A picture and a paragraph to understand Alibaba's future in Jack Ma's eyes

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Alibaba today released its first online interactive annual report after its listing, aiming to convince investors that Alibaba's growth prospects remain bright. At the same time, Alibaba Chairman Jack Ma (Weibo) issued an open letter to shareholders, detailing Alibaba's future strategy, platform advantages, capital markets and even competitors, and other issues of concern to the outside world.

Alibaba shares have been sold off by investors due to slow revenue growth, China's economic slowdown and other issues. Ma Yun said in the letter that the world's reaction to China's economic slowdown is a bit excessive, and China's economic slowdown will not affect China's consumption level.

In his open letter, Ma Yun said: "I disagree with the view that 'the slowdown in economic growth will affect China's consumption level'." Western consumers may find it difficult to continue to maintain their previous lifestyles through borrowing during an economic downturn, but Chinese consumers are different. They are used to saving for the future. The reason why more and more consumers shop online is that it is convenient and can better reflect the value of money.

"China does not lack domestic consumption capacity. The key is to think about how to ignite this consumption power," Ma said.

The open letter is accompanied by an online interactive report with videos and charts, designed to better explain the Chinese market and Alibaba's corporate strategy to overseas investors.

Ma's move highlights the challenges Alibaba faces in communicating with U.S. investors, who have limited interaction with its products and services. Alibaba has disappointed investors twice since its IPO: first in its quarterly report ending in December last year and again in its quarterly report ending in June this year.

Tian X. Hou, founder of research firm TH Capital LLC, said one risk for investors is Alibaba's lack of experience in communicating with Wall Street. "The responsibility of communication is in Alibaba's hands, but they don't have good skills in communicating with investors," said Tian.

Alibaba's stock price has hit its highest point since its IPO as investors worry that China's economic downturn will affect its business prospects. At the same time, such concerns have also affected the stock prices of other technology companies listed in the United States.

Last month, Jane Penner, Alibaba's head of investor relations, said slowing consumer spending meant the company's online transactions in the third quarter would be lower than previously expected. Penner estimated that Alibaba's third-quarter GMV is expected to be about 5% lower than the company's initial expectations.

In his open letter, Jack Ma said that e-commerce is only part of Alibaba Group's strategy and that using the transaction value on its platform to evaluate the company's performance is too narrow. Alibaba hopes to use its resources in big data, cloud computing and logistics to build the infrastructure for China's future commerce.

Alibaba remains the leader in China's e-commerce market, but the company also faces many problems, such as investor concerns about the company's weak revenue growth and slowing transaction volume, concerns about counterfeit and shoddy goods on its platform, and uneasiness about strong challenges from other competitors.

Alibaba has been expanding into rural markets as urban markets become saturated, but business growth in those areas has been slow. In August, Alibaba posted its smallest quarterly revenue growth in three years.

At the same time, Alibaba is also actively investing in other companies, including the recent acquisition of a 20% stake in Suning Cloud Commerce for US$4.5 billion. The same is true in overseas markets, such as investing in Indian online payment company Paytm and US company Snapchat.

In another letter to investors, Alibaba CEO Daniel Zhang said the decline in Alibaba's stock price has not affected the company's commitment to its development goals. "Alibaba's value is reflected in our pursuit of dreams and creating value for customers, which will not be affected by stock price changes," Zhang said.

Zhang Yong also said that Alibaba is "investing heavily" in combating counterfeit goods. Zhang Yong also reiterated Alibaba's goal of achieving a total transaction volume of more than $1 trillion in the next five years. In the next 10 years, Alibaba hopes to build a global base with 2 billion consumers and tens of millions of companies, providing 100 million jobs.

To Alibaba Shareholders:

It has just been one year since Alibaba was listed in New York. Please allow me to use this letter to express my gratitude on behalf of the company and myself to our customers, employees, investors and partners who have always believed in and supported Alibaba.

