Tech On Me: Alibaba's Q2 earnings are disappointing. Where does it go from here?

This week’s focus

Alibaba Group reported a disappointing financial performance for the second quarter of 2024. The Chinese e-commerce giant's net profit dropped 29% year-over-year to $3.40 billion. The decline was attributed to increased expenses in marketing, product development, and general administration, alongside a significant rise in taxes. 

The company's core domestic e-commerce platforms, Taobao and Tmall, experienced a 0.9% decline in sales, although Alibaba reported growth in online gross merchandise value due to higher customer engagement.

Alibaba's cloud computing division saw a modest 5.9% revenue increase. In comparison, its international e-commerce unit recorded a 32% revenue rise, decelerating from the 45% growth in the prior quarter.

My take: It is clear that the company is navigating a challenging landscape. A 29% drop in net profit is significant, especially for a giant like Alibaba, and it signals deeper issues than just fluctuating market conditions. 

The slight decline in sales for its core domestic e-commerce platforms, Taobao and Tmall, is particularly concerning. Even though Alibaba reported growth in online gross merchandise value, sales are dipping, indicating that consumer spending or market share might be shifting elsewhere, likely to emerging competitors like Pinduoduo and Douyin. These platforms have aggressively captured market share, leveraging innovative approaches that appeal to a broader or younger audience.

It seems Alibaba is at a crossroads, balancing between defending its current market position and making the necessary investments for future growth. Their strategy of prioritising long-term growth over short-term profits is a classic approach when facing intense competition and market saturation, but it also comes with risks. 

If these investments don't pay off soon, Alibaba could find itself in an even more precarious position, especially if the Chinese economy continues to cool and competition intensifies.

In other news

Douyin takes a firm stance on corruption.

Douyin, the Chinese counterpart of TikTok, has taken significant action against internal misconduct. In the first half of this year, it dismissed 88 employees for fraud, embezzlement, and commercial bribery violations. Of these, 17 individuals have been referred to judicial authorities for suspected criminal activities.

The affected employees were from Douyin's ecommerce, research, development, and life service departments. Notably, three individuals from the life service unit were found to have accepted illegal payments from external merchants in exchange for improper assistance.

My take: In the wake of high-profile incidents like those involving GroupM and Mondelēz China, it is unsurprising that Douyin is taking a firm stance on maintaining integrity within its operations in a business environment where corruption and unethical practices have come under intense scrutiny.

The Chinese business landscape is increasingly unforgiving regarding corporate misconduct, and companies that fail to address these issues risk severe reputational damage and business loss.

For Douyin, a platform with massive influence and reach, the decision to act decisively against internal violations likely serves multiple purposes. Firstly, it sends a strong message to its employees and partners that unethical behaviour will not be tolerated, reinforcing a culture of compliance. 

Secondly, it helps Douyin safeguard its brand image at a time when trust in corporate governance is critical to sustaining user engagement and business partnerships.

GroupM and Pacvue join forces on retail media

GroupM has unveiled a global partnership with commerce technology provider Pacvue, introducing an integrated commerce management solution to bridge the gap between retail and media operations. 

This collaboration combines GroupM’s data and insights with Pacvue’s technology to streamline media management, insights, and retail operations exclusively for GroupM clients.

As retail media continues to be the fastest-growing segment in digital advertising, the partnership seeks to address the complexities that brands face in the advertising landscape. The solution enhances connectivity and operational efficiency, allowing for quicker market planning and activation. 

In addition, GroupM clients will benefit from access to new retail channels through Pacvue and a new interface for comprehensive media monitoring and reporting. 

My take: This partnership could be a game-changer for retail media in APAC. Retail media is still in its early stages in APAC, meaning significant room for growth and innovation exists. 

The integrated commerce management solution from GroupM and Pacvue could help brands enhance the use of first-party data. In a market where privacy concerns and data protection are becoming increasingly important, the ability to leverage first-party data for personalised and relevant advertising could give brands a significant edge. This is particularly relevant in APAC, where consumer behaviour is diverse, and the ability to tailor messages to specific audiences can drive better engagement and higher returns.

However, it is also clear that this partnership will demand high brand strategic thinking. As more players enter the retail media space, the challenge will be to manage this complexity while maintaining sight of the ultimate goal: creating meaningful connections with consumers.

WFH to blame for Google playing catch up on AI?

Former Google CEO Eric Schmidt has attributed Google’s lag in the AI race to its work-from-home policy, asserting that its focus on work-life balance has hindered its ability to compete with startups like OpenAI and Anthropic. 

Speaking to Stanford University students, Schmidt stated that Google's decision to prioritise remote work over intense in-office collaboration led to the company losing its competitive edge in AI development. He contrasted this with the intense work ethic of startups, where employees are often driven to work long hours to stay ahead.

Schmidt, who led Google from 2001 to 2011 and remained involved with the company until 2020, emphasised that startups demand a level of dedication that he believes is incompatible with a remote work culture. His comments have sparked debate, especially as hybrid work models become increasingly popular in the tech industry. Google requires employees to be in the office three days a week, a policy reflecting the broader trend towards hybrid work.

