Tech

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

Look beyond the headline figure and Alibaba Group Holding Ltd.'s massive bump in research and development spending is actually quite tame.

China's biggest e-commerce company plans to boost expenditure to $15 billion over the next three years, it said Wednesday. In making the announcement, the House that Jack Built has coined the term DAMO: discovery, adventure, momentum and outlook. It'll set up a new research academy bearing that moniker with labs in China, the U.S., Russia, Israel and Singapore.

Looks Impressive
Alibaba plans to boost R&D to a total $15 billion over the next three years
Source: Bloomberg, Alibaba
Note: Figures are for 12 months ending March 31 of following year. Data for 2017 based on analyst revenue estimates and assumes R&D/sales ratio is similar to prior year. Data for 2018-2020 assumes total is evenly spread, which is actually unlikely.

That dollar number certainly looks huge and equates to roughly doubling R&D over two years. Relative to sales, though, the company is simply keeping spending in line with where it's been for the past couple of years at a little over 10 percent. That's because revenue next year is also expected to double compared with 2016.

..or Not
Alibaba's massive R&D forecast isn't as generous as it looks when plotted against sales
Source: Bloomberg, Alibaba
Note: Figures are for 12 months ending March 31 of following year. Data for 2017 based on analyst revenue estimates and assumes R&D/sales ratio is similar to prior year. Data for 2018 based on analyst revenue estimates and $5 billion in R&D.

By this measure, Alibaba has been quite a way behind both Facebook Inc. and Alphabet Inc. (aka Google) for the past few years, and even slightly adrift of Amazon.com Inc. 

Peer Pressure
Alibaba and its Chinese compatriots spend less than U.S. rivals
Source: Bloomberg
Note: Data is for most recent full financial year.

Alibaba said the new academy aims to "increase technological collaboration worldwide, advance the development of cutting-edge technology and strive to make the world more inclusive by narrowing the technology gap." 

That statement has all the right terminology for a company hoping to be a global technology contender. Readers playing catchword bingo would be jumping out of their chairs.

Research Race
A battle between Google and Amazon has dwarfed spending by rivals
Source: Bloomberg
Note: Data is for R&D as an operating cost, doesn't include any capitalized R&D costs, if applicable.

But don't be fooled by that $15 billion figure. The company would have spent as much anyway without all the song and dance. In reality, if Jack Ma truly wants Alibaba to make a splash, he'll need to be a lot more extravagant.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net