Hidden Champions Fund Newsletters: July Updates

[An excerpt from July’s Newsletter to our clients]

Are we able to find Hidden Champions in the Age of the Internet?

Key Investment Learning Points from Alibaba

The Age of the Internet has seen many Internet companies emerging in the 21st  Century, and the most profitable Internet company in China is none other than Alibaba. Alibaba Group was founded by Jack Ma along with 17 other co-founders in 1999 with the website Alibaba.com, a business-to-business portal with an aim to connect Chinese manufacturers with international buyers. Today, Alibaba Group Holding Limited is one of the biggest companies in China that provides consumer-to-consumer (Taobao.com), business-to-consumer (TMall.com) and business-to-business (Alibaba.com) sales and various other services via e-commerce web as well as offline portals. The company accounts for 75% of all online retail sales in China. As of 2018 the company has 550 million active users, larger than the entire population of the United States. The market capital has doubled since its listing on 19 Sep 2014.

At first glance, the idea of Alibaba being a “Hidden Champion” seems incredible, with the Hidden Champions characteristics seemingly the polar opposite of what the specific group of  companies that are regarded as a central pillar of the German economy (Alibaba, low-profile? Really?). Digging deeper, however, we are able to compare and see how Alibaba, like many hidden-champions-esque companies, are market leaders in their respective markets and achieve success in an ever-changing business environment.

Closeness to Consumers

As far as Alibaba’s business model is concerned, there are no disruptive new innovations; however, they are closer to the market, closer to the consumer, and faster in action as compared to their competitors. True to the saying, “百舸争流千帆竞,借海扬帆奋者先。”,or “hundreds of companies are competing in the industry, but when one is hardworking, coupled with the tailwind of the “trend” of the industry, one can go the distance and be the number one”.

The business model of Alibaba is different from direct competitors like Amazon, as they prefer to focus on being a platform to assist others to run successful e-commerce businesses, instead of running it themselves. This is highlighted in their website, where Alibaba’s group mission is to make it easy for anyone to do business anywhere.

Of course, the company will need funds for the company to realise its mission. So how exactly does Alibaba make its money?  Over here, I would like to share with you “a clue” to look into such a complex company such as Alibaba.

Firstly, let’s find out where is the real source of money from.

Alibaba’s business model is made up of five major parts (refer to Figure 1 Alibaba’s FY2018 Segment Report)
(1) E-commerce (such as Taobao/TMall/Hema etc) is the major revenue contributor (85.5% of sales)
(2) Cloud Computing is the new business sector (5.4% of sales), supporting Ali’s web operations, and besides that, its storage computing systems will contribute to the future growth of Alibaba’s entire ecosystem.
(3)  Digital Media & Entertainment (7.8% of sales), helps to strengthen the promotion on the e-commerce platform.
(4) Innovation Initiatives & Others (1.3% of sales), includes mobile apps like Gaode Map etc.
(5) Other investment such as Ant Finance is not under Alibaba Group’s business, but Alibaba will own 33% of Ant Finance, and 50% of Koubei.

Figure 1 Alibaba’s FY2018 Segment Report
Source:    Alibaba March Quarter 2018 Results Presentation (May 4, 2018)
*As of 26 Sep 2017, Alibaba increase share in Cainiao Network to 51%, the result of Cainiao Network will be consolidated to Alibaba’s result after mid Oct 2017.


As Alibaba continues to expand, its three main business pillars are shown below:

With these three main business pillars, Alibaba created an ecosystem where they do not need to spend capital on purchasing, logistics, it minimises the manpower and material resources to support each other.

Among the three business pillars, E-commerce is the biggest contributor to Alibaba’s revenue. Taobao’s profit is mainly derived on various forms of advertising, while Tmall receives rent directly from the seller, as the seller pays a certain percentage of the commission for every successful order through Alipay. However, Tmall sellers are able to purchase advertisements to attract more traffic to their “store”. This way, Taobao and Tmall online advertising fees was able to account for 50% of the total revenue, and Tmall’s commission fees accounted for 22% of the total revenue.