Over the past year, global stock markets have fluctuated. We have observed and listened to the market's views and suggestions on us, but we are more aware of Alibaba's current situation and future path. Today's Alibaba is healthier, stronger, and more calm than ever before. We have made great progress in adhering to our development strategy.

On the day of the listing, I said that the $25 billion we raised in the U.S. stock market was a testament to the trust they placed in us. It is precisely because of this trust that we have the responsibility to maintain the highest degree of transparency, closeness, and candid communication with shareholders and the public—especially since Alibaba’s international services are still in their infancy, and overseas shareholders and the public who care about us cannot directly use this as a criterion. In fact, e-commerce in a narrow sense is only part of Alibaba Group’s strategy today. What we are pursuing is to build an open, transparent, and collaborative business infrastructure platform.

As of the end of June 2015, Alibaba Group had a total of 34,000 employees. Among them, the number of employees who specialize in the "China Retail Market" and GMV is less than 10,000. We have completed a platform with a GMV of nearly 3 trillion yuan with only about 10,000 people, that is, a platform with a per capita GMV of nearly 300 million yuan. Despite such efficiency, we still believe that we still need to greatly improve our technology and products. We must not rely on the human sea tactics, but on innovation and technology to win the market. In the next few years, we have the opportunity and ability to build a business organization with the highest efficiency among large-scale enterprises in the world, while creating the most ecological employment.

Apart from the 10,000 people mentioned above and the upstream B2B business team and backend of the supply chain, nearly half of our total employees are engaged in new businesses with great strategic significance. We believe that only by investing in the future and adhering to the long-term strategy can Alibaba have a real future.

We are very clear that only by relying on Internet technology and big data, and only by building a truly innovative business infrastructure, can we fully help small and medium-sized enterprises do business. Due to the weakness of China's business foundation, Alibaba has a unique global opportunity - to build China's future business infrastructure (not e-commerce infrastructure). About half of our group's employees, as well as our affiliated companies Ant Financial and Cainiao, have been working hard in logistics, Internet finance, big data cloud computing, mobile Internet, advertising platforms and other businesses for several years, as well as health and digital entertainment businesses based on data technology in ten years. We call it the "double H" industry, Health and Happiness.

Today, Alibaba's Cainiao logistics system is already helping to process about 10 billion express parcels per year. Our Internet finance has served nearly 400 million active users. Our cloud computing business is at the forefront of the world and maintains an annual growth rate of more than 100%. Our mobile Internet basic products, including search, maps, and browsers, also provide indispensable basic services for Chinese users. In the future, we will provide e-commerce, finance, logistics, cloud computing big data, marketing services, cross-border trade and other services to tens of millions of Chinese companies.

Our future layout is based on unique long-term strategic thinking. Although the above platform businesses are still far from our goal and have not brought us huge revenue today, their prospects are exciting enough, and we will continue to persevere for such a future.

We firmly believe that the era of commercial empire-style development has passed, and we should adhere to the platform ecological development. Only when enterprises in the ecosystem participate in development together and everyone is a community of interests can sustainable development be achieved.

Today, some of our strategic businesses have achieved initial results. Take logistics as an example. In fiscal year 2015, Alibaba generated more than 24 million express parcels per day. Our partners have more than one million express logistics employees engaged in delivery and transportation services every day. We expect that in ten years, there will be 10 million people engaged in express logistics services in China. This is something that needs to be done by organizing social forces, not something that any company can do well alone. We are more confident that in the next three years, due to the unique services of the Cainiao logistics platform, express logistics services will undergo tremendous changes. Logistics will be more standardized and regularized, and customers will be provided with more intimate services. Logistics services will be the standard configuration of any e-commerce company, not the core competitiveness. Therefore, it is Cainiao's mission to help all express service companies achieve high-standard and high-standard service capabilities as soon as possible.

2. The relationship between China’s economic development and Alibaba

Recently, the signal of China's economic slowdown has caused concern and even excessive panic in all walks of life. This also fully demonstrates that the Chinese economy has been thoroughly integrated into the world economy and has also exerted considerable influence. But I want to be realistic and say that continued super-speed economic growth is neither realistic nor sustainable, and it is not the "performance" that China should pursue.

