Thread by @lillianmli

1) Let's talk about my reaction to @packyM's Alibaba longform. (Oh yeah, Substack deserves its own reaction genre).

While I enjoy Packy work, I think this piece missed local context (similar to a lot of English writing on Chinese tech rn).

notboring.substack.com/p/baba-black-s…

2) My credentials. Masters in International Development with a dissertation on Chinese governance. Worked in VC for 5 years, last at Eight Roads Ventures aka Fidelity Growth Partners re-branded aka first round investors in Alibaba.

https://twitter.com/lillianmli/status/1330596263029477376

3) Lastly I'm in China rn and speak Chinese, and write a newsletter on Chinese tech. I'm not an 'expert' and I don't speak for all of China. But I know enough to be dangerous.

I'll go through some tropes I felt the article touched on before going into the crux of the issue

4) Trope 1: Jack’s remarks set off a chain of events that derailed Ant Group’s planned IPO.

Not quite true - I've spoken about this at length about the differing western and on-the-ground narratives that arise here.

https://twitter.com/lillianmli/status/1328752937347190784https://twitter.com/lillianmli/status/1328689148421554177

5) Trope 2: Jack Ma is missing.

You can't deny it, and you can't verify it. Sure I get the 'We're just asking questions here, why are you getting so riled up?' Because I don't think the media is acting in good faith. Do you know where Bezos is right now?

https://twitter.com/ruima/status/1346182101108805632?s=20

6) Trope 3: CCP is a monolith

Ok quiz - How many people do you think officially works for the CCP? It's ~50m, that's the size of South Korea (h/t to @yuenyuenang ). You're telling me that entire group of people, just acts with one mind and resolve?

7) Why is it that we're happy to decry the decision making gridlocks of western government but suddenly if it's the CCP it's assumed they act with one mind. They are Chinese, they aren't Vulcans.

Here's a primer on fragmented authoritarianism.

https://twitter.com/lillianmli/status/1318237001359986690?s=20

8) My point is that there's a lot of complication background motions that we're not prived to, that doesn't mean they don't exist. If you only see two visible dots, it might not a single straight line that connects them.

9) Trope 4: Masayoshi Son led the deal himself after listening to Jack speak for just five minutes.

Masa was looking for Alibaba as per his own time machine management. It's like Bill Gurley went through a bunch of taxi hailing companies to get to Uber.

https://twitter.com/lillianmli/status/1308426990836428802

10)So my main counter-point to the article is it drastically undersells how much competition Alibaba is facing and how few growth opportunities there are right now for it to credibly access.

11) Apart from it's most formidable foe Tencent, there's also the crowd of startups it funded - Pinduoduo, JD, Meituan, Kuaishuo. Also there's Bytedance and Ctrip and a bunch of logstics native providers. All of these are are billion dollar companies in their own right

12) To face one of these opponent is a battle well fought, but to have wolves on every side is a war that is hard to win.

Alibaba has proved itself fallible - it lost the O2O war to Meituan. It lost the short video wars to Bytedance

https://twitter.com/lillianmli/status/1345391348837335040

13) The hottest thing rn in Chinese tech is Community Group Buying and Alibaba isn't even playing in it. Because it's been bad at serving lower tier markets since forever.

lillianli.substack.com/p/the-hottest-…

14) For Alibaba, service lines like O2O or media services are optionalities while for dedicated players this is their livelihood. Meituan holds 65% share of the delivery market at the end of 2019 and elema continues to trail behind

15) Youku is hemorrhaging money since it's been caught up in a content bidding war with Tencent Video and IQiyi. No one's winning in that section, all losing and no sign of profitability any time soon.

16) For cloud services, as I've written extensively before, digitalization of Chinese companies is nascent and Alicloud isn't going anywhere fast anytime soon - this isn't an Alicloud issue but a Chinese B2B issue lillianli.substack.com/p/why-are-ther…

17) But Lillian, didn't you say that all of these functions were really to support the power engine that is Tmall, Taobao and Ant? Do they really need to make money?

Well, let's look at the barbarians at the gate for Taobao and Tmall shall we?

18) For Tmall, who's customers are typically the more affluent crowd aka tier one cities - they typically prefer JD. JD has quicker same day delivery and have a better reputation for quality. Alibaba's buckle is JD's gain and they're ready to grab even more market share

19) The top tier markets are already pretty saturated, and it's generally agreed that the future is in the lower tier markets. But Alibaba has to contend with the fact that Pinduoduo grew up under its very nose in the span of a few years.

20) Pinduoduo knows their price sensitive crowd and they are great at retaining customers with gamification. They're also now moving upstream with subsidies for high end goods. I can get a real and current Iphone on Pinduoduo at a much lower price than other platforms.

21) Which is to say, PDD's growth is coming at the expense of Ali's and JD's.

Let's not even get into Kuaishuo, TikTok and Bilibili all becoming major e-commerce channels with native embedded payment currently. But that definitely plays into the crunch factor.

22) The idea of 'switching costs' doesn't hold as much sway in the Chinese market. You're dealing with a nation of people who underwent 200 years of industrialisation in 4 decades. They are the most adoptable consumers in the world. It's an existential risk to not change.

23) A lot of them are time rich and money poor. If a new channel comes along tomorrow that would make them more money and has similar functionalities to before, they would all switch.

24) So where has Alibaba's growth been coming from?

Consumer credit from Ant. From Ant's prospectus we can see that 80% of it's credit product are going to consumers and only 20% to SMBs. That's a lot of money for consumers to buy more stuff over singles Day

25) And now the Ant machine might be reined in - where is Alibaba going to find that next engine of growth?

It's not hopeless but definitely not a quick bounce back after a slap on the wrist. I think their data moat is credible but the growth is more capped

26) To end on a good note - when I asked the partner who invested in Alibaba at their series A why he did it. He mentioned that while it was Jack that had the energy, it was Joe Tsai who really sold him on the ability of the company to be something.

27) That is worth remembering, everyone of Alibaba's 18 co-founders are pretty legendary (including Jack's wife). There is an entire machine that operates without Jack (who is officially retired). It's unfair to paint Jack as the sole representation of what Ali will be.

I'm writing threads like this for the rest of Jan, follow me if you want these to spam your TL.

Links didn't make it

https://twitter.com/lillianmli/status/1328689148421554177

https://twitter.com/lillianmli/status/1328752937347190784