Saturday, October 8, 2016 and Alibaba Battle for Turf

By Lin Chen, Assistant Professor of Marketing, CEIBS

“Give us enough time, and one day we will be bigger than Ali,” Founder Liu Qiangdong said during an episode of CCTV’s current affairs show ‘Dialogue’. Turns out he was not just full of bluster as a week later his company made Fortune magazine’s 2016 list of the world’s Top 500 businesses. Alibaba did not.’s sales revenue for 2015 had far exceeded Ali’s, $288 billion versus $12.3 billion.

Strategy counts

The battle for turf is also playing out in the stock market. China Concept Stocks – including JD and Ali – have been shorted over the past year, and there have been noticeable differences in how both companies have performed.

In an earlier article I explored why Ali’s stock price falls each time it does an acquisition. U.S. investors are not optimistic about capital-led mergers and acquisitions, therefore any uncertainty about Ali’s market causes volatility in its stock price. Moreover, in this tough economic climate, American investors prefer prudent investment; so they are not fans of Ali’s radical strategy. Another reason for investors’ wait-and-see attitude is Ali's failure to invest in its own core business, and its penchant for deals from a wide range of industries. This gives the impression of a strategy that is lacking in focus. is just the opposite. Its acquisition strategy is steady: it has e-commerce as its basic foundation, and it invests only in e-sales. Its strategy is easier to understand so this is a company likely to win favor with American investors. Though there are a few exceptions, the market has reacted positively to most of’s acquisitions with corresponding jumps in its price. But although the company’s investment strategy of focusing on e-commerce has won favor among investors, overall its stock price is still going down. Hedge funds’ shorting of its stock is just one of the reasons for the decline; the imbalance between the business’ strengths and weaknesses is the more important source of the problem. Stock price has suffered from the sluggish performance of the company’s two strategic-level financial clusters – Finance and Daojia which, it is safe to say, are its Achilles heel.

Theoretically, Daojia (one of China’s leading online food ordering and delivery service providers) is making full use of JD’s logistics services. Once this logistics network matures, it will prove more valuable than similar O2O platforms as it has overcome the limitations faced by traditional express delivery providers. But there is a flip side to being so popular with clients.  Daojia has constantly been losing money because of logistics-fuelled package delays and an immature network. If can fix this chink in its armor, it will have a huge advantage over Ali.

Internet banking
The two companies are also going head-to-head when it comes to internet banking, but Ali’s Ant Financial makes Finance look like child’s play. Today, Wallet can only be used within the system, while Alipay has become an independent application. Finance is a newcomer that has arrived rather late to the party, and overlapping of services in the two competing applications has prohibited JD Finance from getting the upper hand. Will this latecomer be able to surpass Ali in the future?

It very likely will. That is because JD’s core competitiveness is still the crowd funding of products, with hardware as its point of entry and supported by a series of related businesses. As long as makes differentiation a core part of its strategy, giving full play to its own advantages, it is not impossible for JD Financial to see a big win. But there is only one way will be able to turn its weaknesses into strengths. That is by sticking to a technology-led pattern of development (versus one that is driven by purely monetary gain), placing user experience and the logistics network at its core, exercising financial prudence even when profits are huge, extending its own ecosystem, and by taking decisive action to shore up existing weak points.

Cloud Computing

Ali’s second quarter financial report shows that the company’s main growth comes from the cloud computing business. Likewise, Amazon's AWS network service platform business has far surpassed its retail business. It is clear that cloud computing has become one of the most important tools for moneymakers, and is in dire need of catching up. JD’s Liu Qiangdong himself, in a meeting after the release of his company’s second quarter financial report, has said that cloud computing will be’s main investment direction in the future. In the fiercely competitive long tail market of cloud computing, technology is what is needed. The price war does not work; a good user experience and profitability can come only when the technical level is assured, good cash flow is maintained, a unique product is manufactured, and a healthy ecosystem created.’s cloud computing business is conceptually very similar to the private cloud and so the results have been far from impressive.  But in the first half of this year, made some changes. They have now ensured that their cloud computing system is no longer merely playing the role of a private cloud, but a useful pathway between the upstream and downstream industry chain. Even with those changes, there is still a long way to go; but at least has begun the journey.


Ali has made a lot of investment in the field of Augmented and Virtual Reality (AR and VR). For example, it is a lead investor in the Mixed Reality Company Magic Leap. Magic Leap’s first show in China featured AR shopping and voice control functions. In contrast, has a low profile in the realm of AR/VR. Its VR laboratory, PCL, has proclaimed it would launch its own VR products this September. No matter what kind of technology it uses, the goal will be to give customers the possibility to shop with the aid of unlimited imagination, allowing for a better shopping experience. This is why the contest between and Alibaba is more like a battle of two new technologies; Ali’s AR/MR may be the first unveiled, thus acquiring a large share of the market. However, once its VR technology is mature, can rely on providing a better experience to win new markets. For, the decisive point in this battle lies in the maturity of VR technology; something in which it will need to invest more heavily within the next few years.

As the two e-commerce giants do battle, is obviously strong in its core business and is employing a prudent strategy, but its weak points are equally obvious. Ali’s cloud technology is well advanced, but it does a lot of acquisitions and investments with less than stellar results. The fight between the two is like a young gladiator facing a middle-aged lion: no one can confidently predict the winner.


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