Open Innovation Driving Growth at Alibaba
As Alibaba Group grows domestically and internationally, the company needs to combine internal and external intelligence to enhance both industry knowledge and technological capabilities. How is the company leveraging open innovation? Would you be willing to become a part of it?
2018 is again a record-breaking year for Alibaba’s Singles Day Shopping Festival, with GMV (Gross Merchandise Volume) reaching $30.8 billion in 24 hours, up from $25.4 billion in 2017 . It is an incredible number, more than doubled the combined GMV of the two largest US shopping sprees, $5 billion for Black Friday and $6.6 billion for Cyber Monday in 2017 . While the shopping festival turns into a New Year like celebration with a star-studded concert and the sales number leaves the world in awe, it is a test bed for company’s services and technologies that have been growing in scale every year. It is the final presentation of the company’s open innovation efforts, internally and externally.
(2018 Single’s Day, The News Minute)
Open innovation is essential to Alibaba’s growth and survival, enhancing the firm’s industry knowledge and technology capabilities, while consumer demands are ever growing and competition is increasingly heavy. On the front end, customers are looking for a wider range of products, refreshing ways of marketing and real-time services. It requires the company to expand partnerships with domestic and foreign brands, establish platforms to encourage content generation and keep improving its customer service efforts. On the back end, to handle the volume – this year more than a billion delivery orders were placed over the course of the 24 hours  – the company has to leverage nouveau technology solutions such as cloud management and artificial intelligence, to fulfill the hundreds of thousands of orders that were being made per second. According to Joe Tsai, the company’s co-founder, “[the company does] things out of necessity and out of fear.” Alibaba is building an ecosystem, using internal and external innovative power, in order to not fail its mission of “making it easy to do business anywhere.”
The company has laid out open innovation strategies in many ways, for example, through external resource integration . Alibaba and Tencent both had long negotiations with Starbucks, which had resisted interacting with neither of the tech giants who competed to install electronic payment solutions into the coffee shop chain. Despite Tencent getting a head start, Alibaba eventually won over by developing a full partnership integrating Starbucks with different key businesses of the ecosystem, namely Tmall, Alipay, Ele.me (food delivery platform) and Hema (Fresh delivery), opening “Starbucks Delivery Kitchens” and creating an unprecedented version of virtual online stores to offer its customers an even more personalized experience .
(Starbucks’ 30,000 sq ft store opens in Shanghai, Bloomberg)
Another significant open innovation move is through outward content generation. As customers grow more sophisticated, hard-sell advertising is replaced by more personal and creative content marketing, namely Taobao Top News and Live Streaming. Through Taobao Top News, KOLs in vertical sectors receive tasks to generate content with a commission. With Taobao Live Streaming, brands hire models and develop own content, while Taobao provides technological add-on solutions, for example, virtual coupons.
As the company expands globally, it looks to solve more complex problems through innovation centers. In 2017, the company launched an innovative global research program, “Alibaba DAMO Academy”, expecting to invest more than $15 billion in R&D over the next three years. The program will first focus on opening 7 labs in China, United States (San Mateo and Bellevue), Russia, Israel and Singapore. These labs are set to collaborate with leaders in tech space and top academia to explore tech breakthroughs. For example, the Academy is set up to work with RISE Lab at UC Berkley on topics such as secured real-time computing . In a longer term, the company is putting forward strategies such as eWTPs to build hubs in major cities globally (first one scheduled in Malaysia) to collaborate with local agents on online shopping, logistics, payments and AI, etc.
There are still steps the company can take to combine internal and external intelligence. One recommendation is to utilize more inward ecosystem interaction. At its rival company Tencent, employees come up with ideas, form teams and compete heavily to win over big R&D and marketing budgets to launch products. Wechat is in fact a result of that. Alibaba employees should be encouraged to think like entrepreneurs in residence and incentivized to use their close understanding of the customers to build better products. Another recommendation is to integrate acquisitions more thoroughly. The company is looking for synergy while making vertical or horizontal strategic investments; however, poorly planned and executed integration could lead to failing businesses and loss of enterprise value.
