Below is the transcript of a CNBC Exclusive interview with Daniel Zhang, Group CEO, Alibaba. The interview was first broadcast on CNBC's Squawk Box Asia on 9 November 2018.
All references must be sourced to a "CNBC Interview'.
Interviewed by CNBC's Arjun Kharpal
Arjun: Daniel you joined Alibaba back in 2007. When you thought about what e-commerce would become all these years, when you look at 2018 now, has your expectations been met or have you been surprised?
Zhang: I joined Alibaba in 2007. I thought e-commerce would have a bright future. That was the key reason why I joined Alibaba - because I was then an online shopper already, and I thought more and more people would enjoy this, and especially young people, and with the penetration of internet, we will have more online shoppers. So that's why - that's a starting point, I joined Alibaba. But I think 11 years later, when we look back, I would say how e-commerce changed the life of the consumers - the impact is even bigger than what I expected, and this is not only about the shopping, it's about the whole lifestyle. And today, many millennials are living on the internet and they don't go to the brick and mortars. They don't go to the shopping malls but they live online. And I think if you look at the people even younger, I mean teenagers, internet to them is more like water, electricity; when they were born, this is there. So I think over time people will rely more on the life of the internet.
Arjun: You're the architect of the double 11 shopping festival. Many people also know that as singles' day. When you came up with the idea 10 years ago, what was your thought? How did you get prompted to think of starting this shopping festival?
Zhang: Well actually this is a very occasional case because at that time we just started our new business - b2c Taobao mall business, which is today's Tmall. And at the time nobody knew us actually. We wanted people to remember us, and that's the starting point of when we thought of, 'let's do something to make people remember us', and then we found the day, 'let's do a promotion on November 11' - and we didn't even realize this is a holiday and this is the holiday in the western society, because in China there is no November 11. But when we did this, we thought, 'Ok, we have a very good slogan, and if people are still single on the day, if people feel lonely, then please come to us for some shopping and just get some fun from this shopping'.
Arjun: It's interesting to look back at that first one in 2009 and actually the kind of sales that raked in 7.8 million dollars in Gross Merchandising Value (GMV). If you look at that compared to 2017's singles' day where it was over 25 billion dollars, that seems like such a huge and very quick rise in the popularity of that event. In that first one you had 10 years ago, what were your expectations? Did you think that it would take off the way it has?
Zhang: Well actually - I never expected that we could actually transform this day into a commercial day, a consumer day for the whole society. I think today, when you look at the scale, it's more like all the people enjoy the shopping on the same day and all the merchants, they participate and share their best products on that day. And I think obviously this, today, is more like a phenomenon.
Arjun: So what's changed? What other things have changed from your first single day to now, except the fact that more people are being moved in and more money is being spent with them?
Zhang: The biggest change is how business people look at the power of internet. On day 1, people just thought that this is a new channel to sell more products. But today, most of the businesses view digital technology and the internet as infrastructure to transform their existing business and to go to a new market to serve the new customers
Arjun: In a recent speech you gave a pledge that this would be the largest single day ever. What did you mean by that?
Zhang: Well it means a lot. And in terms of the level of engagement of the customers in terms of the participants to be involved in this singles' day - I think this will mean a lot to both consumers as well as the business people.
Arjun: Does that mean you're confident you could potentially break that record of GMV you guys set last year?
Zhang: Well, GMV is the outcome of the day. I think most important is what we can offer to our customers together and what we can achieve in terms of business disruption and business innovation.
Arjun: It's the tenth anniversary in 2018. When you look 10 years down the line, what does single's day look like to you? What is the future of this event?
Zhang: Singles' day needs to be innovative as we always did in the past 10 years. I think if you look ten years from now, I would say that the format of the day and the way we do this will totally change.
Arjun: You have spoken about new retail a lot over the past couple of years. There are a lot of buzz words around it - online, offline - and you are investing in things like logistics networks, cainiao, and of course, cloud computing. What does new retail mean to the people watching this show? What does new retail mean to the company?
