Alibaba, Meituan, JD.com: How to win the "battle for growth"?

This article is from: Internet Jianghu

In 2023, the wave of Internet business is still surging.

Alibaba's "1+6+N" organizational restructuring, Zhang Yong's departure from Alibaba, the spin-off of various business lines of the group for listing, JD.com's Xu Lei stepping down and Liu Qiangdong's return, Meituan's focus on live streaming, and a direct challenge to Douyin...

The current Internet giants are entering a new period of strategic adjustment.

Looking back at the past three years, the best and worst days are already behind us, and the background music supporting the development of the platform economy has been set. Internet business continues to burst with new vitality.

Next, where will the giants' growth direction be? How will platform business evolve and develop? We will explore these core questions:

1. Instant retail and live streaming are Meituan's new growth directions.

2. Alibaba's organizational structure change is a shift from "big ecology" to "small ecology", and Taobao completely lets go of its burden.

3. How will JD.com win the "price war" and achieve a return to low prices?

Meituan's two key drivers for exploring incremental growth: instant retail and live streaming

"It is expected that by 2026, Meituan Flash Purchase will give birth to 100 10-billion-yuan brands."

At the "2023 Meituan Instant Retail Industry Conference" held by Meituan Flash Purchase on September 14th, Xiao Kun, Vice President of Meituan and Head of Flash Purchase Business Department, stated that instant retail is still developing rapidly, and the consumer base is continuously expanding. In the past four quarters, Meituan Flash Purchase has reached a scale of 175 billion yuan, and it is expected to exceed 400 billion yuan by 2026. Meituan Flash Purchase will launch seven major initiatives to help brand merchants and retailers continue to evolve.

Wang Puzhong, Senior Vice President of Meituan and President of the Home Business Group, even said, "Instant retail is not emergency retail, but a highly deterministic way of life."

In the eyes of the Internet Jianghu, the key to Meituan's success in instant retail lies in its three-level rocket capability:

First level: "basic capability" of the food delivery system. This is extremely strong, a super moat. As an infrastructure attribute, it means fertile soil where everything is possible to grow.

Second level: "core capability" of high-frequency consumption on the Meituan app. The position of instant retail on the app homepage is prominent, which can drive conversion. Compared to Maogoupin, the frequency of user interaction is higher. Meituan focuses on food, transportation, and accommodation. In terms of transactional traffic, users' overall frequency of use is the highest, even unparalleled. Level Three: Occupying Users' Minds with "Powerful Moves".

The core advantage of the food delivery system lies not in the delivery system itself, but in the instant consumption formed by Meituan's food delivery, which occupies users' minds, even ingrained in their cognition.

With Meituan's food delivery being experienced by almost every delivery person on the streets, when users have a need for instant consumption, they think of Meituan.

Food delivery requires high timeliness, anything over half an hour is considered slow, after all, hot and fresh food is preferred. On the other hand, instant retail has lower timeliness compared to food delivery, even if it takes one or two hours for the delivery to arrive, it's still acceptable. In terms of quick delivery, Meituan's food delivery system does not have a deep moat. Companies like SF Express and UU Run Errands can also achieve quick delivery. With the well-established infrastructure of third-party delivery services, Meituan's food delivery system, in terms of capability, is not enough to constitute a significant competitive advantage or exert a great competitive edge.

Instant retail has two core elements: instant and retail. Compared to retail, instant is the key. In terms of user cognition, Meituan is naturally not as strong as Pinduoduo, which is known for its e-commerce attributes. In recent years, internet companies have been trying to conquer their respective territories, but it is difficult to achieve significant results, mainly because it is challenging to break users' established mindsets.

Even though Didi has been offline for a long time, it still remains an unshakable leading platform in the transportation industry.

The biggest challenge for Meituan's instant retail lies in the fact that it is difficult to transition from emergency consumption to a deterministic lifestyle. Essentially, it is a combination of emergency consumption and is unlikely to become the lifestyle of the majority.

