Every autumn, Alibaba holds its most important technological event of the year, the "Yunqi Conference," which almost always brings together senior government officials, industry organizations, partners, and the top management of the super company itself. From Alibaba founder Jack Ma, Aliyun founder Dr. Wang Jian, recently retired former chairman and CEO Zhang Yong, to this year's Yunqi Conference, Another legend of Alibaba, Cai Chongxin.
On October 31st, Alibaba and Alibaba Cloud held their first Yunqi Conference after unexpectedly replacing their management in September of this year. It was also Cai Chongxin's first public speech at Hangzhou after returning and serving as the chairman of Alibaba's board of directors. His keywords included "digital economy", "Hangzhou, Zhejiang", "Cloud Asian Games", "AI open ecology", and so on. According to its introduction, 80% of technology enterprises and over half of AI large model companies in China currently operate on Alibaba Cloud.
Although AI big models still have a long way to go before commercialization truly matures. But manufacturers providing cloud computing services will still be the biggest beneficiaries of this AI boom.
In terms of other executives, Wu Yongming, who has just taken over as Chairman and CEO of Alibaba Cloud for less than two months, did not give a speech or accept media interviews. At its home grand event, the current Alibaba Cloud No.1 position did not make any public statements or statements, but sat quietly listening off the court. The specific business introduction of Alibaba Cloud this year is handled by Alibaba Cloud CTO Zhou Jingren.
However, there are still many unresolved issues. According to the plan of CEO Zhang Yong in May, Alibaba Cloud will completely spin off and go public independently within 12 months. In addition, Alibaba Cloud will also introduce external strategic investors. Half a year has passed, and Alibaba Cloud, both internally and externally, has not made any progress updates on this ambitious and clearly scheduled goal, even like an elephant in the room, without anyone mentioning it again.
Expensive AI
Even though everyone knows that the cost of AI computing power will decrease and there will be more and more application products, it is still a matter of the future. Before reaching that future, it still needs to undergo several years of development and losses of hundreds or even billions of dollars. For Alibaba Cloud, who will fill this gap has become a problem. Capital markets, external strategic investors, or internal Alibaba?
From a global perspective, apart from major giants, only Sun Zhengyi and the oil money that skipped Sun Zhengyi may be willing to accept losses at this level. As is well known, as cloud and AI become increasingly the kind of infrastructure and public services Alibaba wants, external money is less likely to participate in the development of China's cloud computing industry.
But currently, AI computing power still requires a large amount of financial support. The most dazzling stars in AI big model startups, Anthropic and OpenAI, have raised over $20 billion in total from giants such as Google, Amazon, and Microsoft. Due to the expensive AI computing costs, most of this cash will be returned to their shareholders' reported income through the purchase of cloud services. According to the estimation of well-known VC a16z in California in January this year, third-party model suppliers will spend approximately half of their revenue on cloud infrastructure; Startups that train their own models spend 80-90% of their early rounds of financing on cloud service providers.
What is different from them is that in China, whether ERNIE Bot or Tongyi Qianwen has to rely on Baidu and Alibaba's own mature business scenarios to develop; Meanwhile, large model startups such as Baichuan Intelligence and Zhipu AI also invest in Chinese internet giants while serving as their clients.
This model was pioneered by Microsoft when it first invested in OpenAI four years ago. We cannot confirm whether there will be a clause in the investment agreement between Chinese internet giants and Baichuan Intelligence to purchase shareholder cloud services - but what we can confirm is that for giant cloud computing departments such as Alibaba Cloud and Tencent Cloud, providing cloud services to artificial intelligence startups can definitely dilute the high costs they have paid to build AI computing power, It can also accumulate experience, identify and solve problems in the process of providing services to external customers.
Due to the foresight and breakthrough of OpenAI, Microsoft, which had been betting on it in the early stages, has slowly begun to reap results. In the recently released third quarter report, Microsoft's cloud computing service Azure revenue grew strongly by 29% compared to the same period last year, not only showing a rebound in growth but also exceeding market expectations.
The investment funds come from the profits contributed by the mature business of the group, which have become the income of the group's cloud computing business through a large amount of consumption by the startup company, and have also cultivated their own large model team. For the cloud computing business, this deal is simply a sure win without losing.
But cost remains a major issue. Despite external customer purchases and the existence of Moore's Law, the current AI computing power cost remains high. According to WSJ's report last month, the GitHub Copilot launched by Microsoft using OpenAI technology has been used by over 1.5 million people, but has been in a loss making state due to high operating costs. According to sources familiar with the matter, in the first few months of this year, Microsoft posted an average of over $20 per user per month, with some users causing losses to Microsoft as high as $80 per month.
The reality is that compared to ordinary traditional cloud services, cloud services based on more powerful AI models consume more energy. However, in addition to the significant consumption of electricity and energy, Chinese cloud computing companies also face a bleak prospect of AI computing power shortage, which means that if they want to achieve the same AI computing power efficiency as their foreign counterparts, Chinese cloud computing companies will have to pay a higher and more sustainable price.