Zhang: When we talk about new retail, we strongly believe that online commercial world and offline brick & mortars are not separate worlds. And if you look at the customer base today, everyone is living in the internet. Everybody is an internet user. So you have the same customer base, you must have the same commercial world. It's all about how to integrate online and offline to transform to a whole digitalized commercial world.
Arjun: And how do you do that? What are the steps you're taking to do that?
Zhang: Well we have made a lot of efforts in terms of digitalising the existing brick & mortars in terms of creating new retail formats like Hema to meet the growing demand of the customers in, for example, in the fresh food categories.
Arjun: Hema's a very interesting example of a futuristic grocery store, almost. What learnings have you had from this so far? What are the trends you're seeing of how consumers have reacted to this kind of experience that you putting out there? And do you see now that a store like hema and the experience that it brings really is what the future of retail looks like?
Zhang: Well actually Hema is one of the new retail formats. The reason why we created this is because when we look at the format of the traditional e-commerce, we don't think it meets the demands of the people in the food categories, especially fresh foods. So that's why we were thinking about, can we create a new format, which people can enjoy instore - the fresh foods - but also they can order from online and deliver from stores. So I think when we look at the pinpoints of the customers we can still find a lot more. But this means to us the new opportunities, and we can definitely create a new format to address these pinpoints and create new business.
Arjun: And another new format that has become very popular, of course, is on-demand delivery of food as well. You recently struck a big deal with Starbucks. What was the driving force behind that deal?
Zhang: Well actually we have made a strategic partnership with Starbucks, and we work together to integrate their membership program between Alibaba and Starbucks. We help them to build the intelligence stores online in Alibaba eco-system. Also, with the support of our logistic infrastructure, we are now helping them to deliver coffee to home. And people can order coffee online, and expand their coffee space into fullest of coffee space, of Starbucks.
Arjun: Sometimes people look on-demand delivery and wonder if it has a long-term future, if it is sustainable business model. From what you've seen so far, do you think that these on-demand deliveries, the way you carry it out, is a sustainable business model going forward?
Zhang: Well on-demand delivery, I think, is an infrastructure - and not only for the food delivery business. This is also the infrastructure for future retail. And in terms of food delivery, I think, today more and more young people need these services, and they either don't have time to cook or they don't cook, and so people need these food delivery. But when we look at this on-demand delivery network, this also can serve many other categories' products. For example, people can order from some pharmacies at night if they catch a cold. So I think this could be an infrastructure for the future integrated digital business.
Arjun: Alipay is another important part of your strategy - run by ant financial, one of your affiliates. Why do you see the whole payments and financial technology piece of the puzzle as an important part of the strategy?
Zhang: Well payment is very very important infra for Alibaba's ecosystem, and with this digital payment platform, people can not only can enjoy the easy payment, but business people can also leverage this digital payment to serve the customer better and know more about customer behaviour, which will create huge value for their future business.
Arjun: While we're speaking about Ant Financial, I have to ask you for our viewers watching as well. We've been hearing a lot about the future of this company. It's a huge company here in China now and it's expanding globally as well. We have heard a lot of talk about potential initial public offering. Do you have any more clarity of when Ant Financial might go public?
Zhang: Well we don't have the agenda to go public. I think we still focus on how to create the value for the customers, and especially in the new technology.
Arjun: Many people call Alibaba an e-commerce giant, but you're much more than that. There's a lot of investment going on in technology. A big focus in your 2017 letter to shareholders last year, you said data is the new fuel. What kind of role - how do you use data at Alibaba across the business?
Zhang: Well we started from e-commerce, but today we have already transformed from an ecommerce company, to a data company. The way we create the data is from real business cases - for example, Taobao, Tmall, in food delivery - all these businesses are not only separate businesses to us, but also cases to create data. What we do is to first create the data, mine the data, and get the value from the data - and refuel back into business cases to make them even better. So I think this is a positive cycle, to make data useful, and to make data the core of our future digital business.
