. The two are now at war over the data that has not yet been gathered or at least not gathered well.
“The reason [Alibaba and Tencent] are going into so many different areas is that everything is so connected now and they’re worried one of their competitors would take a lead, which they would then leverage into more important areas,” says Matthew Brennan, a 15-year Shenzhen resident, expert on Tencent and author of The Story of WeChat: China’s Super App, which is set to be published in 2019.
Bicycle battles
Brennan points to bike sharing as a prime example: Both companies waged a proxy war by backing rival bike-share companies (Alibaba invested in Ofo, while Tencent bought a stake in Mobike) that burned through cash in a race to pick up as many riders as possible. As that boom has turned into a glut, Ofo and Mobike have had to cut back significantly.
Better that, says Brennan, than give your competitor any sort of advantage. “Both were concerned that it wasn’t a profitable model, but they were more concerned that the other company would take all of the bike sharing market and then leverage that into something more important later,” Brennan says. “Online payments gives you some of the best data, which is purchase behavior,” he says. “But with bike sharing, you can get more granular details, where people are moving, where their commutes are.”
Southeast Asia is next
Outside of China, Alibaba and Tencent are fighting it out in nearby Southeast Asia in an attempt to serve a vast market that is quickly digitizing. The two rivals are attempting to get their payment systems, Alipay and WeChat Pay, into as many stores and markets as possible, as well as serve as a financial-services option for users to send money more easily throughout the region. This has also included Alibaba buying majority stakes in Southeast Asian online retailer Lazada Group for about $2 billion and adding it to its ecosystem early in 2018, and increasing funding for Indonesian e-commerce platform Tokopedia.
Brennan sees those two as “good moves” for Alibaba in Southeast Asia and an extension of its core business into the region, though for both companies these are still very early days there. This tug-of-war has led the two companies to pick sides in ride-hailing companies in the region, with Tencent recently raising $2 billion for Indonesia’s Go-Jek and Alibaba looking to get in on Singapore-based Grab.
Tied together by the cloud
While it is not yet the most profitable part of Alibaba’s business, Alibaba Cloud is the fastest-growing segment (it only represents around 7% of the company’s revenues, but grew 93% year 0ver year in 2018). Under a restructuring launched after the most recent Singles Day, CEO Daniel Zhang detailed a move to rename the unit Alibaba Cloud Intelligence, and its services already have nearly 50% of the cloud computing market in China, compared to around 10% held by Tencent Cloud.
But that cloud build-out is not limited to China. Expanding the cloud in Southeast Asia goes hand-in-hand with the company’s other advances there to provide the technological infrastructure for processing the vast amounts of data generated by all the arms of the company. While smart city development has been underway in China’s major urban centers for several years now, Southeast Asia is a step behind, which is why Alibaba is investing in smart city projects there, starting first with Kuala Lumpur.
What trade war?
And then there’s the trade war. Alibaba’s sights are set on competing in all areas with Amazon, as a recent $15 billion influx into a global research and development network shows. Yet in mid-2018 Alibaba pushed back plans to expand cloud services in the US as the trade war heated up. That trade war may in the end be more of a battle between the US and China about tech supremacy than anything like markets for soybeans or automobiles. “Alibaba is vulnerable, but the vast percentage of its business is domestic, so the trade war is not as significant for it as for [a company like] Huawei,” says Scott Kennedy, deputy director of the Freeman chair in China studies at the Center for Strategic and International Studies.
International expansion runs into geopolitical fears
Chinese tech giants like Baidu, Alibaba, and Tencent (collectively the BAT) are not only vying for markets in Southeast Asia, they’re also competing in other regions where China’s Belt and Road Initiative has laid the groundwork: Africa, South Asia, Central Asia, and Eastern Europe. But distrust of China tech has clouded efforts to make headway in North American and European markets, and could later cause pain in Belt and Road countries as well.
That distrust stems from concerns about the proximity of these companies (and others like Huawei and ZTE that have already begun facing the backlash) to the Chinese government and the Communist Party. China does have data-privacy regulations, but they’re primarily about businesses and individuals moving data out of the country without government approval. There’s no real protection against the use of data by the Chinese government. In fact, current Chinese law has made it clear the government has the right to access or request data on individuals at will.
A big question now is whether companies like Alibaba, Tencent, and Baidu—all of which are invested in these technologies, and all of which operate at the blessing of the Chinese state—will face backlashes in the future, similar to what has happened to Huawei and ZTE. The fact that Jack Ma has long been a Chinese Communist Party member don’t do much for allaying fears of some in the West of “Reds under the bed,” in the routers, circuits, and clouds coming out of China (even if some theorize that Ma’s retirement was encouraged by the leadership in Beijing in order to exercise greater control over one of the country’s largest companies, something Ma has denied). “It is impossible to get to scale without having some kind of relationship with the government,” Brennan says. “That trend seems to be getting stronger rather than weaker. There’s very little they can do to categorically deny allegations. It leaves them exposed.”
Those same “smart city” initiatives Alibaba is behind in China (with the backing of the Ministry of Science and Technology) are also being set up to link all the data generated in those cities with surveillance and camera systems. Alibaba is a major investor in Chinese facial-recognition startups Megvii Inc and SenseTime, companies that are poised to help the state monitor criminals and keep citizens in line. “Bad guys won’t even be able to walk into the square,” said Ma about facial recognition at a CCP law enforcement meeting last year.
“The political and legal system of the future is inseparable from the internet,” Ma also said at the same conference. “It’s inseparable from big data.”