Alibaba Has Changed. You Just Didn't Notice
For all the talk of Alibaba Group Holding Ltd. being a massive online bazaar, the Chinese behemoth once spent large sums of money on its technology.
As recently as 18 months ago, the company regularly devoted more funds to R&D than it did marketing. Those days appear over.
Investors poring over the latest financials will salivate at the company raising its full-year revenue forecast, or finally swapping its profit-sharing agreement with Ant Financial for an actual equity stake. They're both important headline items, but they paper over a deeper change in Alibaba's strategy that could have a longer-term impact.
Desperate to keep the flywheel spinning, Alibaba's sales and marketing budget climbed 90 percent in the December quarter, more than twice the 42 percent growth rate for R&D.
This means that it now spends more money on pushing its offering than actually developing it. Alibaba fans could argue that the past decade of research is now paying off with a product that doesn't require such heavy investment. Many may not even care as long as that virtuous cycle of users coming to the platform, ads convincing them to spend, and turnover washing through the pipes continues at a healthy clip.
Yet, just today, Alibaba talked up the importance of its technology. Artificial intelligence drives user engagement it shouted in bold type, highlighting growth on its Taobao platform
We continue to invest in machine learning technologies which we apply to use cases that match consumer intent and product selection to deliver the best consumer experience.
Just a few months back, it trumpeted a massive boost for its self-proclaimed DAMO academy (discovery, adventure, momentum and outlook). I've already pointed out that this bold proclamation of huge R&D largess is a bit of a misnomer, though at least they care enough to bother with the pretense.
But marketing executives don't build AI, and ad spend doesn't produce technological breakthroughs -- in fact, it's often the other way around.
Alibaba is already China's king of e-commerce, yet there are plenty of Davids ready to slay this Goliath in both existing and new industry categories. With its massive size advantage, now is not the time to ease up on R&D. If it does, Alibaba will no longer be a technology giant and simply become a marketing company.
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