Wu Yongming: BABA-SW (09988)'s strategic focus and business strategy for the future.

November 16th evening, BABA-SW (09988) released its 2024 fiscal year second quarter performance. At the analyst conference call, Alibaba Group CEO Daniel Zhang comprehensively explained the strategic blueprint for the new development stage of Alibaba. Zhang said that the driving force behind the future industry development will be technology, represented by AI. Alibaba will have three important priorities for the future: technology-driven internet platform businesses, AI-driven technology businesses, and a globalized commercial network. Alibaba will maintain an entrepreneurial mindset, invest more resolutely, make more decisive choices, seize new opportunities brought by AI technology transformation, and create more customer value. Zhang provided a comprehensive introduction to the development strategies and priorities of each business group. Taobao and Tmall will prioritize users, adhere to consumer gradation and pricing strategies. Alibaba Cloud will adhere to AI-driven and prioritize public cloud, and focus on the development of AI and cloud computing. The International Digital Commerce Business Group is dedicated to building a global leading digital supply chain network and core AI+ digital retailing technology capability, aiming to achieve breakthroughs in key emerging regional markets in the coming years. Cainiao will increase technology investment and accelerate the construction of a global intelligent logistics network. Local Services will focus on technology services to destinations and homes through Amap and Ele.me, seize AI development opportunities, and advance together with the ecosystem. The Digital Media and Entertainment group will continue to adhere to the head content strategy. Zhang also announced Alibaba's first batch of strategic-level innovative businesses - 1688, Xianyu, DingTalk, and Quark. These strategic-level innovative businesses will operate as independent subsidiaries, breaking away from the positioning limitations within the group and using more independent strategies to face the broadest market. The group will invest continuously for a period of 3-5 years. The following is the full text of Zhang's speech: Hello everyone, welcome to this quarter's earnings conference call. This is my first time as Alibaba Group CEO to communicate with you on the earnings call. In addition to introducing the progress of each business in the past quarter, I also want to take this opportunity to share with you some thoughts on Alibaba's future development strategy and business strategy after careful consideration by the new management team. How to position and select focuses: After 24 years of development, Alibaba has now become a group covering e-commerce, cloud computing, local services, logistics, entertainment, new retail, and many innovative businesses. Today, society as a whole is at a new starting point, and rapidly developing technologies are profoundly reshaping all products, industries, and life scenes. It can be said that all forecasts for the future are underestimated. As the Internet user penetration rate reaches its peak, the driving force behind industry development will be technology, represented by AI. Therefore, I have set three important priorities for Alibaba Group for the next ten years: technology-driven internet platform businesses, AI-driven technology businesses, and a globalized commercial network. Facing the enormous and complex business system, as well as rapidly changing market and technology trends, we hope to transform Alibaba for the future through three key initiatives: 1. Establish a highly flexible and fast decision-making governance mechanism and incentive system Today, Alibaba is faced with rapid development of new technologies and changes in the market. No matter how successful our past business models have been, we must start anew, awaken an entrepreneurial mindset, and maintain a highly flexible decision-making mechanism. Therefore, we launched corporate governance reforms this year, and continue to accelerate the construction of a flexible decision-making system. In the future, we hope that each business line of Alibaba will face the market with independent business units, becoming more independent and autonomous. On this basis, we are exploring the establishment of a corresponding incentive system, focusing on balancing the independence and collaboration of business groups to achieve the greatest combined force for development. 2. Prioritize existing businesses strategically, maintain long-term focus and high-intensity investment in core businesses After years of business attempts, we deeply realize that excellent business models are extremely rare. In the future, we will prioritize existing businesses based on market size, business models, and product competitiveness, defining core and non-core businesses. For core businesses, we will maintain long-term focus, continue to invest intensively in resources and research and development, continuously improve user experience, ensure that products and services always iterate and evolve according to user needs, and maintain long-term vitality and competitiveness. For non-core businesses, we will realize the value of these assets through profitability or other capitalization methods as quickly as possible. 3. Make more resolute strategic investments for the future Alibaba Group will better play the role of strategic incubation. On the one hand, for businesses and products that meet user needs and are driven by AI transformation trends, these will be the top priority for investment; on the other hand, for innovative products for the future, we will make resolute long-term investments, while maintaining strategic patience, with a three-year evaluation cycle and value assessment to cultivate new businesses and new growth for Alibaba's future development. Next, I will focus on sharing with you the development strategies, goals, and how to seize market opportunities of each business group and company for the next three years. Taotian Group Taotian Group adheres to the business development strategy of "user first, ecological prosperity, technology-driven". Despite fierce market competition, Taotian Group's revenue has maintained steady growth this quarter, with an increase in daily active users (DAU) growth rate. In the strategic cycle of the next three years, we will further clarify the business priorities of Taobao and Tmall - user first. Specifically, we will focus on the following three aspects: 1. The Versatility of Taobao The "versatility" of Taobao lies in providing users with a vast array of goods and services. We must firmly become a comprehensive platform to meet the multilevel consumption needs of the largest consumer group and increase the frequency of consumer purchases. This is the choice for Taobao and Tmall to maintain growth in today's competitive landscape. 