Alibaba Letters to Shareholders From Jack Ma and Daniel Zhang

Alibaba Group holds its annual shareholder meeting on October 18, 2017. Executive Chairman Jack Ma and CEO Daniel Zhang released their letters to shareholders.

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This makes for an interesting read on where these Gentlemen see the the past, present, and future of Alibaba.

Letter From Jack Ma, Executive Chairman

Dear Alibaba Shareholders,

Alibaba Group recently celebrated our 18th anniversary with an all-employee gathering. While we celebrated the past, this event was focused on the future. Compared to where we started, we are a grown-up today. But compared to the future, we have only just come of age. The future holds endless possibilities and imagination for Alibaba.

We made it our mission to make it easy to do business anywhere when we founded the company 18 years ago. Going public three years ago reinforced our sense of mission, that while public shareholders expect us to be profitable, our raison d’être cannot be merely to make money. Over the past three years we delivered on short-term financial goals, but our true purpose lies in harnessing the power of technology and innovation to make the world economy more inclusive and more healthy toward sustainable development.

The world as we know it will be dramatically changed by the advent of new technology in the coming 30 years. The internet will no longer be the sole domain of so-called internet companies; the internet will work for every company. We see transformation rapidly taking place in many industries, with internet technologies serving as the catalyst for revolutionary change. Eighteen years ago, we saw that changing of the business landscape in China could bring tremendous opportunities. Today, we see the endless possibilities that technology and innovation can bring to improving society and people’s lives.

Alibaba’s development must take on a different path from most other companies. As one of the world’s largest technology companies with a mission focused on serving small business, we must contribute to the sustainable development of a healthy world economy. As I said at our 18th anniversary all-hands meeting, we aim to foster an economy in which small business, young people and women in developing and under-developed nations can participate in and benefit from globalization. To this end, the direction and areas in which we will pursue our business will not be the same as anyone else. We are fully committed to creating the infrastructure for commerce in an inclusive economy because Alibaba is led by our ideals and vision.

Commerce as we know it is changing in front of our eyes. “E-commerce” is rapidly evolving into “New Retail.” The boundary between offline and online commerce disappears as we focus on fulfilling the personalized needs of each customer. In China, our New Retail initiatives are taking shape as the starting point to our “Five New” strategy – comprised of New Retail, New Finance, New Manufacturing, New Technology and New Energy. We have already geared our organizational structure toward the support of our “Five New” strategy for the coming decades.

New Retail will bring about a restructuring of the global supply chain and change the complexion of globalization from the domain of big companies to small businesses. The Chinese government’s push for the “Belt and Road Initiative” presents a unique opportunity for Alibaba to grow our business internationally. Last year I spent a significant portion of my time traveling around the world to seek shared interests. Much to my delight, almost all countries recognize the need to incorporate small businesses into a more-globalized environment. Taking our ideas to concrete action, we successfully launched our first eWTP (Electronic World Trading Platform) hub outside China. This is but a very small step for us as we realize the need to include more young people with global perspectives to join us. In the future, we expect to invest significant energy and resources in businesses that further our vision of an inclusive globalization.

New Finance will improve the financial systems that have been built over the past 300 years. Approximately five billion people today still do not have access to financial services. Ant Financial will take on the responsibility of building a financial system for the 21st century. It will make financial institutions more transparent and more inclusive through technology and innovation. It will enable small businesses, young people and women which have been neglected to equally access financial services. New Finance will be enabled by a more-robust credit system and better risk management because of the availability of data. This is the direction in which we will pursue our financial services innovation.

The development of logistics is crucial to the success of globalization. Over the past 10 years, the logistics industry in China has experienced miraculous growth. Last year, the industry processed 80 million packages each day, and we soon expect that figure to reach 100 million per day. Ten years from now, we may be faced with one billion packages per day. Cainiao, our logistics network company, must prepare for this future. We are taking part in the transformation of the logistics industry through integration of data and assets in the supply chain. Our goal is to realize delivery anywhere across China within 24 hours and anywhere in the world within 72 hours. More importantly, technology and innovation in demand-driven New Manufacturing and logistics will help small businesses reduce inventory risk and create new opportunities for profit growth. We believe this will bring hope to the physical economy and manufacturing sector.

We see inclusive globalization, inclusive finance and data-driven manufacturing as part of our responsibility to foster a new economy, but this also brings opportunity to further our mission “to make it easy to do business anywhere.” By 2036, we envision that Alibaba’s infrastructure will support commerce activity with a combined transaction value that will rank as the world’s fifth-largest economy. We aim to be a platform that will enable the creation of 100 million jobs, serve two billion consumers and support 10 million profitable small businesses. While Alibaba will serve as an advocate, driver and platform, the economy supported by Alibaba’s commerce infrastructure will be far bigger than Alibaba the company. Through this “Alibaba economy,” we hope to enable consumers and businesses to buy globally, sell globally, pay globally, deliver globally and travel globally. We want to enable more developing countries, small businesses and young people to share the benefits of globalization and free trade, and to share the innovation and opportunities that accompany technological advancement.

