Alibaba to spin off its cloud, AI and business messenger unit

Alibaba to spin off its cloud, AI and business messenger unit 1
Alibaba to spin off its cloud, AI and business messenger unit 2

Seven weeks after Alibaba announced its historic restructuring plan to split itself into six independent companies, the juggernaut is gearing up to spin off its intelligence group.

Alibaba went public in New York back in 2014, marking the largest IPO at the time. Not long after Hong Kong relaxed rules around dual-class structures, which allow founders to retain certain control while opening the company to outside investment, in 2019, Alibaba sought a secondary listing in the city. Rising tensions between the U.S. and China also prompted many Chinese companies to retreat from the NASDAQ and NYSE in recent years.

“We are taking concrete steps towards unlocking value from our businesses and are pleased to announce that our board has approved a full spin-off of the Cloud Intelligence Group via a stock dividend distribution to shareholders, with intention for it to become an independent publicly listed company,” Daniel Zhang, chairman and chief executive officer of Alibaba Group, announced in the firm’s earnings report today. Zhang is also one of the cloud arm’s board of directors.

Alibaba aims to complete the spinoff in the next 12 months and plans to include external strategic investors in the group through private financings.

The cloud business generated $2.7 billion in revenue during the first quarter, making up 9% of Alibaba’s total revenues. (My colleague Alex has a financial deep dive into the cloud spinout. Stay tuned for the story.)

Marrying AI and cloud

You might not be familiar with Alibaba’s cloud intelligence group, but think of its main product lines roughly as “AWS+Slack+OpenAI”.

Its cloud business Alibaba Cloud dominates China’s market. Globally, Alibaba Cloud was the third largest infrastructure-as-a-service (IaaS) public cloud provider in 2021, according to market research firm Gartner. Add platform-as-a-service (PaaS) and private cloud to the mix, Alibaba came in fourth in Q4 2021, according to another market insight firm Synergy Research Group.

Alibaba’s Dingtalk, an enterprise chat app and productivity platform, surpassed 600 million users as of Q3 2022, with 15 million paid daily active users and 23 million enterprise users, the company said previously.

Tongyi Qianwen, Alibaba’s flagship large language model, is currently nowhere near GPT-3’s technological prowess and influence, but it’s one of China’s most promising alternatives to the text-generating AI. It also has the advantage of being applied to an array of Alibaba products. In fact, the integration has started, first with a copilot for Dingtalk.

It makes sense that Alibaba is grouping its cloud business and AI research team under one umbrella as these two go hand in hand. With each new breakthrough in AI, the amount of computational power needed to train data increases exponentially — so does the cost.

Interestingly, Alibaba mentioned in its quarterly report that it’s working to make cloud computing “more accessible and affordable.”

“We announced a new instance family that provides the same level of stability and offers up to 40% cost savings. For existing products, we reduced the prices of some of our core utility products, including computing, storage, networking and security products, by up to 50%,” the company said.

The timing seems apt. Earlier this week, Beijing unveiled a draft policy calling on cloud providers to work more closely with AI firms and support them with all the computing resources they need.

“We believe these moves will help our customers increase public cloud adoption in China as well as unlock emerging opportunities to leverage AI technology for enterprises,” Alibaba said.