Selling products, furthermore, selling advertisements

Why does Alibaba appear so attractive to advertisers? Instead of selling “advertisements”, perhaps one can say that Alibaba is selling “data”.

For any advertisers advertising on web portal, WeChat public account or Baidu, they may need to brainstorm on the methods or ideas to target the desired group. However, on Taobao or Tmall, what one just need to do is promote an “event” poster or a “shop entrance” on the homepage, and interested customers will start streaming in.

In the course of its operations, Alibaba is able to leverage on the large amount of transaction data of its customers collected from its payment platform (Alipay), and help its merchants to market their brands effectively. This “Big Data” is the key to the win-win situation among Alibaba, advertisers, merchants and consumers, and such “precise advertisements” have become the biggest competitive advantage of Alibaba among its competitors. At the same time, understanding the main sourse of revenue for Alibaba will help us have better understanding of the feasibility of their future expansion strategy.

Secondly, with this understanding, let us have a look on how Alibaba is able deliver the advertisements accurately.

1.Alibaba has been working hard to weave a super ecological network to enlarge its data base, pushing accurate advertisements to consumers through trend analysis with enough data base.
For example, there are many complex roles within Taobao. Sellers, buyers, and various service providers such as credit system (Ant Finance), Logistics service (Cainiao Network), Payment service (Ant Finance), Cloud computing (Ali-Cloud) etc. are multiple roles that has complex interactions between each other, and this forms a very complex yet synergized network, driving the rapid expansion of the Alibaba ecosystem.

The Alibaba ecosystem is massive currently, comprising the company’s core e-commerce platforms (Tmall, Taobao, Ali Express and more), digital media and entertainment divisions (Youku, Alibaba music,Weibo etc), local services such as Koubei etc, with over 550mil active buyers at Alibaba’s platform, and it is all thanks to Alibaba focus on consumer’s demand.

According to Amazon’s CEO Jeff Bezos in his book <<The Everything Store>>, the essence of the retail industry can be summarized to: In order to meet the changing needs of consumers, the supply chain efficiency must be constantly improving. With Alibaba which is centred in Asia, and Amazon on the other side of the ocean, both of them are able to expand their business focusing on this unchanging core within these 2 decades.

1.1 Omnidirectional users – Uni-Marketing Strategy
In this era of the Internet, those who has buyers traffic, has the advantage over others. “Uni-Marketing”, a suite of tools launched in June 2017, gathers and analyses cross-platform data based on the unified IDs, enabling brands to better target customers over the  product lifecycle and promoting their brands effectively. Users can use their unified ID to login into different platforms, and Alibaba is able to fully understand their interest and demand.

From consumption, social networking, online travel, entertainment, lifestyle service, and mobile, you can find Alibaba in every field. This is such a complex cooperative network, but yet it creates such a huge synergy, which allows Alibaba to contribute enormous value to the society. At the same time, the development of such a complex network has further promoted the development of a global collaborative network like Alipay (Ant Finance) and Cainiao Network, leading them to a broader social synergy in the future.

1.2 Based in China and Go Global – The “Five New” Strategy.

In order to grow the business, Alibaba’s forward-looking leader Jack Ma revealed a “five new” strategy at the Hangzhou Yunqi Conference in 2016. (“Five New” refers to the new retail, new manufacturing, new finance, new technologies, new resources.) In the Chairman statement in the 2016 annual report, it highlighted that data will become a new resource and computing will be a new technology, and these coupled with logistics support will trigger the evolvement of new retail, new manufacturing and new finance.

What this essentially means is that e-commerce will eventually move towards a “new retail” model, with online and offline combining with logistics. The aim for them will no longer be “who is able to provide the faster service”, and instead to “allow enterprises to be inventory free”. The future in manufacturing will allow businesses to completely move from B2C to C2B by customizing goods based on demand, with the focus on intelligence, personalization and customization.