Three misconceptions and three core elements of instant retail:

The core is not about lifestyle, but about emergency needs;

The core of emergency consumption lies in the need for emergencies, which naturally belongs to Meituan's territory.

The core of lifestyle is the e-commerce attribute, which naturally belongs to Pinduoduo's territory.

Take my own experience as an example. On Sundays, when I'm at home binge-watching TV shows and suddenly crave snacks but don't want to go out to buy them, I would open Meituan to order snacks. Recently, when I was writing this article, I had an allergic rhinitis attack due to the change of seasons, and in order to keep the inspiration flowing, I would open Meituan to order medicine. These combinations may seem like a lifestyle, but they are actually more of emergency needs in different scenarios.

When we look at the products on Meituan, they are mostly fast-moving consumer goods. If it's not an urgent need, I would consider buying it. What do I consider? I don't care if it will be delivered in half an hour, the next day, or the day after. The core factor I consider is the price.

The core of lifestyle is the e-commerce attribute, the supply chain capability, and the ability to offer low prices, which are the foundation of Pinduoduo.

The core is not about price, but about delivery speed;

The core of instant retail lies in timeliness. When we look at the broader definition of instant retail, such as shared power banks and shared bicycles, they have been referred to as "assassins". Why? Because they are expensive, but people still use them. Why? Because their instant needs are being met. Initially, shared power banks and bicycles were indeed cheap, but after educating the market, raising prices aligns more with the economic principle of supply and demand. For example, when it comes to wet wipes, for those in urgent need, price sensitivity is low while speed is crucial. For those who stock up on wet wipes, price sensitivity is high while speed is not as important. The demand for speed-insensitive products brings us back to the logic of e-commerce and the territory of fierce competition.

The user profile for instant retail is completely different from that of traditional e-commerce. They are even contradictory concepts. It is impossible and unnecessary to excel in both.

The key is not retention, but acquiring new customers.

I have placed several orders and my instant needs have been met. Ordering from Meituan has occupied my mind. To allow more users to experience instant retail and automatically place orders when there is a demand, Meituan's product experience and the variety of user demands it can cover make retention less of a concern.

What is lacking is more users to experience and take the first step. Once we capture their attention, repeat purchases will happen naturally.

Meituan's foray into instant retail can be seen as an offensive defense strategy, while live streaming can be seen as a defensive offense strategy.

Meituan has never had a peaceful day. After years of fierce competition in group buying, it finally merged with Dianping. It then managed to scare off Ele.me, only to be acquired by Alibaba. Meituan fought against Alibaba's local life platform, and then faced heavy penalties from policies. Douyin and Kuaishou followed suit, dealing a blow to Meituan's traffic.

Meituan has now entered the live streaming industry, which is considered one of its company-level strategies for 2023.

In Meituan's core local business, delivery is not very profitable. The main sources of profit are commissions, marketing services, and in-store business. Taking Q3 2022 as an example, Meituan's delivery revenue was 20.1 billion yuan, with a loss of 2.5 billion yuan. However, commission revenue was 16.1 billion yuan, advertising revenue was 10.1 billion yuan, and non-delivery revenue cost was 14.4 billion yuan, resulting in a total revenue of 11.8 billion yuan.

From a financial perspective, delivery is essentially a "traffic business" that operates at a loss for Meituan. The real money-makers for Meituan are commissions (in-store) and advertising fees (online marketing).

For Meituan to grow, it needs to make profits from delivery, advertising, and commissions. Therefore, in the face of Douyin's offensive, Meituan's strategy is to "defend as an attack, attack as a defense." After taking the initiative, the balance between offense and defense becomes easier.

In the defense, Meituan is also evolving:

1. Consolidating cash flow business. In-store business is a cash flow business. Meituan's entry into live streaming is also to strengthen the moat of its core business, such as in-store services.

