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March 29, 2023

Alibaba six-way split will see Aliyun cloud division become a separate company

After years of conflict with Chinese authorities, the tech giant will be hoping its new structure gets the thumbs up from Beijing.

By Matthew Gooding

Chinese Big Tech company Alibaba has announced a massive reorganisation which will see its business split into six separate organisations, including a newly independent cloud unit. The move could coincide with the Chinese government taking a more relaxed to the country’s tech giants after years of stringent regulation.

Alibaba will split into six companies, it has been announced. (Photo by zhu difeng/Shutterstock)

Announced overnight, the Alibaba split comes as founder Jack Ma returns to China after two years living abroad.

Alibaba split: How the Chinese conglomerate will be divided

Alibaba is one of the world’s largest companies and was valued at $231bn when it listed in New York in 2014. However, since 2020 the Chinese government has been cracking down on Big Tech companies, with regulators imposing controls on Alibaba and rivals such as Tencent, which have dented their revenues. Alibaba’s shares, which had lost 70% of their value since 2020, rose 14% overnight on news of the restructuring.

Though primarily an e-commerce business, the company has expanded into cloud and other IT services, as well as artificial intelligence and fintech.

The split will create six separate businesses, with the Cloud Intelligence Group – comprising cloud and AI services, as well as the company’s Slack-alike communication platform, DingTalk – going it alone. The business will be led by Daniel Zhang, who is currently CEO of Alibaba, and will continue as group chairman and chief executive.

Elsewhere, the Alibaba split will create the Taobao Tmall Business Group, focusing on e-commerce, the Local Services Group, the Global Digital Business Group that incorporates the company’s international e-commerce brands, Cainiao Smart Logistics, and a Digital Media and Entertainment Group.

Alibaba’s cloud ambitions

All the new companies will be free to seek outside investment and potentially IPO. They will be able to make their own appointments too, though Alibaba plans to retain control of Taobao.

“The original intention and fundamental purpose of this reform is to make our organisation more agile, shorten decision-making links and respond faster,” Zhang said.

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News of the reorganisation is likely to please Chinese authorities, who had been concerned about the monopoly power of the likes of Alibaba and Tencent, leading to tight controls on the businesses. But it has recently changed tack, perhaps in the face of its escalating tech trade war with the US, handing more influence to private companies.

Last week a plan for the Chinese semiconductor sector, which will give leading manufacturers more control of R&D budgets and access to government funds, was announced, and the government has also signalled it is happy it is now able to effectively regulate “platform economy” companies such as Alibaba.

The split could also help boost Alibaba’s cloud ambitions. Its Aliyun cloud division is one of the largest providers in the world by market share, but trails a long way behind the US hyperscale platforms – Amazon’s AWS, Microsoft Azure and Google Cloud.

Aliyun operates 15 regions outside China, mainly in Asia, but has struggled to make an impact, perhaps in part due to the widespread distrust of Chinese companies following the high-profile problems of businesses like Huawei and TikTok.

Tech Monitor reported in 2021 that Chinese cloud providers are looking to emerging markets such as Africa as places where they can get ahead of the hyperscalers. The new Alibaba Cloud Intelligence Group may continue to target these areas as part of its growth plans.

Read more: China’s generative AI revolution is only just beginning

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