2. Consumer Gradation and Pricing Power China's consumer market is a multilevel value-driven market. We not only have the most diverse consumer groups, but also have the advantage of Chinese manufacturing, which means that in any category, there are enough diverse value propositions of goods to meet the needs of different consumers. Based on this, we must segment consumers and leverage our pricing power to meet the needs of different consumer groups, and provide diversified goods that fit different value propositions, thus promoting consumption upgrading. 3. Digitalization of Traditional Businesses During the past year, we successfully pushed forward the digitalization of traditional businesses such as department stores, supermarkets, and shopping centers. In the future, we will continue to leverage the digital technology capabilities of Taotian Group to help traditional retailers achieve digital transformation, enhance their operational efficiency, and provide consumers with a better shopping experience. Alibaba Cloud Alibaba Cloud will adhere to the development strategy of "AI-driven and prioritizing public cloud", focusing on AI and cloud computing-driven development. In the next three years, we will continue to strive to provide the best services to customers, and work towards becoming a leading global cloud computing platform. We will continuously advance our AI technology and applications, focus on strengthening the development of industry cloud, and provide customers with the ability to apply AI technology and solutions across various industries. Alibaba Cloud will make more investments in technology research and development, infrastructure construction, product and service innovation, and talent development, in order to meet the growing demand for digital transformation and bring more value to customers. International Digital Commerce Business Group The International Digital Commerce Business Group is dedicated to building a leading global digital supply chain network and core AI+ digital retailing technology capabilities. We hope to achieve breakthroughs in key emerging regional markets in the next few years. In the next three years, we will focus on expanding the market, improving user experience, increasing operational efficiency, and promoting digital transformation in the key emerging markets of Russia, Southeast Asia, and Latin America. We will continue to strengthen and optimize our cross-border e-commerce platforms to meet the diverse needs of global consumers. Cainiao Cainiao will increase investment in technology and accelerate the construction of a global intelligent logistics network. In the next three years, we will focus on developing core technologies and platforms such as warehouse robotics, automated sorting systems, and global smart logistics networks. We will continue to deepen our partnerships with logistics service providers, customs, and airlines to improve the efficiency and quality of global logistics services, and provide better end-to-end integrated logistics solutions for businesses and consumers. Local Services Local Services will focus on technology services to destinations and homes through Amap and Ele.me, seize AI development opportunities, and advance together with the ecosystem. In the next three years, we will focus on leveraging technology and data capabilities to build a comprehensive service platform, integrating consumer scenes, and continue to improve user experience and service quality. We will strengthen our positions in key areas such as transportation, dining, and hotel services, and provide users with efficient, convenient, and personalized services. Digital Media and Entertainment Group The Digital Media and Entertainment Group will continue toThe treasure app implements a multi-level market strategy. Taobao is a super app that covers three mainstream sales models: live content-driven model, brand marketing model, and daily sales low-price model. Taobao app is the most comprehensive platform in China's e-commerce platform, with the ability to accommodate multiple product layers from branded products to white-label products and corresponding multiple value propositions. We hope that through the iteration of AI technology and operational models, Taobao can truly become a consumer app for this inclusive and diversified market.In addition, we must implement pricing strategies more firmly. Whether it is branded products or non-branded products, pricing power is the greatest gravitational force. We will continue to optimize product efficiency and improve supply chain efficiency through a platform model, making pricing power the core strategy across various levels of products. 