Reviewing the investments done by Alibaba in FY 2018 (refer to Figure 3: Alibaba’s new retail layout), the new retail-driven business transformation and continued large-scale technology investments occupied the most important position, aiming to create a new long-term high growth future.

China: The New Retail strategy aims to increase overall sales (more network transactions, store transactions, and advertising fees) through New Retail strategy.

  • Extending the tentacles to the offline field
    • The last mile delivery reaching 200 million people: Connect directly with consumers, reaching the 30% of online users who have not purchased anything online yet; Expanding into areas the original online mall is unable to reach, such as fresh fruits and vegetables.
    • The physical store interacts with consumers and provides fast deliveries to customers, increasing the user experience thus increasing the chances of repurchases.
    • A comprehensive understanding of consumers, relying on data to understand consumer preferences; For retailers, they can optimize customer management, promote repeat consumption & optimize supply chain management

Go global: Through technology (Ali-Cloud, Ant Finance), Alibaba’s journey to the world can be accelerated to achieve globalization and create a larger ecological network.
Alibaba’s network is so large yet they are able to remain close to each other mainly because of the “BIG DATA” that creates a win-win among the ecosystem. Backed by Ali’s big data, new retail will be infinitely closer to the consumers’ needs, have different retail formats, a more diverse variety of products, and in the near future consumers will no longer be restricted by where they are.

The more people use technology, the more valuable it becomes. Just like how the Internet has changed our way of life, Taobao has changed the way the Chinese shop, Alipay has revolutionised the methods of payments for the Chinese, YuEBao has changed the way the Chinese manage their finances. Among these, Alibaba has always focussed on the consumers’ experience, and despite their size, they are true to their original mission: to assist small and medium-sized entrepreneurs. Through continuous investment, whether it is technology or start-ups, Alibaba strives to lead the market and take the lead in laying out the framework. When other businesses strives and discovers opportunities, Alibaba would have laid the “framework”, and when it grows big enough, there will be no business that is “hard to do” in the world.

From Alibaba to Hidden Champions

What can we learn from this “global champion”? Under the leadership of e-commerce godfather Jack Ma, Alibaba has grown from nothing to become the world’s largest e-commerce platform. In summary:

  1. Ambitious entrepreneur – Jack Ma (If Tencent can be seen as “connecting” the world, Alibaba would be changing the world)
  1. The world is constantly changing, and businesses are transforming from the traditional model to the digital model. What remains unchanged is Alibaba’s mission of ” Making It Easy To Do Business Anywhere”. Upholding their mission, Alibaba is committed to providing high-quality trading platforms for enterprises, businesses and individuals, and using the power of the Internet to facilitate the transactions, so that countless buyers and sellers have fulfilled their dream of “Looking for treasure.”
  1. Focus on serving consumers – the only thing that does not change in the world is the changing needs of consumers.   Focusing on the core of business (advertising), Alibaba is continuously collecting more data to achieve more accurate advertising.
  2. Constantly investing in the future – going through the technology output to the world, continuously expanding the ecosystem, relying on Ali’s Big Data to connect the networks to each other.

What is written above are some key inspirations and ideas that I have gathered personally from Alibaba, and is not a suggestion nor recommendation for any investment advice. Being able to share these ideas also helps me to reflect and think about where to start if I’m analysing giant company like Alibaba. Are we able to identify the common pattern, be it how the company operates or their future expansion plan, and use these and seek out early-stage tech hidden champions?  Has the industrial revolution driven by the Internet and e-commerce has quietly promoted the transformation of the hidden champion enterprises into brands and intelligence? In recent years, has “focussed & specialised” concept commonly found in hidden champions expanded from the traditional manufacturing industry to the modern service industry and the emerging Internet industry? If so, this would mean that there are more hidden champions are around us. Have you found any?