After Douyin entered the local life business, the sector that was most impacted by Meituan was the in-store business. However, the foundation of Meituan's in-store business is more solid than what external observers may think.

Douyin's advantage is only short-term traffic dividends. In the long run, what matters is the ability to fulfill promises, such as payment interfaces and SaaS services for B-end stores. Meituan still has an advantage in these areas, and with the addition of live streaming, the long-term value of this part will gradually emerge. 2. We have enriched our service types, enhanced the value of the platform economy, and improved our cost competitiveness.

The platform economy is driven by both the supply from businesses and the demand from users. From the perspective of businesses, in order to advertise more and achieve effective results, they need to have low enough performance costs.

The marginal cost of Meituan's local life services is already competitive enough. How to break through this competitiveness may be a question that Douyin, as a latecomer, needs to consider.

Alibaba focuses on internal growth and organizational restructuring

Times have changed, and the core logic of internet growth has also changed. Reform has naturally become a topic discussed at the highest decision-making level of Alibaba.

Firstly, there is a change in power structure. Zhang Yong, as a CFO, naturally seeks stability. After several years of fierce competition with Pinduoduo and Taotiao, various strategies such as competing in gameplay, traffic, and subsidies have been employed. However, in the end, the game remains the same, and even the opponents have gained more momentum.

At least from an external perspective, Zhang Yong's departure from Alibaba and Xu Lei's departure from JD.com can be seen as taking responsibility for past strategic mistakes. After all, they seemed to have few effective counterattacks against the rising Pinduoduo. On the contrary, JD.com has become more expensive, and Alibaba has become more bloated.

Therefore, Jack Ma stated that he will return to Taobao, return to users, and return to the internet. Liu Qiangdong also emphasized that "low prices are JD.com's most important weapon for past success." The key figures of Alibaba and JD.com all agree that the grand strategy needs to change.

Clearly, both in the market and in business, Alibaba needs to regroup and gather resources for another "downward battle". That's why Jack Ma invited Cai Chongxin, who has already achieved great success, and Wu Yongming, a core technical figure of Alibaba.

Shifting from a financial orientation to a technology orientation, and from prioritizing business to prioritizing users, is a powerful medicine prescribed by the founding team for Alibaba's future growth.

Cai Chongxin represents the highest level of power at Alibaba.

He is the same age as Jack Ma and joined Alibaba in 1999. He brought in a $5 million investment from Goldman Sachs and played a significant role in major milestones such as SoftBank's investment in Alibaba and the merger with Yahoo. He is highly respected within Alibaba. However, there have been reports that Cai Chongxin has been gradually withdrawing from internal affairs at Alibaba since its listing.

From an external perspective, Cai Chongxin's appointment as chairman may also be a kind of endorsement, while the real reform mission is carried by Wu Yongming.

Wu Yongming has a technical background and has served as the Chief Technology Officer of Taobao and Alipay. He also led the creation of the Alibaba Mama platform and incubated Mobile Taobao. He is one of the most influential figures within Alibaba. However, for Alibaba to succeed in the future, it cannot rely solely on technology.

Reform starts with personnel changes.

The most difficult thing to change has never been technology or systems, but people and organizational structure.

On the day the annual report was released, the board of directors of the six major business groups decided to spin off and list the intelligent cloud business, the digital commerce sector began seeking external financing, and the IPO of Hema and Cainiao was put on the agenda. The "1+6+N" organizational structure became clearer. Spin-off is the biggest change in Alibaba's history and also a change in its DNA.

Firstly, it is a shift from a large ecosystem to smaller ecosystems.

In the past, when we talked about Alibaba, we focused on business synergy, the synergy between e-commerce and retail, cloud computing, AI, and local services. We aimed for overall ecosystem productivity.

However, the problem is that the new businesses have not grown as expected. Hema has been incurring losses for years, Cainiao and cloud computing have been dragging down profitability. The model of pursuing scale first and then profit has become increasingly challenging.