3. User value trade-offs Taobao will adhere to its positioning as an internet consumer platform, and the Taotian Group does not position itself as a retail company. Based on the positioning as a consumer platform, we will adopt a user-first perspective in our strategies, making improving platform stickiness and customer retention the core goals. From a business perspective, we will prioritize user purchase frequency over GMV (Gross Merchandise Volume) as the most crucial goal for platform operations, as purchase frequency directly reflects user recognition of the consumer platform. Furthermore, Taobao's diversified monetization products support our "user first" strategic transformation. We believe that more users can bring more market opportunities for businesses, and these investments will create a positive cycle of mutual benefits among users, businesses, and the platform. Cloud Intelligence Group Due to the various uncertainties in the current external environment, after careful evaluation, we have decided not to pursue the complete separation of the Cloud Intelligence Group. Alibaba Group will continue to make long-term and resolute investments in the strategic direction of Alibaba Cloud, while the Cloud Intelligence Group will continue to operate as an independent company under the leadership of the CEO authorized by the board of directors. This quarter, we have seen continuous growth in the demand for computing power and large-scale model services brought about by the AI wave. Cloud computing is the infrastructure of the entire digital economy. It is a business model where computing resources have network effects and a service model with economies of scale. With the arrival of the AI era, represented by large-scale models, the investment in IT will experience exponential growth behind the AI transformation and innovation needs of various industries, which will lead to an exponential expansion of the demand for cloud computing, creating even greater opportunities in this era. The Cloud Intelligence Group will firmly implement an AI-driven and public cloud-first strategy, and increase investment in AI-related software and hardware technologies. 1. AI-driven Computing paradigms are undergoing fundamental changes, and we are at a technical inflection point where traditional computing is transitioning to AI computing. In the future, the incremental demand for cloud computing from customers will be driven by the demand for AI, and the majority of AI computing will primarily run on the cloud. In the future, we will adhere to two key objectives: first, to build the "most open cloud in the AI era" and provide stable and efficient AI infrastructure for the entire industry to support intelligent transformations across various industries. Second, to create an open and prosperous AI ecosystem. At the recently concluded Yunqi Conference, we comprehensively upgraded our AI infrastructure - the Alibaba Cloud Platform of AI (PAI) and released large-scale models with billions of parameters, the Tongyiqianwen 2.0, and eight major industry models. We also launched a one-stop model application development platform called Bailian, and initially built a full-stack cloud computing system for the AI era, which will better meet the computational needs of the AI era. 2. Public cloud-first In this quarter, Alibaba Cloud has proactively managed the quality of its revenue, and its profitability has been improved. Alibaba Cloud has advantages in high renewal rates and providing scalable and replicable cloud computing infrastructure and application services. In the future, we will continue to assess and prioritize all products and business models, reduce project-based sales orders, increase investment in core products of the public cloud, and continuously improve the quality of cloud business revenue. We believe that by adhering to a public cloud-first approach, we can continue to benefit from economies of scale and technological dividends in the future. Looking ahead, we are very optimistic about the long-term prospects of AI and cloud computing integration. International Digital Commerce Group We firmly believe that there will be tremendous growth opportunities in overseas markets in the coming years. Our core strategies include: 1. Building a globally leading digital supply chain network Alibaba already has the most abundant supply of goods globally and an initial "cross-border + local" global logistics network. In the next few years, we will accelerate the construction of a globally leading digital supply chain network based on multiple globally leading product centers and an efficient logistics network covering major overseas markets. 2. Building globally leading AI+ overseas digital retail technology Within the International Digital Commerce Group, we will build a unified core AI digital retail technology capability to promote efficiency improvement and customer experience innovation across platforms and regions. For example, by using AI and other technologies to solve cross-language translations, cross-border customer service, etc., we will drive many businesses from being just local to global, which contains significant market opportunities and dividends. 3. Achieving breakthroughs in key emerging regional markets in the next few years Currently, the overall user penetration rate of the International Digital Commerce Group is relatively high only in certain regional markets such as Southeast Asia and Turkey, and there is still significant room for growth in user penetration rates in most overseas markets. We will rely on existing resources and layouts to increase local investments in some promising regional markets and obtain definite growth opportunities. Cainiao Group Cainiao continues to focus on expanding its global intelligent logistics network, strengthening comprehensive end-to-end capabilities in cross-border logistics services and solutions. This quarter, revenue continued to grow rapidly. Looking ahead to the next three years, Cainiao's core strategies are: 1. Accelerating the construction of a global intelligent logistics network, increasing investment in logistics technology, seizing the historic opportunity of the rapid development of cross-border e-commerce, and achieving rapid growth in international business by providing innovative products for cross-border e-commerce platforms and merchants. 