My open question on the topic would be: what do you think of Alibaba using more contests to stir up the start-up world? The company’s cloud arm, AliCloud, has hosted Create@Alibaba contest in the past few years, calling for ideas in AI, IoT, AR/VR, big data and cyber security. How about contests outside of the frontier technologies? Would you be interested in being a part of it?
(Create@Alibaba 2018 at Istanbul, webrazzi)
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 Arjun Kharpal, Alibaba sets new Singles Day record with more than $30.8 billion in sales in 24 hours, https://www.cnbc.com/2018/11/11/alibaba-singles-day-2018-record-sales-on-largest-shopping-event-day.html, 11 Nov 2018
 Kate Taylor, Alibaba just had the biggest online shopping day of all time, nearly tripling every company’s 2017 Black Friday and Cyber Monday sales combined, https://www.businessinsider.com/alibaba-singles-day-2018-biggest-online-shopping-day-2018-11, 11 Nov 2018
 Allison, Open Innovation: Transforming your Business in China, http://daxueconsulting.com/open-innovation-in-china/, 16 Oct 2018
 Saheli Roy Choudhury, Alibaba says it will invest more than $15 billion over three years in global research program, https://www.cnbc.com/2017/10/11/alibaba-says-will-pour-15-billion-into-global-research-program.html, 11 Oct 2017
 Zach Emmanuel, Alibaba Cloud looks to drive its technology ecosystem with startup innovation contest, https://www.computerweekly.com/news/252444214/Alibaba-Cloud-looks-to-drive-its-technology-ecosystem-with-startup-innovation-contest,
04 July, 2018
Student comments on Open Innovation Driving Growth at Alibaba
Great article Emma! I agree with your thoughts on leveraging employees more as it seems that a lot of Alibaba’s open innovation efforts are customer & supplier-focused, but not as focused on empowering employees to be creative and launch new business lines. Contests are a great way to incentivize people and spur some friendly competitions, but to get the most out of them, I would also combine them with flexible staffing like we saw in Valve but on a short-term basis, where employees can divert some of their time to work on these as it can be pretty hard to do a good job on these on top of all your normal responsibilities. I would also make sure there are a host of collaborative tools in place to help teams from different offices etc. work together on projects they are passionate about.
I found this article absolutely fascinating. The most interesting aspect to me was the idea that Alibaba is sponsoring these innovation initiatives without particular end-goals in mind. Many of the articles posted here have outlined how a specific company aims to reach a specific target through various new models (e.g. additive manufacturing in the Navy or crowdsourcing traffic information at Waze). However, given how well-capitalized Alibaba seems to be, their approach is simply to sponsor all types of innovation and then to worry about how specifically to monetize it later in the process. While this may seem like a disorganized approach, it is actually not the first time that a well-capitalized company has used it. In the 1950’s, Ford had an innovation center in downtown Detroit where innovation was simply funded for innovation’s sake, and while some resulting inventions like 4-wheel drive were directly applicable to their line of business, others like the heart-lung machine for cardiac surgery also resulted from this initiative. I’m fascinated to see what results from this initiative at Alibaba, especially in a country as fertile for innovation as China.
Thanks for sharing your unique perspective on open innovation at Alibaba. I found the article very interesting, and was amazed by the many different strategies Alibaba employs and the ecosystem it has created to spur innovation, both internally and externally, in light of more intense competitiveness as well as increased customer demands.
I particularly found the investment in innovation centers, with the aim of building close relationships and partnerships with leaders in the tech space and top academia fascinating. There are lots of ideas out there, and by creating this platform Alibaba can take advantage of them. Moreover, I believe the innovation centers enable parties to challenge views and build further on ideas to help Alibaba succeed in the future.