The price of overspeed economic growth is the destruction of ecological environment and resources. With the government's repeated signals of transformation and upgrading, the pressure of the 2008 financial crisis, the fatigue of investment and exports, and the mentality of enjoying the inertia of high-speed growth, China's economy has reached an era where it must be upgraded. Yesterday's simple and extensive GDP growth model has made it difficult for the economy to develop sustainably. In fact, if China still pursues yesterday's unreasonable overspeed growth, the price it pays will be even higher.

I firmly believe that the slowing economy will bring more benefits than disadvantages to China's future prospects. China's economic development no longer needs to increase quantity, but to improve quality. Even if China, the world's second largest economy, has a 5% GDP growth rate, it is more than double the growth rate of developed countries.

Over the past three decades, China's economy has benefited from the emancipation of the mind and the opening-up policy, but we have not focused on stimulating the most important force in productivity - people's creativity and innovation. High GDP growth relies on manufacturing, while quality of life growth relies on creativity. I believe China has a lot of room to play in this regard.

In the future, China's economy will move from export to import, from export-oriented economy to domestic demand economy, and from infrastructure investment to infrastructure operation. China will use high technology, new models and marketization to solve the problem of sustainable development. In short, the potential of China's economy is huge. Although the difficulty will not be small, the miracle of China's economy in the future must lie in the leapfrog development opportunities brought by the release of productivity and the stimulation of domestic demand by Internet big data technology.

Will the economic slowdown have an impact on Alibaba?

Alibaba's domestic retail market transaction volume reached RMB 2443.7 billion in the fiscal year ending March 2015, accounting for 9% of China's total retail consumption. We estimate that more than 50% of China's consumption will be conducted through the Internet within ten years, so the e-commerce market is huge. Based on this, more than 80% of Chinese companies will use the Internet's e-commerce platform, logistics system, financial services, cloud computing and cross-border services. Alibaba's investment today is making all this possible. Alibaba's business is undoubtedly closely linked to the Chinese economy, but we believe that in the future, the services provided by Alibaba will become the fourth indispensable business infrastructure resource for enterprises after water, electricity and land.

As for the view that economic downturn will lead to a decline in consumption, I do not agree with this view. The theory that the Chinese will be unwilling to consume if the Chinese economy declines reflects a lack of understanding of China. The Chinese people's life philosophy is different from that of the West. Consumers in Western developed countries are good at spending money in the future, while Chinese people basically always save money. Chinese savings deposits are the highest in the world. Western consumers cannot borrow money to spend when the economy is bad, while Chinese people do save money to prepare for old age and crisis. Therefore, a bad economy does not necessarily mean that there is no money to spend. However, because of the convenience and low price of e-commerce, people are more willing to spend money online.

China currently has nearly 300 million middle-income people. In the next ten years, according to the current development trend, China will have 500 million middle-income people. Today, the consumption level of middle-income people is far lower than their income level. Consumption needs to be stimulated by innovation. Alibaba's business model will be the main engine for stimulating domestic consumption in China in the future. This can be seen from the consumption volume on Double Eleven. China is not lacking in domestic consumption power, but it needs to think about how to detonate consumption power. Whether it is promoting imports, stimulating demand in third- and fourth-tier cities, or stimulating demand for more than 600 million farmers, there are too many things Alibaba can do and where it can play a role.

A duck knows first when the river water warms in spring. Great companies are always born in difficult times. I believe that during this period of adjustment of China's economy from quantity to quality, several truly great companies will emerge in the world. Alibaba hopes to be fortunate enough to be one of them.

III. Future development direction: globalization, rural market and big data cloud computing

Our vision for the next decade will revolve around globalization, rural economy and big data development.

