When it comes to mixing apples and oranges, many things will not compound. If Amazon AWS is a separate company, it would be worth a lot. Yet, without the ecommerce unit, building excess capacity data centers aimlessly may not be a great strategy (refer to my one oasis and double play strategy as explained in Harvard Business Review on click).
From the freemium business model to an aggregation business model, the 21st century digital economy has shown that serving customers well may not necessarily provide sustainability for a company unless the firms actively find ways to capture value in the process. It sounds obvious, but many media and e-commerce companies have gone bankrupt, despite improving customer experiences through digital channels, simply because they neglected to capture value.
Indeed, when PayPal left eBay, it became a better company. When HPE left HP, the same thing happened. And today, we’re learning that Alibaba is splitting into six business groups, each with the ability to raise outside funding and go public”. They are Cloud Intelligence Group, Taobao Tmall Commerce Group, Local Services Group, Cainiao Smart Logistics, Global Digital Commerce Group, and Digital Media & Entertainment Group. Each of these companies will have their CEOs, board of directors, and financial statements.
Founded in 1999 by Billionaire entrepreneur Jack Ma and a group of friends, Alibaba last year reported a net profit of 46.8 billion yuan (US$6.8 billion), up 69% from the previous year, on revenue of 247.7 billion yuan ($35.9 billion)
When Ma criticized Chinese regulators in 2020 for impeding innovation, they abruptly canceled the IPO of the company’s Ant Group fintech business, the first move in a broader crackdown on the country’s powerful technology sector.
It would be recalled that in 2021, Alibaba was fined $2.8 billion by Chinese regulators for anti-competitive tactics, as it tightens control over fast-growing tech industries. Alibaba was reportedly fined for abusing its dominant position to limit competition by retailers that use its platforms, hindering the free circulation of goods.
Is this a better playbook for a digital conglomerate – splitting instead of combining? Look deeper, Alibaba has no choice than to do this since New York has battered its stock. And when companies struggle like that, they resort to split. Check, from GE to eBay to HP to IBM, splitting conglomerates happens when companies underperform. And most times, markets like this for a while!
Alibaba’s Six Business Groups
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1.) Cloud Intelligence Group: This unit will be headed by Alibaba CEO Daniel Zhang and will house the company’s cloud and artificial intelligence activities.
2.) Cainiao Smart Logistics: Wan Lin will continue as CEO of this business which houses Alibaba’s logistics service.
3.) Local Services Group: This business will cover Alibaba’s food delivery service Ele.me as well as its mapping.
4.) Digital Media and Entertainment Group: This unit will include Alibaba’s streaming and movie business.
5.) Taobao Tmall Commerce Group: This will cover the company’s online shopping platforms including Taobao and Tmall.
6.) Global Digital Commerce Group: This unit includes Alibaba’s international e-commerce businesses including AliExpress and Lazada.
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Comment on Feed
Comment 1: Great insights! It’s interesting to see the trend of companies splitting off into smaller, more focused entities. This strategy allows each business group to have its own management, which can lead to more streamlined decision-making.
However, as pointed out, splitting up a company is likely a last resort when it’s underperforming in the market. It will be interesting to see if this strategy becomes more common among digital conglomerates in the future.
Comment 2: Was this the same story with GE when it broke up the conglomerate?
My Response: GE splitted. You can buy the shares of GE HealthCare on The Nasdaq under “GEHC”. GE continues to trade on NYSE under “GE”. Sure, they sold and shut down some units but they also took GEHC to the market.
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