Arjun: Another interesting part of the business I've seen in action as well is cainiao - last year on singles' day, over 800 million parcels they dealt with. You said that there could be even more this year. How are you making it more efficient at Alibaba, to deal with the growing number of packages people are ordering, and making sure that they're able to get to the customers on time and in the quickest way possible?
Zhang: If you look at the delivery industry in China, I think that today it's about 130 million packages a day, and we expect this to continue to grow. I think the delivery experience is a very important part of the shopping experience. So that's why we are taking a partnership approach. We worked with many delivery companies to make sure that we can help them to optimize the end-to-end experience. And I think we can still do a lot more to help them not only to digitalise and improve the customer experience, but also help them to optimize their operations to get more efficiency from their network operation. If you look at the relationship between Alibaba and these delivery companies in China, it's a very real reflection of the partnership and the eco-system, because we love each other, and we grow together, and we serve our mutual customers.
Arjun: And artificial intelligence is another buzzword in the technology world at this moment. It's another area that you are investing in - there was an announcement earlier this year that Alibaba is developing some AI chips as well. It could be seen as a strange area for Alibaba to be developing and designing chips. What's the thinking behind this?
Zhang: A chip is the core of computing power. If you want to apply AI in the business, it's not only about the algorithm, but all about computing power. Can you get better computing power with more efficient costs? That's why we think we have to spend time on chips, and we have to develop chips for AI, and for various types of computing business cases.
Arjun: This of course links to your cloud computing strategy as well, which accounts for around 6% of the revenue at this moment. How important is this business for you going forward - as it grows at a really fast pace at the moment?
Zhang: Cloud computing is our long-term strategy. We strongly believe that every business in the future will be powered by cloud. We are very happy to build this cloud infrastructure in the new digital era and support all the businesses going digital.
Arjun: Do you see it in the future being a very significant part of the business?
Zhang: Yes sure, I think cloud will be the main business of Alibaba in the future.
Arjun: Another interesting trend we've seen in the technology world is the rise of these voices assistants. You've of course debuted Tmall genie. Well how does this fit into your version of what new retail looks like, because many people have said the future, or a big part of the future, will be the way we interact with our services through voice and our devices through voice. Is that a strategy you think is viable in the long term?
Zhang: Well we believe that voice is the next entry point of internet so if you look at the history of internet then we have the p.c. times and people get into the internet by click, right? And then they have the mobile internet people go to internet by scrolling the screen. And now it comes to the voice age, so people can go to the virtual world via voice. So that's why we started work on our Tmall genie. We strongly believe it could be an entry point in the living room when people want to go to the virtual world. And this also helps people to not only enjoy the services by the voice, but also to monitor all the equipment and the facilities in the home.
Arjun: So do you believe there'll be a big part of the shopping experience in the future for Alibaba customers?
Zhang: Well shopping is definitely one of the services we will offer in this voice system.
Arjun: I want to just move on to a big topic at the moment and that's of course the announcement by Jack Ma to step down as Chairman and you to take up that role. I want to learn a little bit more about your relationship with Jack and how this came about. When was the first time you met Jack. And what were your impressions of him?
Zhang: I met him right before I joined Alibaba - I met him and he invited me to join, so I came. I think that jack is a very visionary guy, and he thinks for long term, and he cares about people. We have worked very closely together in the past eleven years. In terms of characteristics, we are very complementary to each other. He flew a lot in the past years - he spent a lot of his time in the air - but I spent most of the time in the campus, and with the day to day operations. I think he's given me a lot of ideas out of the box. And I think these ideas - many ideas, maybe - you will be surprised to hear them for the first time. But if you think again you will find some real opportunities there. And they will work well for you to think more. So I think this is more like a share of the ideas, share of the energies, but I'm very happy to work with him in the past few years.
Arjun: You've worked with him for many years now. How do you meet up, how do you talk to each other, how do you inspire each other with ideas to help take the business forward?
Zhang: Well he has a lot of ideas. So as he's always said - and this is also my discipline, which is, when I hear his ideas for the first time I will listen. I will take the ideas and I will think about them for a while. But if he repeated his ideas once, then once again, at least three times - then I would take it very seriously. I think of them as his very serious ideas.
