In my previous article I laid out the reasons why I’m no longer an investor in JD.com (JD, Financial). With the capital freed from JD.com, I added to my position in Alibaba (BABA, Financial). Why?
First of all, in an article I wrote a while ago, I compared Alibaba’s Jack Ma to Amazon’s Jeff Bezos:
Almost 18 years ago – just a few years after Amazon (AMZN, Financial) was founded and when the market value of Amazon was evaporating during the internet bubble meltdown – Jeff Bezos said the following:
- We want to be the earth’s most customer-centric company. Start from the customers and work backwards.
- We have very precise definition for customer-centric – it means listen, invent and personalize.
- First you have to listen because companies who don’t listen to customers fail. Second, you have to invent for your customers because companies that only listen to customers, fail. It’s not the customers’ job to invent for themselves. It’s Amazon’s job to invent for customers. And third it’s personalize, take very single customer and put them in the center of the universe.
Customer-centric then becomes Amazon’s mission, and Jeff Bezos wakes up every day not thinking about how to make money but how Amazon can be more customer-centric.
Now if you watch Ma and Alibaba, you’ll find Alibaba follows the exact same philosophy. Ma also woke up every day not thinking about how to make money but how to best serve Alibaba’s customers. Everything Alibaba has built so far has been aimed at solving customers’ problems and making their worlds better. It invented Alipay because of a lack of trust, and a convenient payment system was making online transactions very hard to execute. It invented Sesame Credit because there wasn’t a credit score system in China to help trustworthy small business owners to get a line of credit and the capital they need to expand.
As I said in a previous article, I am no longer an investor in JD.com. Incidentally, over the years I’ve invested in JD, I’ve actually seen how Alibaba has widened its moat while JD’s moat has narrowed considerably.
Unfortunately, I wasn’t wise enough to appreciate how entrenched and inevitable Alibaba is until I moved back to China last year. Beside the well-known e-commerce platform, Alibaba is well-positioned in a few most important industries for China’s future. Alibaba’s ecosystem appears to me to be the most powerful in the world, along with Amazon. For example, Aliyun (Alibaba’s Cloud Service) has passed IBM to become the world’s fourth-largest cloud service provider. Cainiao Logistics is leading the charge in the huge and strategically important logistic sector. Ant Financial is dominating fin tech. And Youku is one of the top three internet video platforms in China along with Baidu’s IQiYi and Tencent’s Tencent Video. Alibaba’s investments in health care and movie and entertainment are also very well thought out and executed. Most importantly, Alibaba’s culture is probably one of the best in the world. It combines fun, meritocracy, big dreams and open-mindedness.
Furthermore, it has become clear to me that none of Alibaba’s businesses are separate – all of them are data collectors and aggregators, and they’ll help each other in terms of utilizing big data and algorithms to find ways to create value for every business unit.
Moreover, Alibaba is leading the way in both e-commerce and new retail. Elema, Cainiao Network, Intime, Hema Supermarkets and Suning help Alibaba build massive offline retail infrastructures that not only expand Alibaba’s ecosystem but also make the ecosystem more valuable for Chinese consumers, while at the same time provide Alibaba with more data every day. Alibaba is also working on rural penetration and international expansion. Paytm in India and Lazarda in Southeast Asia are both great examples of how visionary the management team is. The alliance with Singapore Post also creates win-win relationships.
Yet more importantly, of all the technology companies such as Alphabet (GOOGL, Financial), Amazon (AMZN, Financial), Facebook (FB, Financial), Tencent (TCEHY), Microsoft (MSFT, Financial) and Apple (AAPL, Financial), only Microsoft (MSFT) and Apple (AAPL) have made leadership transitions (although Apple’s transition was not voluntary). Alibaba’s leadership transition is well planned and thought out. I feel very good about Daniel Zhang and Joseph Tsai. Without Ma, I think Alibaba’s culture will be pretty much the same.
As I wrote in one of my previous articles, for technology companies, the most important question for me is whether the business will survive in 10 years, and the best defense against demise is culture. In that regard, I’m most convinced with Alphabet, Alibaba and Amazon. And within the three, I feel most comfortable with Alibaba’s culture.
I’m not saying Alibaba is perfect. It will face some challenges along the way. With the solid foundations built over many years and with a culture that celebrates meritocracy and outstanding execution, I’m much more confident in Alibaba’s management team’s abilities to navigate through challenge times and keep up with an ever-changing world.
Disclosure: Long BABA, GOOGL and TCEHY.
