ALIBABA REALISES AGAIN WHO ITS PRIMARY CUSTOMERS ARE

In May 2023, Jack Ma told Alibaba management to 'return to the customer'. Since then, there has been a discussion about who 'the customer' is. I have always believed that the (primary) 'customer' is the one who pays you. For Alibaba, that would be the merchant (advertising, service fees, commissions).

However, in the price wars with Pinduoduo and Douyin of recent years, Alibaba has been overemphasising consumer needs, thereby squeezing merchants' profits through pressure to lower prices, mandatory freight insurance and 'refund without return' policies, leading to abnormally high complaint rates (the policy had been largely rolled back in the second half of 2024).

After years of price wars and consumer downgrading, Taotian (Taobao + Tmall) has realised its real strength lies in merchants' branded goods (let Pinduoduo deal with white-label stuff). These merchants have struggled with a lack of repeat purchases, traffic (which was diverted to big brands on Tmall), and profits.

As anticipated in our Tech Buzz China predictions for 2025 (techbuzzchina.substack.…), Alibaba has decided to focus on supporting "high-quality brands and merchants with certain funds and teams, especially small and medium-sized brands." Priority will go to brands in apparel, beauty, sports & outdoor. Merchants have noticed that Alibaba communicates with them more often and proactively and pays attention to their problems. Meanwhile, e-commerce business group CEO Jiang Fan said, "The current goal of AI is to help merchants reduce costs."

In the past, Alibaba was short on traffic and tried to obtain it in every possible way, distributing it through its network of platforms. However, this strategy no longer works in the era of competition with Pinduoduo (dominating low prices) and Douyin (dominating usage time). Alibaba needed a new approach.

Instead of focusing on GMV, Alibaba will shift to helping brands with brand awareness and marketing strategies. Interestingly, Alibaba wants to help such brands grow on the entire internet, not just its own platforms. It will even subsidise merchants' traffic generated outside the Alibaba network (e.g. on Douyin or Xiaohongshu). The idea is that Alibaba's revenue will increase as the brand grows and consumers head for Tmall or Taobao to buy it. Alibaba sees that it can't just rely on the merchants to invest on their own.

While this also results in Alibaba spending its budget on the advertising income of its competitors, purchasing will be done on Taobao. Alibaba bets on consumers returning to Taobao after that purchase. After opening its platforms to fulfilment by JD Logistics and payment with WeChat Pay, Alibaba now also uses its other competitors' strengths to grow its own business. The 'walled gardens' of the past are genuinely coming down.

Source: Latepost