To achieve our goals, we will increase our investment in technology development and innovation. Successful companies of the future will derive profitability from technology rather than market scale; they will win the market through innovation rather than big marketing budgets. We believe the strength of our technology will be the competitive advantage for participants in the Alibaba economy. Right now, Alibaba has more than 25,000 developers and researchers, and we will establish research organizations around the world, with the aim of providing highly efficient and inclusive infrastructure for commerce. We want to leverage technology to create better job opportunities, and we do not believe technology will undermine people. Technology and innovation will be the source of vitality for the Alibaba economy, while sharing and inclusiveness will be its core value. We hope that Alibaba earns its respect not through our business profitability, but because we can create true lasting value and solve real problems for the world.

We will leverage the power of technology to further the development of rural China. We cannot forget about the realities across the Chinese countryside and we cannot leave the tens of millions of impoverished citizens behind. If Alibaba can help rural villages and impoverished areas across China to improve their conditions through technology, then we will have a chance to make an impact in other places around the world. Technology does not have to be the culprit in widening the wealth gap around the world. I believe there is a massive opportunity to help alleviate poverty and catalyze economic development in China’s rural countryside through technology and innovation. This is our opportunity to showcase what we are really capable of.

I am proud to reiterate our core belief that Alibaba must do the things other people are unwilling or unable to do, but must be done. This is our place in society. We come from humble roots, but Alibaba today is far from being ordinary. We have responsibilities beyond delivering business results.

When I started Alibaba 18 years ago, my partners and I asked ourselves not how to build a successful company, but why we want to build this company in the first place. We have conviction that the ultimate mission of a great company is to solve the problems of society. Only by contributing real value to society can a company build a sustainable business. We remain committed as ever to this belief today. Thank you for giving us your trust and support along our journey.

Jack Ma
Executive Chairman
Alibaba Group

Letter From Daniel Zhang, Executive Chairman

Dear Alibaba Shareholders,

Once again, I am delighted for this opportunity to report on Alibaba Group’s progress over the past year, and share our strategic outlook and plans for the future.

We enjoyed significant growth across our entire business this past year. This was also the year that our investors gained appreciation for the clarity of Alibaba’s vision, mission and strategic blueprint. I would like to take this opportunity to thank our shareholders for their trust and commitment in Alibaba. At the same time, we remain committed as ever to our philosophy that only when we take care of our customer and support our employees who serve these customers, will we able to create shareholder value. Hence, as we have always said, “Customers First, Employees Second, Shareholders Third.” We will continue to invest for the future, create unique customer value through innovation, and foster a robust environment for the young people in our company to innovate and create. We believe that persistence in playing the long game will result in significant and sustainable returns for our shareholders.

Last year, we unveiled how we think about the future, the next ten to twenty years, summarized as “The Five New” – New Retail, New Finance, New Manufacturing, New Technology, New Energy. We are committed to building the infrastructure for commerce, financial services, logistics, cloud computing and Big Data in this new digital landscape. Data is the new fuel, and it will stimulate development and widespread application of new technology. Its use in areas such as commerce, financial services and manufacturing will bring about disruption that we have not experienced before.

Under our “Five New” strategy, we enjoyed significant growth in the following areas:

Our core commerce business continued to thrive and GMV transacted on our China retail marketplaces for the past fiscal year surpassed RMB 3.7 trillion. In fiscal year 2017, about 80% of our transactions took place on mobile, and our annual active consumers reached 454 million while mobile monthly active users reached 507 million. Taobao and Tmall are doing much more than just satisfying pre-existing consumption needs; they stimulate new consumer demand through data-driven and content-rich features, such as personalized recommendations, live streams, short videos and newsfeeds.

Alibaba Cloud is still in hyper-growth mode, with year-over-year revenue growth of 121% for the 2017 fiscal year. As of end of the quarter ended June 2017, Alibaba Cloud had more than one million paying customers, ranging from start-ups to SMEs to large industrial firms to municipal public services. Together with a large and diverse community of developers and service providers, a new ecosystem has formed around our cloud business.

Since the acquisition of Youku, our digital media and entertainment business is coming together nicely. We have expanded our consumer offerings from physical goods to a wide variety of digital content. More importantly, we have introduced a game-changer for brands and retailers by enabling them to invest in brand-building and consumer lifecycle management, with integrated data working seamlessly across our e-commerce and digital media platforms to create unique synergies.