2. Persisting in differentiation within China, outputting technology capabilities to help brands and manufacturers improve their logistics digitization and intelligence, providing high-quality, multi-platform, and omni-channel supply chain and logistics solutions for brand merchants and consumers, and maintaining healthy business development. Local Services Group This quarter, the Local Services Group's revenue increased by 16% year-on-year, and both business scale and efficiency continued to improve, with year-on-year and quarter-on-quarter growth in active consumers. In the next three years, location-based technology services will continue to evolve and grow rapidly in various industries, resulting in a chemical reaction with all 360 industries. It will not only be limited to industries such as takeout, catering, and transportation that we are currently focused on, nor be limited to consumer-facing industries. We expect that the demand for location-based technology services in B2B industries will also grow rapidly. Therefore, the Group will continue to...Invest firmly in location-based technological services, continuing to focus on two core businesses: using Gaode as the main platform to develop technology services for travel and reaching destinations, and using Ele.me as the main platform to develop technology services for immediate home delivery.At the same time, the local life business will also grasp the application innovation and capability upgrading opportunities brought by AI, and take "advancing together with the ecosystem" as the standard for success. Alibaba Entertainment Group Alibaba Entertainment Group achieved healthy revenue growth this quarter, with continuous improvement in synergies across all businesses. Due to the strong recovery of the offline cultural consumption market, Damai's quarterly GMV showed strong growth and profitability improved year-on-year; Youku's total interactive volume for online paid performances broke a record; and two films co-produced by Ali Pictures ranked in the top two at the summer box office. Looking ahead to the next three years, Alibaba Entertainment Group's core strategies include: 1. Utilizing AI and other technological innovations to achieve standardization, streamlining, and digitization of the film and television production process within three years. Foster a new generation of content creators and promote the upgrading of the entertainment industry. Launch innovative consumer applications to expand business boundaries. 2. Youku will adhere to its top content strategy, increase the proportion of self-produced content, and strengthen brand awareness among members through stable and differentiated exclusive content. Ali Pictures will maintain its advantage in offline scenes and market share, continuously releasing self-produced content such as top films and performances. As a leading entertainment company, Alibaba Entertainment Group will achieve overall stable profitability as soon as possible. Strategic Innovative Businesses We have also announced that Alibaba Group will continue to invest in and incubate strategic-level innovative businesses for the future. We have clear selection criteria: they must have a sufficiently large market potential, a unique market position, and align with user demand trends and our AI-driven strategy. Today, I would like to introduce our first batch of strategic-level innovative businesses: 1688, Xianyu, DingTalk, and Quark. 1688 is Alibaba's longest-standing business, serving the mainstream manufacturers of China's manufacturing industry. With a solid foundation and great potential for a second entrepreneurial phase in the new era, 1688's highly competitive Chinese manufacturing products are expected to extend from B2B to the procurement of small and medium-sized enterprises and consumers, while also providing services for cross-border transactions. Xianyu is the most popular platform for second-hand transactions among young consumers in China. We believe that Xianyu's future goes beyond this, as it has the potential to become a lifestyle platform that caters to the hobbies and interests of a wide range of consumers. DingTalk has gained unprecedented imagination with the advent of the AI era. As the most efficient enterprise collaboration tool in China, we believe that in the AI era, every individual and enterprise will have personalized intelligent assistants, and DingTalk has the potential to become the best AI intelligent assistant platform for users. Quark is a search and knowledge product loved by the younger generation. We believe that in the era of large models, Quark has a great opportunity to create innovative search products for student and young audiences. These strategic-level innovative businesses will be operated as independent subsidiaries and will have greater independence in their positioning within the group, to better address the vast market. The group will continue to invest in these businesses for a period of 3-5 years. In the exciting era of AI, Alibaba will firmly engage in technological revolution and product innovation, continuously creating and incubating innovative businesses and technology products to meet the new expectations and demands of the expanding market. Competition in the internet and technology industries is an infinite game, and no product may have a long-term competitive advantage. Successful technology companies must have the ability to navigate through technological cycles. Over the past 24 years, Alibaba has firmly grasped development opportunities during the PC and mobile internet eras, with successes and failures, experiences and lessons. Today, Alibaba has become a diversified business group with annual revenue of $125 billion and free cash flow of $27 billion. We have been fortunate to serve and support millions of small and medium-sized enterprise transactions and delivery; we have the world's third-largest cloud computing platform. The deep integration and dual-drive of "AI + Cloud Computing" are important driving forces and advantages for our future development. Today, we are stepping into the beginning of a new era represented by AI. In the next ten years, the world will undergo earth-shaking changes, with immense uncertainties and opportunities arising simultaneously. Alibaba is embarking on a new entrepreneurial journey and is fully prepared to fully commit to technological revolution. We have sufficient leading resources, strong cash flow, flexible governance mechanisms, and a reserve of outstanding talent. We believe that we can unleash new momentum from existing businesses and create more new development opportunities.