Duncan Clark first met Jack Ma just a few months after the former English teacher had founded a little online business in the eastern city of Hangzhou. “On my first visit, I could count the number of co-founders by the toothbrushes jammed into mugs on a shelf in the bathroom,” Clark, chairman of investment advisory BDA China, wrote in his 2016 book about the company, Alibaba: The House that Jack Ma Built.
The company that Clark, earlier an investment banker with Morgan Stanley, advised in its early days is now a $400 billion company, with an empire that spans far beyond e-commerce. Through affiliate Ant Financial’s mobile platform Alipay, it powers trillions in financial transactions. People shop at its physical supermarkets, Hema, or go there to pick up their groceries and eat. Its biggest rival now is Tencent, the social media giant behind China’s everything app, WeChat, that people use to chat, shop, and pay. Both companies have competed to invest in startups focusing on everything from delivery to electric vehicles to bike-rental to coffee to gain more insights into China’s consumers and get an advantage in the next big thing—whatever that might be.
Clark, still in the country advising the country’s tech entrepreneurs, has a ringside view of these battles, and of how Alibaba is changing now that it’s conquered e-commerce.
This year Ma will hand the role of executive chairman to Daniel Zhang, CEO of Alibaba since 2015 and credited by the company with inventing the Singles’ Day shopping festival as China grappled with the global recession a decade ago. Under Zhang, Clark notes, the commitment to large investments in research and development, and hiring top tech talent, have only increased, as data, cloud computing, and future frontiers like quantum computing become more important.
He fielded questions this week from Quartz about where Alibaba’s headed, and the headwinds that it’s likely to face on the way. The conversation was edited and condensed for clarity.
Alibaba increasingly wants people to think of it as a data technology company, rather than an e-commerce one—why?
Partly this is due to Alibaba’s dominance of e-commerce. Although it faces competition of course from JD [and] niche players it remains the biggest by far. It’s prudent to develop other areas, and the margins in data services like cloud potentially can be much higher than dealing with the physical constraints of logistics, goods etc.
Investing in data also enhances the appeal of Alibaba to brands seeking to understand their customers, future trends. Predicting the shape of future consumption is key. Hard for brands not to be on the platform given the volume and the insights they can gain.
How does Alibaba’s push to bridge online and offline shopping—“new retail”—compare with what other retailers, in China or beyond, are experimenting with?
I would say China and Alibaba in particular are pioneers in this area. You can see how they showcased their new retail initiatives like Hippo Fresh (Hema) at the Consumer Electronics Show in Las Vegas and I think elicited quite a lot of interest. The interesting thing about Hema is it creates distribution centers close to highly populated areas whether or not shoppers chose to go there or buy online.
The initiative started before Amazon bought Whole Foods and actually is much more digital and integrated. So much so that regulators are looking at how to ensure they still accept cash in the Hema stores. The move to cashless is so rapid these days.
In your book you asked, ‘As Alibaba consolidates more market power than any other private company ever has, can [it] keep the government on [its] side?’ What’s your answer to that question right now?
At the moment the state is stepping forward, the private sector stepping back. It’s unwise for business leaders to be too high profile. That’s true for trade and other tensions abroad, but especially the tensions within China as growth slows. There has been some attempt by the Communist Party to reassure the private sector of their continued importance but executives and entrepreneurs are generally wary. Better play down your strengths, play up your challenges. The sobering experience of Tencent not being allowed to publish new games is a very direct manifestation of this.
It’s not only risks from Chinese government policy a Chinese tech company needs to consider these days. Late last year the company revised down its full-year sales forecast citing the economic climate. How’s Alibaba placed when it comes to weathering trade tariffs and Donald Trump?
Obviously cross-border sales are most at risk of hikes in tariffs, but the indirect impact of the trade war is greater I think in the psychological, second-order impact of raising questions of the outlook for the Chinese economy as a whole. There’s a sense that consumers in China may not be able to bear the burden of expectations placed on them. Talk of a consumption downgrade or at least deferral of big-ticket purchases is rife. It has been a long time since business leaders have felt this unsettled, rattled even by trade tensions and perhaps more importantly in tech by the push by the US government to question the future of integrated supply chains that have bound the two countries together over the past two decades.
Has Alibaba become a truly global company?
Not really, no, but it has global impact through leading by example and through Jack Ma’s outsized influence as an icon of Chinese entrepreneurship in places like Wall Street and Silicon Valley, but also increasingly in developing markets where China is likely to expand further in coming years. But in the US and EU it’s hard to see how Alibaba could expand dramatically through investment or acquisition nor have they intended to, versus other higher growth markets like India, Southeast Asia.
Do you foresee Alibaba facing a Huawei-like backlash overseas, particularly as it partners with the Chinese government on “smart cities” or invests in firms that can be seen as part the surveillance state?
Anything is possible if the US keeps up its efforts to constrain Chinese tech firms overseas. But I think their focus remains mostly on the infrastructure players like Huawei for now.
Who’s going to be Alibaba’s biggest rival in five years? Tencent or Amazon? Or both?
That’s a long time in tech—who knows what new technologies and trends might surface in the way of unseen rivals. In emerging markets the question is will companies like Amazon thrive or cede ground to local players backed by or in partnership with Chinese tech firms and investors. I don’t see head-on competition in Western markets. Within China, Tencent is the greatest rival in terms of investing in other companies, but both players are reigning in these efforts at the moment, especially overseas.
How will the Alibaba of 2029 be different from the Alibaba of 2019?
It’s hard to know if the regulatory climate in China will allow such dominance as today for companies like Ant Financial and WeChat pay in payments and financial services. Already there are more constraints being imposed on them. So we can anticipate them identifying new growth areas to develop before regulators or competitors catch up. Areas like chips, AI, quantum, make it hard to see a decade out.