Our global business focuses on helping small and medium-sized enterprises go beyond their own borders, so that small and medium-sized enterprises around the world can make good use of e-commerce, Internet finance, big data, marketing and logistics platforms. Only by globalizing their business can global consumers buy products and services from any country or region in the world. We believe that Alibaba's experience in China today can also be used in the development of globalization, because the demands of small and medium-sized enterprises around the world are the same: to use their unique competitiveness in a transparent and fair market. We also believe that the globalization of the world economy in the future must allow small businesses in various countries to globalize their business and enable consumers in various countries to achieve true global shopping. To this end, we have been preparing for quite a long time. It may take another 10 years to implement this plan. Even if it takes 20 years, we will go all out and stick to the mission of "making it easy to do business in the world"!

China has more than 600 million farmers, and the commercial infrastructure in rural China is still backward. But today, the rural situation has changed dramatically, and the penetration rate of mobile phones in rural areas is getting higher and higher. Especially with the urban consumer market of Taobao and Tmall, farmers can directly connect with urban life. We are currently using mobile Internet technology, big data, logistics platforms and Internet finance to rebuild the rural information technology infrastructure. This not only brings us huge market demand potential, but also gives Alibaba an opportunity and blessing to actively participate in solving the data gap and information equality, and solving poverty development. Because of Alibaba's services, we see that rural areas are changing. We also particularly welcome all shareholders to visit rural China. The efforts we are trying today may become a model for the development of countless developing countries in the future. At such a historic moment, Alibaba must embrace change, invest in change, and create change!

Over the past six years, Alibaba has made huge strategic investments in cloud computing and big data services. We believe that humans have moved from the IT era to the Data Technology (DT) era. Data will be the most important means of production for the future innovative society, and humans will not be able to live without data. We must invest in and develop data technology at all costs. Our group is essentially a company that expands the value of data. We firmly believe that our investment in data and technology over the past six years and in the next few years will have huge returns. We are working hard to make data and computing power the foundation of an inclusive economy. Despite this, we still feel that cloud computing and big data are still infants compared to future potential.

About the various challenges faced by the outside world in viewing Alibaba and our views.

Alibaba faces many challenges, but what the outside world cares about may be different from what we care about. For example, the competitive environment. Alibaba is used to talking about competition and does not avoid talking about competitors. Alibaba has never lacked competitors in the 16 years since its establishment. We are not a protected company. We are a company that has survived the fierce market competition. In the past 16 years, we have learned to maintain idealism and values ​​while surviving tenaciously. This is not easy.

We are never afraid of competition, we just adopt strategic layout and best implementation to win the competition.

Alibaba's positioning is to initiate a business revolution. What we are building is the infrastructure for future business. We empower businesses engaged in buying and selling, rather than competing with them. From this point of view, the so-called "competitors" in the market today are actually the objects of our empowerment and assistance in the future. In other words, simply regarding the companies engaged in e-commerce in the market today as Alibaba's competitors is like comparing apples to apple trees, which is inappropriate for both parties.

The real biggest challenge facing Alibaba does not come from competitors, but from our ability to control the future and ourselves. Our grand vision and unique ecosystem require us to have a variety of professional talents, a unique organizational culture and organizational structure that adapts to the future development of enterprises. The huge business ecosystem and rich and complex structure require us to have not only traditional business management talents, but also leaders, innovators, and pioneers in various fields. This is a huge challenge for a company with an average age of only 29 and a history of only 16 years. In short, our talents, organizational culture, management model, and the relationship between various ecological businesses and government agencies... It seems that it is difficult for us to learn from them. A young company is determined to challenge a human first task, which is more difficult than imagined. But this is a rare opportunity of the times. For 16 years, we have been saying to ourselves: At this moment, it must be me. (If not now, when? If not us, who?)

Dear investors, this is the first time we have communicated with you about our development thinking after Alibaba went public. Although it is a bit long, every word is indeed typed by me. Thank you for investing in the growth of a future business ecosystem. Your investment is a trust in us.

Jack Ma

Chairman of the Board of Directors of Alibaba Group