These costs cannot be borne by Alibaba Cloud alone. After finally turning losses into profits last year, Alibaba Cloud's revenue and profits remained stagnant. During the same period, due to the merger of the artificial intelligence team of the Da Mo Academy, which developed Tongyi Qianwen, Alibaba Cloud has added a huge cost department - of course, this cost department is likely to give back to Alibaba Cloud in the future, but at least for now, Alibaba Cloud needs more help and even blood transfusion to get through the investment period. Although Alibaba Cloud experienced a period of emphasizing business profitability last year, according to the response of Alibaba Cloud executives in media interviews, the current goal cannot be to reduce losses.
Within the entire Alibaba Group, only Taotian Group can be called the true profit center. According to the financial report for the second quarter of 2023, Taotian Group contributed 49.319 billion yuan to the adjusted EBITA of Alibaba Group, which was 45.371 billion yuan, due to losses from other businesses. From the perspective of Alibaba Group, that is another story.
Unable to detach from Alibaba's Alibaba Cloud
Alibaba's ambitious "1+6+N" spin off this year, with Alibaba Cloud being one of the "6" and possibly the first to "mature and go public" business, may be difficult to spin off in the short term.
In the final analysis, Alibaba Cloud is still Alibaba's cloud, and it cannot survive independently from Alibaba. Its previous listing plan will also be distant.
If according to the arrangements made in August and before this year, Zhang Yong, former Chairman and CEO of Alibaba's Board of Directors, would have retained the position of Chairman and CEO of Alibaba Cloud Intelligence after stepping down. In addition to Zhang Yong's need to fully devote himself to the business of Alibaba Cloud Intelligent Group and its spin off and listing, another reason is that "considering the requirements for standardized corporate governance during the spin off process, Zhang Yong is no longer suitable to hold the positions of chairman and CEO of both companies at the same time".
But on September 10th, Cai Chongxin's first full staff letter as the new chairman of Alibaba's board of directors broke everyone's expectations: Zhang Yong resigned from both Alibaba Cloud's chairman and CEO positions, both of which were succeeded by Wu Yongming.
According to Blue Whale Finance, one of the important reasons for this sudden change is that Wu Yongming, as the new CEO of Alibaba and Chairman of Taotian Group, proposed that Taotian Group should give up using Alibaba Cloud and choose external cloud services. From the perspective of Taotian, Wu Yongming's reason is indeed very strong. Compared to Alibaba Cloud, external cloud services are cheaper, which can help Taotian reduce costs and increase efficiency. As a customer, Taotian Group accounts for nearly a quarter of Alibaba Cloud's revenue structure, and in order to support Alibaba Cloud's development, it also pays a premium for internal procurement. However, once Taotian Group is lost as a major customer, Alibaba Cloud's subsequent development will be difficult, not to mention Alibaba Cloud, which relies on this wave of big models to develop AI, and will have to bear more losses.
In addition, if Taotian Group really wants to switch cloud service providers for such a large business, the required workload will be enormous, and various unexpected technical difficulties may also be encountered during the switching process.
This is a requirement that Zhang Yong cannot accept, not only for himself but also for Alibaba Cloud. After weighing, Zhang Yong ultimately chose to leave on his own. Even if he left, it would almost certainly disrupt all announced plans such as Alibaba Cloud's spin off and listing process. With the smooth transition of reform, Xiaoyaozi has proposed to the group that he will step down from his position as Chairman and CEO of Alibaba Cloud. After careful consideration, the group's board of directors respects Xiaoyaozi's decision, "wrote Cai Chongxin's full staff letter. So, Wu Yongming concurrently took on the position of number one on Alibaba Cloud, with his hands and backs full of flesh, and he had ample reasons to continue deploying Taotian Group on top of Alibaba Cloud.
And this also means that Taotian Group will not be able to fully fight against the more brutal e-commerce battlefield. Although Pinduoduo and Tiktok e-commerce are under fierce attack, and overseas is the world of SHEIN and Temu, Taotian has to take care of the future of Alibaba as a whole. It must support its family, and at least be responsible for the foreseeable losses of Alibaba Cloud for many years after its next AI refocus.
For this reason, in addition to using inspiring slogans to predict the future of Dr. Wang Jian at the Yunqi Conference, Cai Chongxin's statement has also proven this: "From bottom computing power to AI platforms and model services, Alibaba will increase research and development investment to promote Alibaba Cloud's comprehensive technological upgrading and innovation. If translated in vernacular, it means that Alibaba's current profitable business needs to support Alibaba Cloud; Alibaba Cloud's current task is not to make money, turn losses into profits, or reduce costs and increase efficiency, but to grow, and only to grow.
Computing, for the sake of incalculable value "- At the 2023 Yunqi Conference, Alibaba Cloud used the brand Slogan back many years ago; At the end of the main forum, Alibaba Cloud invited Dr. Wang Jian, dressed in the familiar blue and white checkered shirt of Alibaba people, to give a final speech, discussing his expertise in prophecy and the future. "The combination of artificial intelligence and cloud computing is the third wave of cloud computing"; Among all external materials, Alibaba Cloud no longer uses Alibaba Cloud Intelligence - this was the name of former Chairman and CEO Zhang Yong during his tenure.
So, at this year's Yunqi Conference, an Alibaba Cloud that was more familiar to Alibaba people in the early years returned. Some people say that this is a return to the original intention; Some people also say that this is a setback in history. How to evaluate it ultimately may depend on Alibaba in the future to provide the answer.