Arjun: So he has to say it three times and then you know it's a serious idea?
Zhang: You have to think of this seriously. Because if he repeats three times then you have to treat it seriously as well, right?
Arjun: Now, I understand you often had meetings over tea with Jack and you obviously worked together. What was one of your most memorable meetings with him?
Zhang: Well it's actually more like a catch-up right? It's a sort of catch-up, and you just share what you think. Some things are relevant to the business, and some things are not that relevant - and it's about people, about your experiences. So it's more like brothers that haven't seen each other for some time, so you catch up for coffee and tea. That's it.
Arjun: So you weren't always talking about the company and the strategy. Sometimes there were other things as well.
Zhang: Well you know this. We cannot change strategy once a month. The strategy is very clear. It's all about the sharing of the experience and the sharing of the ideas.
Arjun: You said you two were complementary and have complementary styles. There must have been times though when you had some disagreements. Were there any that spring to mind where you both disagreed on something?
Zhang: I think if you have some different opinions, you have to voice out right? You have to let him know that this is your view. But I think the most important thing is that you have to express this in a very clear way. Maybe we will argue, but actually I know that he hears what i say, and maybe he still insists - you know that he is very confident about his ideas, and he will insist on his ideas - but he will also listen and he will think, and maybe he will change some days later.
Arjun: How did you find out that you would be the next chairman? And how did that make you feel?
Zhang: He told me that.
Arjun: When was that?
Zhang: Well more than half a year ago, he said it to me. But I know that he planned this for a long time, as he said. And this is not easy. Because we want to be a company for 102 years - and if that is the case, you have to think about the future, about the succession plan.
Arjun: Can you tell me what he said to you when he told you that you'd be the next chairman?
Zhang: Well actually I cannot remember clearly what we talked about. And he tried to convince me to accept this, and we had several conversations. But I understand why he decided this. It's all about the future of Alibaba.
Arjun: You know, he's praised what you've done, and you've achieved lots for the company - very successful things. But of course at the same time there were lots of questions that were written in the media about whether you were up to the job. Did that add a bit of pressure to the role?
Zhang: You know I have a finance background and when I joined Alibaba, my first job was the CFO of Taobao. I never imagined that I will take on the business role, and I never imagined that I will be the CEO of the company. So I'll try my best to do the jobs and to lead the company in the next journey, and forget about the pressure. And that's what I always did. And if you look back on what I did in Alibaba, in Tmall, in this mobile transition, in new retail - I think, try everything you can for the best results. And of course you need a little bit of luck.
Arjun: Of course you are thinking long term about the company. 102 years is a key number, you've been talking about these spanned three decades. But is there anything you might do differently when you become chairman? When it comes to the strategy or the culture of the company?
Zhang: Well as I said, I am a very logical person. I do think about the big picture and to be the chairman of the company in the future, I think I need to spend more time on the future, on the long term goals of the company rather than just the three to five years. As what Jack did as a chairman, he always think about what will happen in ten, twenty years. So, think longer but start from now. It's very important and I think this is what I will change in terms of role and in terms of the working style.
Arjun: Under your tenure as CEO, while you've been at the company, you've been really pushing the internationalization of the business. Lazada, of course, has become a key part of the strategy in Southeast Asia. So how do you expect alibaba's presence on the international sphere to grow as you go forward? Is that is that an area of the business that you will be putting a lot more emphasis on?
Zhang: Well, we have a very long term goal about globalization and we want to serve two billion people over the world by 2036. We are very serious about this goal. Globalization, it is a long-term job but we have to start from now and the Southeast Asia is our first pick. But we do realize that we still need a China feature and to keep one leg in China. For example, to help imports to China and to help business partners to enjoy the largest consumer market in the world and help the Chinese people to sell out of China. So, cross-border is still very important. But, over time, we will try to explore opportunity in certain local markets. Southeast Asia, obviously, is a very promising one and close to china enough. It has a big population, 600 million population in six countries, and the mobile, young and retail landscape is very similar to China eight to ten years ago.
