Alibaba's Succession Saga Continues

Alibaba-style power struggles, punk rocker Jack Ma, and some existential questions asked.

Alibaba has been a company run on the cult of personality. Its founder, Jack Ma, lover of martial arts and performer of grand spectacles, is but one in a parade of top executives with larger-than-life personas. You’ve got the “Crazy one,” the "Princeling,” the “Poet” and many more. Conspicuously absent from this roster of flamboyant personalities is someone who left Alibaba last week.

Jack Ma at Alibaba’s 20th Anniversary Party in Hangzhou. CHINATOPIX/ASSOCIATED PRESS

News broke that Daniel Zhang is stepping down from his role overseeing the cloud business, a surprising development coming just two months after the announcement that he would leave his positions as Alibaba Group's CEO and Chairman to focus on taking Alicloud public. Daniel's departure highlights a pivotal choice facing Alibaba: deciding between a visionary spokesperson and professional management.

His “severance package” is generous: Daniel will get $1B to run a new tech fund and an honorary title. Chinese news sources and WeChat articles present a unified narrative, suggesting an amicable decoupling rather than a contentious departure. The overarching message is clear: Alibaba deeply appreciates Daniel's contributions, he will continue to guide the company's effort to invest in promising technologies, and there's no cause for concern as Alibaba’s future looks promising.

The departure of Daniel presents more questions than progress.

Here are my burning questions:

1. What prompted Daniel's departure, and what unique contributions did he bring to Alibaba that will have a lasting impact?

2. What implications does Daniel's resignation have for the internal power dynamics within Alibaba?

3. Why is Daniel stepping down at this particular moment? How does his successor indicate the company's strategic direction?

4. How will the major changes in top leadership impact the culture of Alibaba following the restructuring?

5. How are Alibaba's international and domestic Chinese communication teams handling the messaging around this significant transition?

The End of An Era

Since Daniel Zhang took the helm as Chairman, Alibaba has been beleaguered by a series of unfortunate events. The abrupt cancellation of Ant Financial's record-setting IPO in November 2020 was followed by an unprecedented $2.8 billion antitrust fine in April 2021. Meanwhile, the company's local services platform, Ele.me, has been struggling against its dominant competitor Meituan, capturing less than 30% of the market share. Alibaba's core commerce, its cash cows, Taobao and Tmall, have been squeezed by competitors like Pinduoduo PDD 0.00%↑ and JD.com JD 0.00%↑ . These setbacks have contributed to a nearly 70% decline in the company's market value over just three years.

Taking over Daniel's role is Eddy Wu, affectionately known within Alibaba as Mama Wu. As one of Jack Ma's earliest associates, dating back to 1997, Eddy brings institutional knowledge and internal influence to the table but is also known for his quiet demeanor. With Joe Tsai at the helm, and Mama Wu at his side, and the old guards back in play ( i.e. the “Crazy One” back at Alicloud, the “Princeling” running the international commerce like it’s Taobao), the leadership revamp speaks volumes about Alibaba's internal culture: one needs to be in the inner circle and command significant internal credibility and trust to thrive (and survive).

I cannot not have a Succession meme when it’s literally about succession.

Back to the question of why Daniel has to leave. The timing of Daniel’s departure is interesting. The founding member of Alicloud, the business Daniel was supposed to take IPO, came out of retirement in May. Recent media reports indicate that Alibaba has paused the planned IPO for its Freshippo supermarket division. Initial talks with investors suggest a potential $4 billion valuation, significantly lower than the $6 to $10 billion projected when fundraising began in 2022.

It may just be the behemoth that is Alicloud is too much to take on given the macroeconomic realities and lack of internal alignment. I wrote for the China Project back in June:

Alibaba Cloud, for instance, plans to slash 7% of its workforce. In the last year, Alibaba has reduced its workforce by 7.7%, or around 19,725 full-time employees. In addition to cutting costs, potential spin-offs, subsidiary fundraising, and planned IPOs further signify a shift from expansion to monetization.

However, decisions like Alibaba’s Cloud Intelligence Group IPO can be a double-edged sword. Independence for Alibaba Cloud may involve reclassifying assets and bearing future hardware amortization and capital expenditures, potentially impacting the new entity’s profitability and the Alibaba Group’s stake in one of China’s largest cloud platforms.

Alibaba must continue to pursue share buybacks and attract strategic investors to support its valuation. However, the decisions that best support Alibaba’s share prices and decisions may not be aligned with government wishes, policies, and approvals. The successful execution of the upcoming IPOs — including Cainiao Logistics, new retail poster child supermarket chain Freshippo, and others — will serve as a testament to Alibaba’s ability to maneuver competing priorities post-restructuring.

Perhaps Daniel is simply yearning to return to his roots in accounting and finance. Rather than perpetually cleaning up other people's messes, he can focus on empowering founders instead.

This isn't the first time a professional manager CEO has been appointed and subsequently replaced. Before Daniel, there was Jonathan Lu, AKA Jack’s corporate alter ego. Like Daniel, Lu was known as a low-profile, operational powerhouse. He lasted just two years.

Interestingly, just days after Daniel's resignation, a video compilation featuring Joe Tsai discussing leadership in times of crisis began to circulate widely on WeChat. The footage originates from an interview with Yale Law School. While Joe‘s reputation as Vice Chairman and founding member of Alibaba hardly needs the PR boost, the timing of this messaging is significant to be overlooked. In China, Alibaba wields significant influence over the direction of media stories. In announcing the transition, Huxiu’s headline piece was titled “Mama Wu, Jack Ma’s most trusted person.” There you have it, Jack’s chosen ones.

The Hard Truth

Corporate culture and succession issues aside, Daniel's vision for Alibaba had a timing problem. He banked on China's continued consumption upgrade, which initially fueled growth but later clashed with China's post-pandemic economic realities and a downward trend in consumption. As a result, Alibaba's core commerce has been losing ground to rivals like Pinduoduo.

In May, Alibaba’s first earnings call signaled a shift toward financial optimization and, in August a "value-for-money" core commerce strategy. Taobao and Tmall are grappling with intense competition from both ends: JD.com's strong logistics backbone makes it an indomitable competitor for high-value items, while Pinduoduo's rise has become a formidable challenge in the low-cost market segment.

The Power Struggle Continues

When Alibaba restructured back in May, I wrote:

Whether Alibaba’s split will unlock hidden value and shift investor perception is to be determined. Still, a few things are certain: Steeper job cuts in the name of optimization are here to stay, and behind-the-scenes Alibaba-style power consolidation will create ripple effects felt across the organization.

And we are living through the power struggle right now. Despite his 16-year tenure at the company, Daniel is not among the original 18 disciples who went through hell and fire with Jack. His professional identity is rooted in pragmatism and effective execution rather than visionary grandiosity. But Daniel has fulfilled his duty. He did the hard things, including the headcount slashing in the aftermath of the restructuring and more.

At Alibaba’s 20th Anniversary/Jack’s retirement Party in Hangzhou back in 2019, a punk rocker bedazzled Jack took the stage alongside his handpicked successor, Daniel. Jack crooned the intro stanza to Josh Groban’s “You Raise Me Up.” The establishing shot revealed the grandeur of the massive sports stadium, perfectly capturing the mise en place of this pivotal occasion before the camera shot pans to a noticeably bashful Daniel.

“You raise me up to walk on stormy seas; I am strong when I am on your shoulders,” sings Daniel to the man who gave him the power,

“You raise me up to more than I can be.”