Zhang Yong wants to create another "Alibaba"

After leaving the top position at Alibaba Group, Zhang Yong was parachuted into Alibaba Cloud with a heavy responsibility: to spin off and create another "Alibaba".

AI has become the driving force behind this. At the World Artificial Intelligence Conference on July 7th, Alibaba Cloud played its key cards of large-scale models and ecosystem, integrating cloud computing business into AI model applications and commercial scenarios, and delving into B-side businesses.

At Alibaba, Zhang Yong once dominated the world of Tmall and created "Double 11". Now, Alibaba Cloud holds the key to whether he can create brilliance once again.

For Alibaba Cloud, the large-scale AI model ecosystem is also an attempt to break through itself. It is a battle where Zhang Yong stakes his personal reputation, as he strives once again for the ambition of "recreating Alibaba".

Driving Force

Alibaba Cloud, the leading player in domestic cloud computing, is also making a rapid foray into the large-scale model market.

Alibaba Cloud has launched the "killer" Model Scope GPT. It can fulfill user requirements by combining and freely accessing all models in the Model Scope community (Alibaba Cloud's AI large-scale model ecosystem, equivalent to the "App Store" for models) through natural language.

In addition, Alibaba Cloud has also released an AI painting creation model called Tongyi Wanxiang. This is another model in the "Tongyi" family, following the release of Tongyi Qianwen (text) and Tongyi Tingwu (audio), further enriching the model resources in the Model Scope community.

Currently, the Model Scope community established by Alibaba Cloud has become the largest AI model community in China, gathering more than 1.8 million developers and over 900 high-quality AI models, providing a bridge for developers and users to gather here.

It is evident that Alibaba Cloud aims to further lower the threshold for AI usage and establish an ecosystem that binds more developers and users.

At the WAIC forum, Alibaba Cloud CTO Zhou Jingren extended an olive branch to industry users, stating that they will provide services to large-scale model startups, including computing power and development tools, as well as support in terms of funding and commercial exploration.

Behind Alibaba Cloud's urgent entry into the large-scale model market is the anxiety of sluggish growth.

Alibaba Cloud is regarded by Alibaba as the second growth curve. In the domestic cloud market, it is also the first company to exceed 100 billion yuan in revenue and has been profitable for two consecutive years, making it the only stable and profitable cloud provider in China.

However, the main battlefield of cloud computing has gradually shifted from the Internet to traditional telecom operators. State-owned cloud providers such as Tianyi Cloud, Mobile Cloud, and Unicom Cloud have entered the market. Last year, the revenues of these three companies increased by 107.5%, 108.1%, and 121% respectively compared to the previous year. Moreover, they are continuously gaining market share and have the potential to surpass others. Looking at the revenue growth rate of Alibaba Cloud, it has been declining since reaching a high point of 175% in the first quarter of 2016, and by the 2023 fiscal year, the year-on-year growth has dropped to single digits at 3.5%.

In April of this year, Alibaba Cloud initiated a price war by announcing a 15% to 50% reduction in prices for its core products. However, soon after, competitors also joined the price reduction battle. Tencent Cloud quickly followed suit, with some product lines seeing a maximum price reduction of 40%; JD Cloud even promised "compensation for overpaying".

To cope with the fierce competition, Alibaba Cloud urgently needs to find a way out and return to a growth trajectory. The AI frenzy sparked by ChatGPT may be the key to breaking this deadlock.

"The emergence of AI large models is a milestone in history, just like the industrial revolution. Large models will be widely applied in various industries, bringing tremendous productivity improvements," said Zhang Yong. "In the AI era, all products are worth upgrading with large models."

For traditional industries and small and medium-sized enterprises, it is not realistic to spend millions of dollars on self-developing large models. Therefore, renting the computing power of cloud service providers and collaborating to develop and use large and small models has become an attractive solution.