Therefore, it is better to spend less money, let the new businesses be responsible for their own profits and losses, or seek independent listings for financing. We are transitioning from a "large ecosystem" to several vertical businesses in smaller ecosystems. We need to shift our focus from overall ecosystem productivity to the growth capabilities of individual businesses, with more detailed responsibilities.

Secondly, there is a change in the growth strategy from external expansion to internal growth.

In the past, Alibaba's growth was based on Taobao and Tmall, constantly adding new businesses such as local services, Cainiao, and cloud computing. This essentially meant expanding externally and seeking external growth.

Under the new organizational structure, the spin-off listing is a manifestation of Alibaba's "internal growth".

The goal of "1+6+N" internal growth strategy has two aspects.

Firstly, through delegation of power, we can fundamentally solve the efficiency problem of the "large ecosystem".

It is the old problem of "big company syndrome".

The larger the scale, the greater the energy consumption. Large companies are dissipative structures. The larger the ecosystem, the more difficult it is to exchange materials and energy with the outside world, resulting in increasing bloatedness. Decentralization is better than centralization. Allowing each business to grow fully based on its own capabilities is also a way to solve the efficiency problem.

The spin-off listings of Alibaba Cloud, Cainiao, and various business groups mean the separation of Alibaba's cash flow businesses from its growth businesses.

In simple terms, it is to reduce the burden on Taobao and Tmall. After all, Taobao has carried a lot for Alibaba in the past. The era of a one-size-fits-all approach is over, and Taobao's growth capabilities can be better unleashed.

There are two benefits to this. Firstly, the profitability of the core business becomes clearer. Secondly, there may be some potential valuation space.

Looking at the first quarter earnings report, Taobao Group accounted for 45.8% of the revenue. In Q2, the revenue was 114.95 billion yuan, with adjusted profit of 49.4 billion yuan and a profit margin of 43%. Before the spin-off of Hema and Gaoxin Retail, the adjusted profit in the same period of the previous year was 41 billion yuan, with a profit margin of 29%.

After the spin-off, from the data perspective, the profit performance of Taobao and Tmall has improved. Therefore, in the secondary market, the undervalued value of Taobao may also be released.

The real test lies in the new businesses.

The potential problem is that if the new businesses are not strong after the spin-off, there may not be additional growth points in terms of valuation. Especially in the current cold capital market environment, the timing of spin-off and listing may not be the best.

In the second quarter, the International Business Group had a negative adjusted profit with a loss rate of 1.9%. The local services had a Q2 EBITA loss of 1.98 billion yuan with a loss rate of 14%. Alibaba Cloud's profit margin was only 1.5%. Whether these businesses that are not very profitable can achieve a good valuation in the secondary market remains to be seen. 2. After Taobao has let go of its burden, the next step may be to engage in the "sinking battle" once again.

In the past, Taobao failed in this regard, so the question now is whether Taobao can succeed in capturing the sinking market. This is the challenge that Dai Shan, the CEO of Taobao Group, needs to face.

On one hand, the current supply chain ecosystem is already stable, and there is not much traffic dividend left. Can Taobao still have price competitiveness in the sinking market? On the other hand, Taobao is no longer the same as it was more than a decade ago. Can its team still deliver?

Douyin and Pinduoduo are different species, and for traditional e-commerce platforms, they represent a reduction in dimensionality. Can Taobao reduce itself to one dimension? Live streaming was originally an opportunity, but currently, it is not a unique barrier for Taobao.

So where is the real barrier? Is it traffic or organizational capabilities?

In its quarterly report, the Taobao ecosystem considers DAU (Daily Active Users) as a more important evaluation indicator than GMV (Gross Merchandise Volume). During the reporting period, Taobao App's DAU increased by 6.5% YoY and has seen continuous growth for 5 consecutive months.

