Will the house that Jack Ma built be safe into the next century as Alibaba chief bids adieu?

Ma’s departure from the executive chairman role coincides with Alibaba’s 20th anniversary and signals transition to a new era.

By

Will the house that Jack Ma built be safe into the next century as Alibaba chief bids adieu?

When Alibaba’s Jack Ma said last September that in 12 months’ time he was going to hand over the role of executive chairman to chief executive Daniel Zhang Yong and step away from managing the e-commerce behemoth he founded, the announcement came as a surprise.

Alibaba’s stock price fell nearly 4% in New York on the news, before recovering over the next two days.

The reason was simple – for nearly two decades, Ma has been the face of Alibaba, the company he founded in his Hangzhou apartment in 1999 together with 17 others.

Ma, who turns 55 on September 10, is considered young to be stepping away from the company he helped to build from the ground up in a country where founders are inclined to wield a tight grip over their companies well into their eighties in some cases.

Ma’s departure from the executive chairman role, which coincides with Alibaba’s 20th anniversary, is perhaps the biggest indication that Alibaba has fully transitioned to a new era, with control handed over to a younger generation of leaders that have been tasked with keeping the firm going for at least 102 years – by which time its history (from inception in 1999) will have spanned three different centuries.

The company is also the owner of the South China Morning Post.

“Jack famously communicated his desire to retire one day from Alibaba almost from the very beginning of the company’s founding,” said Duncan Clark, a friend of Ma’s and author of the book Alibaba: The House That Jack Ma Built.

“Jack doesn’t have professional qualifications in management nor technical or finance skills, so he has always sought out talented professionals [like Zhang] to help,” said Clark.

“In that sense, he’s been planning for this transition for a very long time.”

The fact that Ma had spoken of eventually stepping away from Alibaba so early also makes him unique, especially in China, where there tends to be a “cult of the founder” and a culture that tends to emphasize multi-generational businesses, according to Clark. Ma is one of the few technology company founders who has passed on the baton to a successor early.

Under Ma’s guidance, Alibaba has become the e-commerce leader in China. It has a market cap of around US$460 billion, the gross merchandise volume of sales in its Singles’ Day 24-hour shopping event hit US$30.8 billion last year and it was named as the world’s most valuable retail brand outside the US in 2019, according to a ranking by global marketing group WPP and consulting firm Kantar.

Its financial affiliate Ant Financial is one of two dominant mobile payments providers in the country, and the company’s cloud business has, within less than a decade, clawed its way to the No. 3 spot in the global market.

Earlier this year the company unveiled its first self-developed chip processor, amid a call from Beijing for the country to attain greater self-sufficiency in semiconductors. It has also been pushing deeper into artificial intelligence.

Taking over the reins from Ma is 47-year-old Zhang, who has been chief executive of the New York-listed firm since 2015 and is widely credited with kick-starting what is now known as the world’s largest online shopping festival, Singles’ Day.

But Ma is not severing ties altogether.

He will stay on Alibaba’s board of directors until the annual shareholders meeting in 2020, and will remain a lifetime partner in the Alibaba Partnership – a group of senior executives with the rights to nominate a majority of the directors on the company’s board.

Investors and analysts will be watching how Zhang steers the company through uncertain economic conditions amid a US-China trade war and a slowing Chinese economy, and as it battles domestic rivals such as Pinduoduo and JD.com for a larger e-commerce market share in China’s smaller cities – expected to be the next driver of growth for Chinese consumption.

“Longer-term sales and profit growth could benefit from strategic investments in technologies that use artificial intelligence and analysis of its extensive user data to monetize newer business segments, such as finance, logistics, cloud, media, and entertainment,” said Bloomberg Intelligence analyst Vey-Sern Ling in an August 27 note.

The company also filed confidentially for a Hong Kong listing earlier this year, and could launch one of Hong Kong’s biggest share sales in October, according to a Reuters report. When Alibaba listed on the New York Stock Exchange in 2014, it was the biggest initial public offering in history, raising US$25 billion.

Alibaba has certainly come a long way since 1999, when going online in China meant having to connect to dial-up modems and waiting hours for a page to load.

But even before computers became commonplace in households, Ma had a vision of helping China’s thousands of small and medium enterprises do better business over the internet. Cobbling together 500,000 yuan, the co-founders started a business-to-business (B2B) platform for buyers to source goods from suppliers. The rest, as they say, is history.

Today, the company has also diversified into businesses such as music and entertainment. It has developed its New Retail concept of combining both online and offline shopping experiences to offer customers a more personalized experience, while helping merchants leverage online data to become more efficient.

In an age where more and more people crave the convenience of online home deliveries, Alibaba is also locked in a battle with Meituan-Dianping to be the leading local services provider for everything from food deliveries to restaurant reviews.

While Alibaba gears up to tackle a new era of consumption, Ma wants to focus his energies on education and philanthropic efforts. He was trained as an English teacher in Hangzhou, and has famously said that he was never happier than when he was earning US$12 a month as a teacher.

Over the last year, Ma has flown around the world, planting trees in the Gobi desert to promote an initiative to fight desertification, pledging enormous sums of money to support women’s soccer in China, and speaking at a number of conferences – whether promoting technology for good in Paris, or supporting the empowerment of women globally.

But while he may have formally stepped away from managing Alibaba, experts believe that Ma will still continue to be a big influence over the company he has founded.

“I don’t think Jack Ma will suddenly disappear and not have a relationship with Alibaba anymore, he will still be one of the faces of the company despite not having a formal role,” said David de Cremer, a management and organizations professor at the National University of Singapore.

He pointed out that while Alibaba’s succession plan is rare in China, such corporate governance and planning will likely become more common as more Chinese tech firms look to go public and do business in the West.

“What you see right now is that Chinese companies still don’t invest enough in terms of talent or recruitment of the right kind of people that they can basically train and foster to become leaders of the company,” said de Cremer.

Tencent and Baidu, the two internet companies often mentioned together with Alibaba in the “BAT” triumvirate, are still run by their founders Pony Ma Huateng and Robin Li Yanhong respectively. NetEase, the No. 2 gaming company in China after Tencent, still has founder William Ding Lei as chief executive since its establishment in 1997. The same goes for search and advertising services firm Sohu, which is helmed by founder Charles Zhang.

But what makes these technology companies successful is often the vision and leadership of its founders, something that can be difficult for successors to replicate.

“There’s not a very good track record of highly-innovative internet and technology companies handing off to the next generation and having [huge success] continue,” said Jeffrey Towson, an investment professor at Peking University who often writes about Alibaba.

He pointed out that Apple’s innovation ground to a halt when Tim Cook took over the firm, and Microsoft, after Steve Ballmer took over from Bill Gates as chief executive, also lost its way.

Despite this, Alibaba may be one of the few companies that will successfully hand over to the next generation of leaders, Towson said. The company has continually caught the waves and under Zhang’s helm to date, Alibaba has prospered.

“It may turn out that Jack Ma is one of the first to achieve what Steve Jobs, Bill Gates and [Yahoo’s] Jerry Yang tried to do, but did not – which is to make themselves redundant,” said Towson.

 

This article first appeared on the South China Morning Post.