Arjun: And when you say you look to certain local countries would that mean with some sort of perhaps Alibaba product in those markets? Similar to how Lazada serves Southeast Asia?
Zhang: Well, we strongly believe that the consumption is very relevant to local culture and local lifestyle. So when we think about local businesses, we do need to help the local people grow the business and to build a business. So that's what we think and Alibaba is very happy to share our technology, our knowhow, experience to them to help them to win in the local market.
Arjun: And you mentioned globalization as well, which has become a very key topic but of course it's a difficult time in the world right now. I think Jack mentioned in his recent shareholder letter that the global economy is in a state of turmoil. He mentioned a few reasons, stock markets and manufacturing consumer trends as well as the difficult trading environment, which continues to persist. He said that the trade environment at the moment is increasing the risk of instability. Does this keep you awake at night? And is it something that is a big risk to Alibaba's business?
Zhang: I would say nobody likes trade war and nobody likes the uncertainty of the economic condition. But we always try to find opportunities in a tough time. If people have some pain points that means there are some opportunities. How to help people, for example, in the tough times to get more business, not only in China but also in the global markets? This is one of the examples we can explore, one of the opportunities. So I think for Alibaba, we always think about our mission which is to make it easy to do business anywhere. I think this is more relevant today in this condition.
Arjun: Are you doing anything in particular or different to help navigate the company through the difficult macroeconomic environment at the moment?
Zhang: Well, I would say if you look our business, we still have very strong business growth and our financials are very strong. We always say that we work for today, we invest for tomorrow and we incubate for future. I think this is a good time for us to incubate for the future and to create a new business for Alibaba's next journey.
Arjun: What does the future of retail look like?
Zhang: Well, I think future retail is not about e-commerce or brick and mortars, it is about the digitalized commerce or not. So the whole commercial world, the whole retail world should be one world. Online and offline brick mortar should be a highly integrated operation and serving one customer base. They operate one product segment. So it should be data driven retail operation, online and offline together.
Arjun: Daniel, the economy in China has not always been stable, of course, that is true anywhere in the world. But you've managed to increase sales on double 11 as well as just revenues generally for the business over the past few years. They continue to grow at a very rapid pace. How did you managed to do that even when the environment hasn't been as easy as you'd like it?
Zhang: Well, when we started November 11th ten years ago, it was 2009. And in this time, ten years ago, generally I think the economy was going up, and November 11 is more like a real reflection of the consumption growth and the growth of the digital business. And today I think more and more people join this shopping day, I think for customers they want more shopping but for business people, they are not only thinking about sales on that day. They are thinking more about customer engagement and acquisition of new customers and how to innovate new products and deliver this to their existing customers. So, it's more like a day to reflect their growing power, their business power. So, I call this olympics for all these business people. So, I'm sure if we work together, if we continue to innovate, we can create more great days for our mutual customers.
Arjun: And are you confident that the consumer market in China will stay strong over the next few years? There's been a few concerns raised by economists about the health of the consumer market in china. Are you confident that those still remain strong and good for the business?
Zhang: Well we do see the up and down of consumptions by categories. I think overall speaking, I think Chinese people, especially young people, they are growing up in a new era and they like to spend and they want a better lifestyle. So I think we want to continue to serve them in a better way.
Arjun: Daniel in your 2017 letter to shareholders, you said data is the new fuel. Alibaba is not just an e-commerce company now like many think, it's also a very key technology player as well. So what role does data play at the company?
Zhang: Well, Alibaba already transformed from an e-commerce company to a data company to a digital economy. What we experience is that we create a lot of data from real business cases, like Taobao, Tmall, our food delivery businesses, ele.me, so on and so forth. We tried to utilize the data and create value from the data and feedback to these businesses to help participants make better business growth. So, we are in the process of building, in the digital area, an operating system. Alibaba's operating system to enable our business partners to transform in this digital era. And I think in the future, all business people need this data engine and a data driven operating system to do digital business.
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