Clearly, Taobao today values growth more than ever before. But can it achieve growth in the sinking market? While traffic is one aspect, the core lies in people, or more precisely, in their hearts.

Organizational restructuring solves the institutional issues of people, but do Alibaba employees still have the same vigor and courage as they did in the past? Ultimately, it is a matter of the collective mindset.

Perhaps for Alibaba at present, performance growth is more important than elusive values.

Among Alibaba's business lines, the one with the most growth is the international business led by Jiang Fan. In the second quarter, Alibaba's international retail achieved astonishing growth, with a 41% increase and 22.1 billion yuan in revenue. It is worth noting that Jiang Fan has once again become an Alibaba partner.

Employees who write programs to snatch mooncakes must be dismissed, while partners who have been involved in moral controversies can be forgiven. This seems to be the realistic logic of "the strong are the kings" followed by Alibaba's management.

In fact, there have been quite a few scandals surrounding Alibaba in recent years, such as the sexual assault incident, which erode the core values of Alibaba employees. Looking ahead, the market competition will become more brutal and intense. Whether Alibaba's values can truly resonate with people's hearts, perhaps only those within Alibaba can truly understand.

JD's Defensive Strategy: Changing Prime Ministers and Billions in Subsidies

For Alibaba and Meituan, they focus on both offense and defense. However, for JD.com this year, the focus is more on defense, reclaiming its own territory.

JD.com has played two cards: changing prime ministers and billions in subsidies.

Those who have studied history know that feudal dynasties have always had a power struggle between the emperor and the prime minister. During the Ming Dynasty, Emperor Zhu Yuanzhang directly abolished the prime minister's position. In the Qing Dynasty, Emperor Yongzheng established the Military Machinery Department, further centralizing imperial power.

The closer it gets to the end of the feudal system, the more centralized the imperial power becomes, and the more the system declines, the more it needs absolute centralized power to maintain its ruling position.

The return of Liu Qiangdong and Jack Ma can be seen as a signal of internal management style adjustment.

According to the Tianyancha app, some companies previously represented by Xu Lei as the legal representative have now been replaced by Xu Ran. In June, Xu Lei left JD.com and after retiring, he became the first chairman of the Advisory Committee of JD.com Group.

On September 10th, Zhang Yong, the former leader of Alibaba, stepped down from his position as chairman of the board of directors after serving for 4 years and also stepped down as CEO after serving for 8 years. Zhang Yong even gave up his position as chairman of Alibaba Cloud. Alibaba awarded him the first-ever "Distinguished Alibaba Person" honorary title.

The transformation of Alibaba and JD.com is not just about the rise of Pinduoduo, but rather the representation of consumer downgrading in the era of consumer upgrading. Pinduoduo has managed to break through the encirclement of the giants and has grown into a towering tree. Now, Pinduoduo has transformed from playing away games to playing on its home turf.

The current e-commerce landscape is like a game of "cat and dog fight" on Pinduoduo's home ground.

Those who have played the game of "Fight the Landlord" know that having big cards is one aspect, but the most important thing is to have the right timing and be able to play the cards that appear in the game.

Pinduoduo may not have big cards, but it has the perfect timing and caters to the low-price demands of the largest common denominator of consumers, allowing it to control the situation.

Pinduoduo doesn't have big cards, only five consecutive cards or three of a kind with a pair, which is not considered big. But in its home ground, it plays the first card and no one can suppress it because other players don't have these types of cards. And the cards played by other players can be consumed along with the game.

As for Alibaba, although Tmall doesn't have the perfect timing, fortunately, there is still Taobao. In May of this year, Jack Ma emphasized at an internal meeting in Alibaba that the opportunity lies with Taobao, not Tmall. Alibaba's e-commerce should return to Taobao and be able to fight for it. According to a report from Wandian Finance, third-party data shows that in March of this year, an average of 377.9 million people used their mobile phones to shop on Taobao every day, which is 26.3 million more than the number of people who used Pinduoduo. This is the first time since February 2022 that Taobao's daily active users (DAU) have surpassed Pinduoduo.