Warm regards,
Joyce Pang Qin | Investment Analyst
Hidden Champions Capital Management
www.hiddenchampionsfund.com


来自阿里巴巴的投资启示录

21世纪网络的普及催生了众多网络公司,在中国要 论赚钱最多的网络公司,非阿里巴巴莫属。阿里巴巴集团是以马云为首的18人于1999年创立的,起初主要经营网上批发贸易市场,让中国的小型出口商及创业者接触全球买家。利用早年信息鸿沟,阿里从建立中小企业进出口业务的B2B平台赚取第一桶金,随后又乘势推出让阿里巴巴成为巨无霸的 “淘宝”等C2C平台成长壮大,又通过后发制人的“天猫”B2C平台完成登顶,成为国内最大电商平台(市场份额75%以上)。截至2018年3月,拥有在线活跃买家5.5亿,比整个美国人口还多。自2014年9月19日上市至今,阿里巴巴市值已经翻倍。

乍看之下我们似乎无法将阿里巴巴和隐形冠军联系起来,那些支撑德国经济支柱的隐形冠军所拥有的一些特征似乎与阿里巴巴截然相反(阿里巴巴,够低调吗?)但是随着深入发掘,我们会发现阿里巴巴和许多隐形冠军一样,都是各自市场领导者,同时都在不断变化的商业环境中获得成功。

但是,就电子商务的商业模式而言,尚不属于颠覆式创新,只不过阿里巴巴比别人更贴近市场一线,比别人的行动力更强一些。正所谓“百舸争流千帆竞,借海扬帆奋者先。”很多人喜欢拿阿里巴巴同美国电商巨头亚马逊进行比较,但是马云不止一次的说 ”亚马逊是一个好公司,但他们是电子商务公司,阿里巴巴不是。阿里巴巴是帮助别人成为电商公司。 翻开阿里巴巴公司简介,原来阿里的使命是“让天下没有难做的生意。”

当然使命总是需要资金去实现,究竟阿里巴巴是怎么赚钱的?本文我是想提供大家一条线索,帮助我们去探索研究诸如阿里巴巴此类庞大复杂的公司。
首先,让我们先来剖析一下阿里巴巴的吸金大法。

阿里巴巴的营业范畴主要分五大部分 (参考Figure 1 Alibaba’s FY2018 Segment Report)
(1)电子商务(淘宝/天猫/盒马等)是他们的主营业务(占总销售额85.5%)
(2)云计算的新业务(占总销售额5.4%)是除了支持内部营运,所有的储存计算系统有助于整个生态圈的成长
(3)电子媒体与娱乐平台(占总销售额7.8%)是强化电子商务平台上的推广
(4)其他全资的业务也包含高德地图等创新试点(占总销售额1.3%)
(5)蚂蚁金服还不是阿里巴巴旗下子公司,但是阿里巴巴拥有33%的股份以及50%的口碑


Figure 1 Alibaba’s FY2018 Segment Report
*2017年9月26日,阿里巴巴宣布增持菜鸟网络股份至51%成为控股股东,菜鸟网络的业绩于2017年10月中旬并入阿里巴巴集团的核心电商业务分部.


梳理一下,随着阿里巴巴不断扩大,但是其业务主线始终为左图所示的三条。


所有附着在这三块业务上的事业,与宿主一荣俱荣,一损俱损,不会走出独立行情,这也就是马云所谓的生态系统 – 生态圈,不需要花钱做商品采购、物流等,从而节省了大量的人力物力,阿里巴巴建立的是轻资产的商业模式。
在此三大块事业线上,电子商务的营收是最大的。淘宝的盈利主要依靠各种形式的广告,而天猫主要是向卖家直接收租,卖家需要为通过支付宝交易成功的订单,支付一定比例的佣金,不过天猫的卖家也会购买营销产品吸引流量,包括直通车产品和展示广告。其中淘宝、天猫线上广告费占总营收额50%,天猫的佣金费占总营收额22%。

