Daily Review: Alibaba Refines Its Business Strategy Amid Rising Competition

Companies make three types of choices when creating business models. Policy choices determine the actions an organization takes across all its operations (such as using non-union workers, locating plants in rural areas, or encouraging employees to fly coach class). Asset choices pertain to the tangible resources a company deploys (manufacturing facilities or satellite communication systems, for instance). And governance choices refer to how a company arranges decision-making rights over the other two (should we own or lease machinery?). Seemingly innocuous differences in the governance of policies and assets influence their effectiveness a great deal. – How to Design a Winning Business Model, HBR

Modern cross-industry champions made choices that led them to leading positions, but as environments around the world rapidly change, every organization needs to re-evaluate its stance on every front. Even a very powerful conglomerate like Alibaba must continuously and aggressively transform their strategies to respond to rising competition and rapid adoption of advanced technologies by major competitors.

Pick #1. Jack Ma Takes Alibaba on a New Path, for Better or Worse

Alibaba built and operates asset-light marketplaces. It matches sellers and buyers online, earning billions of dollars annually from associated advertising and commission fees. The company doesn’t have to spend heavily to manage products or logistics.

However, with growth in China’s entire online shopping market slowing, Jack Ma is moving away from the asset-light philosophy. In recent months, Alibaba has expanded aggressively in logistics, cloud computing, and brick-and-mortar retailing, seeking to use self-developed technologies such as data analytics to upgrade China’s $5 trillion retail sector.

In 2017, Alibaba and its subsidiaries announced 51 deals worth $21 billion, as the group expanded its footprint into logistics and brick-and-mortar retailing, which included taking control of logistics firm Cainiao, and acquiring a $2.9 billion stake in hypermarket operator Sun Art.

In 2018 so far, Alibaba is the world’s 11th most active deal-maker with $35 billion in new investments, which include a $9.5 billion acquisition of food delivery service, as the company seeks to integrate online and offline shopping; and recent acquisition of Pakistani e-commerce platform Daraz, in a bid to increase its presence in South Asia as part of its global expansion strategy.

They are investing to diversify the traditional e-commerce model. Because they can’t grow at the pace they have historically grown at in the past, they need to expand the nature of their business. – Paul Gillis, Professor at Peking University, China

Alibaba must adjust to higher operating costs and thinning margins. In Q1, net income fell by 29% while operating margin shrank to 15% amid rising spending and mounting losses at the company’s cloud computing and entertainment units, which have been in the red for years due to competition from Tencent and Baidu.

Our focus is to expand the business and the absolute profit growth rather than looking at the margin. Having this new retail kicked in and becoming more important, our margin structure may shift. – Alibaba’s Chief Financial Officer Maggie Wu

Read the full article by Yue Wang on Forbes.

Pick #2. First Data Makes Another Bet on Restaurant Software

Salido, a restaurant software company, recently raised $12 million in a Series A round of funding with First Data among the major investors. First Data was initially interested in acquiring the startup but chose to participate in a funding round instead.

Since 2012, First Data has had its own POS device, Clover, which processes customer payments and analyzes sales. Now, the global volume of transactions processed via Clover’s technology amounts to about $58 billion annually. Salido’s technology will be fully integrated with some Clover products by the end of this year.

One of First Data’s biggest competitors, Square, just announced its own play for restaurant services. Square for Restaurants, its fourth POS product, integrates its delivery service Caviar, which Square acquired in 2014.

Read more.

Pick #3. Square Launches Restaurant Point-of-Sale Platform

Square is officially getting into the restaurant business with the launch of Square for Restaurants. Square for Restaurants is a POS system that handles everything from menu updates, floor layouts, employee scheduling, and performance tracking to tip splitting. The solution integrates seamlessly into Square’s existing ecosystem that includes Payroll, Capital and more. Square fully integrated Caviar into the POS system. At launch, Square is charging $60 per month plus $40 per month for each additional POS set-up.

Through Square’s system, restaurants will be able to handle everything in one place. That means they can see their sales broken out by channel and understand what percentage of sales comes from delivery versus pickup versus in-restaurant dining.

Third-party applications from Postmates, UberEats, and DoorDash could integrate into the Square POS. The issue right now for restaurants, according to Square, is the fact that delivering food for multiple services means a big tablet farm. The intention is that we can work with all of those because that’s what our sellers want, Square Seller Lead Alyssa Henry said.

Read more.