Our portfolio of innovation bets produced many bright spots. Businesses such as mapping and navigation app AutoNavi, workplace communications platform DingTalk, New Retail grocery prototype Hema all demonstrated distinct customer value proposition. We are incredibly excited by the substantial growth potential of these innovation initiatives.

Last month, we celebrated our 18th anniversary. Over these years, Alibaba has followed our mission to make it easy to do business anywhere, as we successfully leveraged advancements in technology to capture opportunities that emerged from the Internet’s impact on businesses and consumer lifestyles. We evolved from a start-up helping small and medium enterprises to “meet at Alibaba” and “transact at Alibaba” into a new infrastructure for digital commerce that enables businesses and consumers to “work and live at Alibaba.”

Looking forward, we believe the ongoing disruption caused by the confluence of Internet technology, data application and commerce is only just beginning. In anticipation of the future, we have already started to engineer our own strategic evolution.

While our retail marketplace platforms Taobao and Tmall have in the past successfully helped many businesses develop powerful new sales channels, we are catalyzing businesses to revolutionize their entire operations through complete digitization. This includes transformation of their sales channels, marketing, supply chain, logistics and manufacturing. We will support their digital transformation with a wide range of technology and data analytics services and become their infrastructure for digital commerce.

For example, Alibaba will help businesses leverage our Uni-Marketing approach to engage in brand-building, product marketing and customer lifecycle management by leveraging data from our e-commerce and digital media platforms. Our Rural Taobao network and Ling Shou Tong supply chain services will empower brands to establish new distribution management systems that improve performance through data applications. Cainiao’s smart logistics network will help customers boost efficiency and lower costs through integrated online-offline inventory management that can serve both business-facing as well as consumer-facing needs. Cainiao will also work with partners to enhance quality of logistics service and experience for consumers.

Alibaba’s mission is more than just growing online retail and achieving our goal of US$1 trillion in GMV by fiscal year 2020. We also want to help offline retail partners achieve digital transformation and upgrade existing retail formats. We aim to create new value proposition for consumers by redefining the key components of traditional retail – customer flow, merchandise and space – in partnership with traditional retailers as well as through pioneering new retail experiences.

We will continue to invest heavily in cloud computing and technology research. One million paying customers on our cloud was an important milestone for the business and it is just the beginning. Businesses from all industries will have the need and desire to migrate onto the cloud in the future as low-cost computing and advanced technologies become utilities that are provided as a service. We will establish clear-cut service provider schemes with domain expertise across different industries and provide comprehensive solutions to customers by moving up the cloud stack. Alibaba Cloud will also serve as the commercial distribution portal for Alibaba Group’s proprietary technology. Advanced technology developed in-house by Alibaba Group, such as security, middleware, content delivery network and data intelligence, will be made available to third-party customers through Alibaba Cloud.

We will continue to make long-term investments that expand our network for digital content generation and digital media distribution. We believe the ongoing changes in lifestyles of the next generation will lead to exponential growth in demand for multimedia digital content such as drama series, variety shows, live streams, short video and news. A rich and diverse digital content library will increase user stickiness on our digital media platform making the platform more valuable. Consumers who regularly participate and live in the Alibaba economy will be rewarded through a loyalty program that provides benefits across the purchase of physical goods, digital content and local services.

In the coming years, we believe that technologies such as artificial intelligence will dramatically reshape commerce. Alibaba will sustain our competitive advantage of creating synergies between technology innovation and business innovation. Because of the rich spectrum of use cases in our commerce and entertainment ecosystem, we will continue to invest in and apply cutting edge technology to commercial applications across this ecosystem.

Last but not least, we are aggressively charting our own course toward globalization. We are focused on leveraging the vast consumer base and manufacturing capability in China to develop our cross-border e-commerce import and export businesses. Additionally, starting with the Southeast Asia market, we will continue to expand into serving local consumers, thereby gaining exposure to fast-growing consumption demand beyond our home borders. Our ultimate goal is to realize global buy, global sell, global pay, global delivery and global travel.

As Alibaba reached 18 years of age, this year marks the beginning of our adulthood and responsibility. Compared to where we started, we look big. But through the lens of the opportunities on the rapid path toward a digital economy, we still have a lot of room to grow. Much learning is needed. We need to learn how to sustain innovation. We need to learn to engage with society and partners as custodians of an economy that we hope to be all-inclusive.

This year also marks the third anniversary of our IPO, and I am proud to say that we have made substantial strides as we innovated and positioned ourselves for the future, while at the same time growing revenues three-fold. I want to thank you, our investors, for your trust and companionship. We will continue to play the long game.

Daniel Zhang
Chief Executive Officer
Alibaba Group

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