卖产品,更要卖广告。

为何阿里巴巴会有如此魔力?其实,与其说阿里是在“卖广告”,不如说它是在“卖数据”。

对于广告商来说,在门户网站,微信公众号或者百度中投放广告,可能还需要绞尽脑汁思考如何吸引目标群体进行消费行为,而如果是放在淘宝天猫上,什么都不用想,只需要首页出现活动海报或者商铺入口,就真的可以坐等客户上门了。

阿里巴巴在其运营过程中,以消费者为核心,借助平台收集得来的大量数据,实现品牌商品的全营销,而这将会是阿里巴巴、广告主、商家和消费者之间形成共赢的关键。“有的放矢”即“精准投放广告”成为阿里巴巴区别于其竞争对手的最大竞争优势。同时理解阿里巴巴真正的财源之处, 也让我们更了解阿里巴巴的未来拓展策略的可行性。

其次,顺着这个思路,让我们先来看一下阿里巴巴是如何做到精准投放广告。

1.阿里不断努力编织一张超级生态大网,建立数据库, 在足够多的数据基础辅助下,通过趋势分析向消费者推放精准广告
以淘宝网为切入点,在过去的十九年里,淘宝网所涉及的角色多而复杂。有卖家、买家以及各种各样的社会化服务商,提供信用(蚂蚁金服)、物流(菜鸟网络)、支付(蚂蚁金服)以及各种各样的支撑。这样多元角色的复杂互动,形成了一个非常复杂的协同网络,也带动了阿里巴巴生态的急剧膨胀。

根据杰夫·贝佐斯描述在他的《囊括所有》一书中提到的零售要点,可以归纳零售业的本质,就是为了满足消费者不断变化的需求,供应链效率不断提升的商品经营。远至大洋彼岸的亚马逊,近至亚洲的阿里巴巴,都是围绕着这两项几十年不变的核心在布局。

发展至今,阿里巴巴旗下的整个生态系统包括电子商务平台淘宝及天猫,娱乐方面有视频分享平台优酷及网上电影购票平台淘票票等,还有本地生活服务平台口碑等。也正因为阿里巴巴抓住消费者的需求心理,目前在阿里巴巴的平台上拥有超过5.5亿年度活跃买家(2018财年数据揭示)。

1.1 全方位包围用户 – 全域营销策略
网络时代,谁拥有买家流量,谁就具有先人一步的优势。2017年6月最新公布的Uni Marketing全域营销解决方案,就是基于阿里巴巴生态系统处理及分析即时数据的能力而建成的(参见Figure 2: Unit-Marketing Ecosystem),有助品牌通过系统去发掘中国消费者的消费习惯,精准有效地进行品牌推广活动。
消费者以统一身份登入不同平台活动,阿里巴巴可以从中对客户的兴趣及需要有更透彻的了解,不单只可以为客户推荐产品,而且可以因应他们的浏览及购物习惯,为他们定制页面。

Figure 2:Unit-Marketing Ecosystem

从消费、社交网络、线上旅游、娱乐、个性生活到移动端,每个领域都有阿里的踪迹,这是一个巨复杂的协同网络,正是这样复杂的协同网络才创造了如此巨大的协同效应,使得阿里巴巴有了今天的社会化价值。同时,这样一个复杂网络的发展,也进一步推动了类似支付宝(蚂蚁金服)和菜鸟这样全球化协同网络的进一步发展。

1.2 立足中国,走向世界 – “五新”策略,技术输出
为了让自己的触角伸得更远,对于未来有着前瞻的阿里巴巴总舵主马云早在2016年就于杭州云栖大会上率先提出 “五新”策略,(“五新”指的是新零售,新制造,新金融,新技术,新资源。)并在其公开信中表示,数据作为新资源,计算作为新技术,加上物流的支持,将先后引发新零售、新制造和新金融的变革。让电子商务走向新零售,让线上、线下与物流结合,将物流公司从“比谁做得更快”向“消灭库存,让企业库存降到零”转变,为“让天下没有难做的生意”的使命赋予新的含义。同时由于零售业发生变化,未来的制造业将从B2C彻底走向C2B,即按需定制,注重智慧化、个性化、定制化。