As for JD.com, it has a lot of big cards in hand, including four twos and the two jokers. However, in the game, it can only play either three of a kind with a pair or five consecutive cards, which doesn't match the nature of the cards it has. If it throws a bomb, it would be a waste, but if it doesn't, it won't have a chance to play any cards. It can only play the big cards by breaking them apart, but once they are broken, the bomb won't explode.

Compared to Alibaba's still viable options, JD.com doesn't have a second move. It only has JD.com with high-quality service reputation, JD.com with consumer upgrading, and JD.com with premium quality.

In the past, JD.com's defeat in the sinking campaign has laid the groundwork for its current situation. In addition, Liu Qiangdong criticized his brothers, saying, "They are arrogant and complacent, thinking that they have the power to set prices, without paying any attention to our low-price advantage."

After careful consideration, JD.com has brought in Xu Ran to play and strategize. The result is a billion-dollar subsidy, low prices, and a strategy similar to Pinduoduo's to suppress Pinduoduo.

The key phrase in the billion-dollar subsidy is not the billion, but the subsidy itself. Subsidies mean reshaping the landscape, and even a slight change can have a significant impact. Moreover, in order to cater to the largest common denominator of consumers, JD.com is facing the challenge of rebuilding itself while not completely overturning its previous model.

JD.com is faced with a paradoxical situation, where neither breaking apart the four twos nor keeping them intact is a solution, and there are only two options to choose from. It is difficult to achieve a balance between quality and low price. Even Pinduoduo has not solved the contradiction between quality and low price. Pinduoduo's advantage lies in the fact that if the quality is slightly better, it will be a pleasant surprise for users, after all, Pinduoduo's reputation is still there.

On the other hand, JD.com is different. Quality has always been the reason why users choose JD.com. Any slight negligence will easily trigger strong reactions from users.

JD.com's approach is a compromise, sacrificing quality to incentivize merchants. For example, in terms of logistics, Liu Qiangdong emphasized at a JD Logistics management meeting that merchants are no longer required to use JD Logistics. "If they want to use other express delivery services, such as Best Express or Tongda, let them use it." The goal of JD.com's billion-yuan subsidy is to keep about 90% of the products at the same price as Pinduoduo's subsidized products, and the remaining 10% of products that can capture users' attention will be even cheaper. By leveraging official subsidies to encourage merchants to provide additional subsidies, JD.com can bring down prices.

Liu Qiangdong strongly criticized his competitors, saying they were "arrogant and complacent, thinking that they have the power to set prices, without paying any attention to our advantage in low prices."

Even Liu Qiangdong himself, after returning to the business, exclaimed, "I haven't been involved in the business for many years, so today I can't provide a specific answer to my colleagues."

Experiencing more cycles is not a bad thing for JD.com. It's good to have some activities and challenges. After all, during the years when Google withdrew from China, Baidu, the carefree giant, enjoyed several years of prosperity, but then faced anxiety for the next ten years and is still immersed in its former glory, unable to extricate itself.

The economy has its cycles. It doesn't take thirty years. In just three years, fortunes can change.

In the face of changing external environments, declining giants may not die, and rising giants also have their own troubles.

Perhaps in this battle to regain territory, JD.com has found its own way of playing, fighting to the death and then coming back to life, gaining a weapon to counter Pinduoduo and turning the tables.

In conclusion:

If external expansion was the main theme of the internet business in the past decade, then in this era of intense competition, internal growth has become the consensus among platform giants.

Past growth relied on dividends, but future growth will rely on efficiency. Organizational changes and strategic adjustments ultimately aim to improve business efficiency.

For consumers, people always hope to receive better services and superior experiences. Competition and change are also good things. After all, it is competition that brings dividends.