Moreover, I am a strong believer in using contests to stir up the start-up world. Contests is a great way of creating interest and attention from entrepreneurs and thinkers globally. I think broadening the contest outside the frontier technologies you mentioned is a good idea to get even more ideas to base strategic decision upon.
One aspect you didn’t mention, is the role of the consumer. In the HBS case “Alibaba goes public”, one of the key success factors of Alibaba mentioned was their focus on the consumer. By listening to what the Chinese consumers wanted in terms of the service and features they were lacking, Alibaba managed to win the Chinese market and force out both Yahoo and Ebay. I believe it is instrumental for Alibaba to maintain that sensitivity to customer needs, and open up for innovation from the consumers, the actual users of ther services, in a more sophisticated way.
I found this article super interesting in light of the FRC Alibaba case! I realize there should be a LEAD and MKT case for Alibaba as well. I think it’s really cool how Alibaba used open innovation to generate a bunch of free / “earned” marketing from their consumers. Given how widespread mobile technology is and how widely used apps like Wechat and Weibo are in China, Chinese consumers are the perfect population to pilot innovative open innovation strategies. One thing I’m curious about is the differences around privacy and online consumer trust/behaviors between China and the rest of the world. China has different laws around privacy and I’m interested to hear your thoughts on whether the things Alibaba tries in terms of Open Innovation would be effective in the U.S. and EU countries.
Thank you for the article, EP. This was incredibly informative! It is great to hear first hand experiences about giant business that are driving innovation around the world
One question that still remains for me, and that I think you touched on lightly already in your text, is what is the key factors that will help Alibaba in finding the correct balance between in-house innovation and collaborative innovation from outside the firm. Also, on that note, how does Alibaba go beyond economic incentives to secure the R&D being developed? This latter question, I ask because it seems like there is a race for the ‘next big thing’ between Alibaba and competitors like Tencent, as you well put it in your article, and my concern is that these companies get stuck in a vicious circle of ‘throwing money at the problem’ by trying to outbid each other for the chance of that next R&D project
Hi Emma thanks for sharing this interesting information. A lot of times in the US, we think about open innovation as the equivalent of crowd-sourcing, but I found it interesting that Alibaba also leveraged their employees for some of these innovations and ideas. At McKinsey, there was also an annual competition called “Practice Olympics” where teams from around the world got together to pitch a new consulting offering or technology to the firm’s partners. Anybody from any level of the organization can bring forth a new idea, and many of those ideas eventually become actual client-facing product offerings.
As Alibaba turns its sights to the US and other markets around the world, it may have to rely more on crowd-sourcing directly from consumers, especially in markets where it does not have a strong operational presence. Because its employees are Chinese, they can leverage that expertise to understand Chinese consumers. But when they enter another market like the US where their Chinese employees do not understand the consumer as well, they can start leveraging crowd-sourcing.
This is very interesting! Your write-up really resonate with me. I understood what is going on behind Alibaba’s open innovation. Because innovations tend to be produced by outsiders and founders in startups, rather than existing organizations, the central idea behind open innovation is that, in a world of widely distributed knowledge, companies cannot afford to rely entirely on their own research, but should instead buy or license processes or inventions (i.e. patents) from other companies. However, open innovation has such many benefits as reduced cost of conducting research and development, potential for improvement in development productivity and incorporation of customers early in the development process. Your article implied all of them mentioned above.
Very insightful and interesting article ! I think contests and other interactive ways to get smart people involved are extremely important for technology companies. Although BIG tech is indeed influential and intimidating in terms of sheer numbers, they got to where they are very fast. It is quite possible that a brilliant idea conceived in one of the garages will challenge their dominance. I believe the companies realize that and try to counter it by acquiring companies they see as potential disruptors. Those acquisitions can be quite costly and open innovation is a sensible alternative to ensuring that companies stay on top of latest trends and sport potential disruptions way ahead.