综观2018财年阿里巴巴的投资布局,以新零售驱动的商业变革和持续大规模的技术投资,占据最重要的位置,意在创造未来长期高增长全新基础。

立足中国:通过新零售实现精准营销,从而增加销售额(网络交易、实体店交易,及广告费)

  • 新零售:将触角伸至线下领域
    • 最后三公里,触达2亿人:与消费者直接联结,接触到还未进行网购的30%网络用户; 触及到原本网络商城无法达到领域:新鲜蔬果食物
    • 实体店通过与消费者互动,并且提供快速送货上门,增加用户美好体验,增加回购次数
    • 全方位了解消费者,依托数据了解消费者喜好,对于零售商而言,可以优化客户管理,促进重复消费,优化供应链管理

走向世界:通过技术输出(阿里云、蚂蚁金服),加速阿里巴巴走向世界,实现全球化,从而编制一张更大的生态网络。阿里布局的网络如此之大却彼此之间连系地如此紧密,主要因为拥有一把与阿里共赢的“钥匙” – 大数据。背靠阿里的大数据,新零售将会无限逼近消费者内心的需求,促进零售的形态、物种会更加多元,甚至在不久的未来,消费者或许将不再受区域、时段、店面的限制,商品不再受内容形式、种类和数量和限制,消费者体验和商品交付形式也不再受物理形态的制约。

一切科技,都为人类所用才体现出其价值。网络改变了我们生活方式,淘宝改变了我们的购物方式,支付宝改变了我们消费方式,余额宝改变了我们理财方式。而这一切,阿里巴巴始终不离以客户的角度出发,不管阿里进化成何种巨兽,始终不忘其初衷:协助中小型企业家。通过不断的投资,无论是技术,还是初创企业,阿里巴巴力争领先于市场,率先布局,当别人发现契机的时候,其实阿里已经布下“天罗地网”。当这个网络铺盖的足够大的时候,就是让天下没有难做的生意的时候。

从阿里巴巴到隐形冠军

稍作总结,在电商教父马云的带领下,阿里巴巴从一无所有到发展成为全球最大的电子商务平台。从中我们学到的是:

1.雄心壮志的企业家 – 马云(如果腾讯是连接世界,阿里巴巴算得上是改变世界)。

2.世界随着科技的进步不断变化,商业也从传统模式向数字模式过渡,始终不变的是阿里巴巴所怀揣的使命 「让天下没有难做的生意」,在使命的召唤下,阿里巴巴致力于为企业、商家和个人提供优质的电子交易和营销平台,借助互联网的力量实现商品交易的便利化,让无数买家卖家圆了「淘宝梦」。

3. 追本求源,一切围绕消费者服务,这个世界不变的是消费者不断变化的需求;
抓住本质,既然阿里巴巴收入大部分来自广告,不断布局收集更多的数据,做到更精准的广告推销。

4.不断投资未来,通过技术输出走向世界,不断拓展生态圈,依靠阿里大数据将网络彼此之间紧密相连。

上述是阿里巴巴所带给我的投资启示,并不作为任何投资操作的建议。和大家分享这个思路帮助我们从繁杂庞大的公司中抽丝剥茧,了解企业的运行及未来扩张计划。我们能否借古鉴今找到尚未成熟的隐形冠军?由互联网、电商推动的行业变革,是否也悄然推动着隐形冠军企业向品牌化、智能化转型?近几年隐形冠军“专精特新”的理念也从传统制造业拓展到现代服务业、新兴互联网产业,更多的隐形冠军就在我们身边,您发现了吗?