My take: I find Schmidt’s comments both provocative and somewhat short-sighted. While there is merit to the idea that intense, in-person collaboration can drive innovation—especially in a fast-moving field like AI—I don't believe remote work is the root cause of Google falling behind in the AI race. 

The world has changed dramatically, and our work has evolved with it. As a tech giant with vast resources and talent, Google should be able to adapt and thrive regardless of whether its employees are in the office or working from home.

The real issue might not be where people work but how effectively they are empowered to innovate and collaborate. If Google is losing its edge, it could be due to a range of factors beyond remote work—perhaps a growing bureaucracy, a slower decision-making process, or a culture that may no longer encourage the kind of risk-taking that drives breakthroughs.

The WFH debate is far from settled. While some studies suggest that remote work can reduce productivity, others indicate the opposite, showing that employees can be just as, if not more, productive outside the office. The key lies in how companies manage and support their teams remotely or in person.

Schmidt’s remarks also underscore a broader tension in Silicon Valley—between the relentless drive for innovation and the need for work-life balance. His comments seem to glorify a work culture where long hours and burnout are the norm, which I believe is not sustainable in the long term. 

The future of work should be about finding a balance where innovation thrives but not at the cost of employee well-being. If anything, Google’s challenge may be rediscovering the pioneering spirit that made it a leader rather than simply blaming remote work policies.

Meta and Universal Music Group take on generative AI

Meta and Universal Music Group (UMG) have expanded their existing music licensing agreement, allowing users to share songs from UMG’s extensive music library across Meta's platforms, including Facebook, Instagram, Horizon, Threads, and WhatsApp, without infringing copyright laws. 

A vital aspect of this new agreement is a joint effort to tackle the issue of ‘unauthorised AI-generated content’, where AI systems use songs without the consent of the original creators.

The deal also comes amid ongoing legal action by the Recording Industry Association of America, representing UMG and others, against AI music generation startups accused of using copyrighted music to train their models. Meta, on its part, asserts that its AI models are ethically developed using licensed or Meta-owned music.

This agreement marks the first time WhatsApp users can share licensed UMG music within the app, and it extends to Threads, Meta’s competitor to X (formerly Twitter).

My take: This collaboration is a proactive move to safeguard the rights of artists and creators in an era where AI has the potential to replicate and misuse creative content without consent. 

By committing to tackle unauthorised AI-generated content, Meta and UMG are setting a precedent for the responsible use of AI in creative processes, which is crucial as the technology becomes more pervasive.

From a broader industry perspective, this partnership highlights the growing need for companies to navigate the complex landscape of AI, intellectual property, and content creation. As we have seen with recent incidents like Google’s mishap with its Gemini AI, the risks of AI-generated content—ranging from misinformation to cultural insensitivity—are genuine. 

These incidents serve as a reminder that while AI holds incredible promise for enhancing creativity and efficiency, it also requires rigorous oversight and ethical considerations to avoid public relations disasters and legal challenges.

Looking ahead

Can Reliance and Disney speed up their merger?

Reliance Industries and Walt Disney have proposed selling a limited number of TV channels to expedite antitrust approval for their $8.5 billion merger of media assets in India. However, according to Reuters, the companies are resisting any changes to their lucrative cricket broadcasting rights.

The merger, announced in February, is set to create India's most extensive entertainment conglomerate, posing significant competition to rivals like Sony, Zee Entertainment, Netflix, and Amazon. With a combined portfolio of 120 TV channels and two streaming services, the merged entity, which will be majority-owned by Mukesh Ambani's Reliance, is expected to wield considerable market power, especially in cricket broadcasting—a key revenue driver in India.

The Competition Commission of India (CCI) has expressed concerns over the new entity's potential market dominance, particularly in regional language channels where the combined companies could hold significant market share. In response, Reliance and Disney have offered to divest fewer than 10 TV channels, focusing on those where they may dominate the market.

Cricket broadcasting rights, however, remain a contentious issue. The merged entity would control digital and TV rights for significant cricket leagues, including the Indian Premier League (IPL), which advertisers highly seek. While the CCI has not yet raised specific concerns about cricket rights, experts warn that the merger could lead to near-total control over cricket broadcasting in India.

Reliance and Disney have argued that the cricket rights, set to expire in 2027 and 2028, cannot be sold or sublicensed without approval from the Indian Cricket Board, which could delay the merger process. The companies maintain that adjustments to these rights are only feasible at a later stage.

My take: While the sale of a few TV channels might help get the merger past regulatory hurdles, it feels like a superficial concession, given the broader implications of this deal. The sheer scale of the merged company, especially with its grip on cricket rights, could stifle competition and give it unprecedented control over the media landscape in India.

Cricket is more than just a sport in India; it is a cultural phenomenon that drives massive advertising revenue. The combined entity's dominance in this area could lead to inflated ad rates and limit the options for advertisers, ultimately reducing the diversity and competitiveness of media offerings in the country. Reliance and Disney's argument that these rights cannot be touched because they expire in a few years seems like a way to sidestep genuine concerns about market control.

It is also troubling that cricket rights cannot be affected until they expire. This seems like a strategic move to delay any real scrutiny or intervention by regulators. The potential for this merger to lead to ‘absolute control’ over cricket broadcasting should not be taken lightly, as it could have long-term impacts on the media industry and how content is consumed in India.