For cloud service providers like Alibaba Cloud, the combination of AI and public cloud, known as "cloud intelligence integration," immediately becomes an appealing story. What Alibaba Cloud is doing is upgrading its cloud computing with large models, combining it with DingTalk, Lingyang, Tmall, and other platforms, to showcase the market and paint a beautiful blueprint for users and investors.

Will the turning point for Alibaba Cloud truly arrive?

Ambition

As a driving force, AI large models can change the ecosystem of Alibaba Cloud, expand its market share, and a spin-off listing can provide the most intuitive reflection of Alibaba Cloud's valuation.

On June 20th, in an internal letter announcing his resignation as the number one position in Alibaba Group, Zhang Yong said he wants to create a new world and hopes that Alibaba Cloud, as an independent company, can grow to be as big as Alibaba today, or even bigger.

The independence of Alibaba Cloud has long been underway, and the launch of the listing process has already been initiated. In March, Alibaba announced the "1+6+N" organizational transformation, and on May 18th, it announced that Alibaba Cloud will be completely spun off and listed independently.

According to the spin-off plan, Alibaba Group will no longer hold any Alibaba Cloud shares, forming a new company that is completely independent from the group in terms of equity and corporate governance, with no equity relationship between the two parties.

At the same time, Zhang Yong will also end his four-year reign over Alibaba and take on the number one position at Alibaba Cloud, officially embarking on a tough battle that puts his personal reputation at stake.

Next, as the largest cloud computing company in China, how Alibaba Cloud is valued and spun off are practical issues. Its valuation will, to some extent, represent the overall market evaluation of this industry. In 2018, Morgan Stanley estimated the valuation of Alibaba Cloud to be $67.094 billion (approximately RMB 480 billion), comparing it to Amazon AWS. In 2020, as Alibaba Cloud's performance grew rapidly, multiple institutions raised its valuation to over $100 billion. In August of that year, Goldman Sachs set Alibaba Cloud's valuation at $123.8 billion (approximately RMB 886.7 billion).

At that time, the valuation of Alibaba Cloud was already equivalent to half of the current Alibaba Group. As of July 14th, Alibaba's corresponding market value in the Hong Kong stock market was approximately RMB 1.78 trillion.

However, due to the lack of comparable publicly listed companies with similar scale in the global market, as Alibaba Cloud's IaaS business is not separately listed, there is significant divergence in market valuation judgments.

In February of this year, CITIC Securities estimated the valuation of Alibaba Cloud to be RMB 200 billion in a research report, which was considered relatively conservative with a market-to-sales ratio of less than 3 times based on the previous fiscal year's revenue.

In fact, the same issue of "valuation drift" also occurs with giants such as Amazon AWS and Microsoft Azure in the global market. The shared infrastructure such as servers and data centers between cloud computing companies and their parent companies is an objective factor that makes valuation difficult.

Although market opinions are divided, Alibaba Cloud is still striving to increase its own value.

Opening the door to the AI market and improving the ecosystem of large models are all continuously conveying the value and imagination of being the "industry leader" to the capital market.

Regarding the community "Magic Stack" that Alibaba Cloud is focusing on building, industry insiders point out that the network effect of the cloud computing ecosystem is also one of the decisive factors for high valuation. The more mature the ecological cooperation, the higher the revenue multiplier and the larger the profit scale. Amazon AWS and Microsoft Azure have also benefited from this.

In addition, Zhang Yong stated in an open letter that they will "introduce external investors," leaving the possibility of introducing state-owned assets to open up the government-enterprise market.

It can be expected that after independent listing, Alibaba Cloud will have more resources and funds to invest in technology research and development, expand its scale, break away from its dependence on the Alibaba ecosystem, and cope with intense market competition.

However, pursuing listing is only a temporary "self-value realization." The key to maintaining Alibaba Cloud's position as the leader lies in continuous expansion and growth of market share.

In the current intensified industry competition, in order to achieve the ambition of "creating another Alibaba," Zhang Yong and his team must run even faster.