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Text｜Deng Shuanglin, reporter of "Chinese Entrepreneurs"

Editor: Yao Yun

Source of header image｜Visual China

Alibaba is determined to exchange profits for growth.

On August 15, Alibaba released its first quarter financial report for fiscal year 2025. In this quarter, Alibaba achieved revenue of RMB 243.236 billion, a year-on-year increase of 4%;Adjusted net profit was RMB 40.69 billion, down 9.4% year-on-year.

The decline in net profit was mainly due to the return to e-commerce,cloud computingAlibaba explained that the high investment in the main business was due to the increased investment in user experience (thereby increasing consumer retention and purchase frequency) and technology infrastructure. Unlike most Chinese concept stocks that rely on cost reduction and efficiency improvement to release profits, Alibaba has obviously returned to the route of "heavy investment for growth", so the profit side is bound to be under pressure.

Focusing on specific business segments, the best performer this quarter was Alibaba Cloud, with revenue of 26.549 billion yuan, a year-on-year increase of 6%, and good profits, with adjusted EBITA of 2.34 billion yuan, a year-on-year increase of 155%; Alibaba International Digital Business Group's revenue was 29.293 billion yuan, a year-on-year increase of 32%, which was slower than the previous quarters; Cainiao Group's revenue was 26.811 billion yuan, a year-on-year increase of 16%; Local Life Group's revenue was 16.229 billion yuan, a year-on-year increase of 12%; and the Greater Entertainment Group's revenue was 5.581 billion yuan, a year-on-year increase of 4%. In addition, the quarterly operating results of Gao Xin Retail, Hema, Ali Health and Lingxi Interactive Entertainment have also improved.

It is worth noting that Alibaba has also invested heavily overseas. Although the international business continues to grow, the adjusted EBITA loss this quarter was 3.7 billion yuan, nearly 8 times higher than the same period last year. Alibaba explained that this was mainly due to the increase in investment in the cross-border business of AliExpress and Trendyol; Cainiao's adjusted EBITA was 618 million yuan, a year-on-year decline of 30%, mainly due to the increase in investment in cross-border fulfillment solutions, but compared with the previous quarter, it turned a loss into a profit.

Taotian Group, the core pillar, has become a relatively lagging business this quarter.The financial report shows that Taotian Group's revenue in the quarter was 113.373 billion yuan, down 1% year-on-year, the only decline among the seven major business segments.

Under the new management's strategy of "returning to e-commerce and putting users first", Taotian has been fighting with Pinduoduo since the end of last year:In order to increase the low price and tilt towards user rights, we have launched services such as pay later, refund only, and free shipping for 88VIP returns.A series of strong measures have brought Taobao a remarkable growth. This quarter, Taobao's GMV increased by high single digits year-on-year, and the order volume increased by double digits year-on-year. The number of 88VIP members increased to over 42 million.

Obviously, users are satisfied with Alibaba's strategy, but the response from merchants is not positive: Taobao's customer management revenue (CMR) this quarter has fallen sharply compared with previous quarters, with only a slight year-on-year increase of 0.6%. Obviously, the growth of orders and GMV has not yet been transmitted to the CMR side.

In the earnings call, Alibaba executives emphasized thatIt is expected that the capital expenditure will continue to be at a high level in the next few quarters. In short, Alibaba is still in the process of establishing a new order, with the focus on defending the e-commerce market, expanding Alibaba Cloud and overseas businesses, and the overall direction is to increase investment in exchange for strategic growth.

In this way, the difficult situation of "increasing revenue but not increasing profits" will accompany Alibaba for at least several quarters. Alibaba Group CEO Wu Yongming said that most of Alibaba's businesses will gradually achieve break-even within 1 to 2 years and gradually begin to contribute to scale profitability.

It is worth discussing that in November last year, after Pinduoduo's stock price surpassed Alibaba for the first time, Alibaba decided to move closer to Pinduoduo, such as Taotian's low-price strategy and refund-only service. However, after more than half a year of trial operation, Taotian decided not to imitate Pinduoduo:On August 9, Taobao made a series of adjustments to its refund policy, strengthening the protection of merchants' rights. After this year's "618", Taobao also seemed to be willing to withdraw from the price war and regain the initiative in development.

Why doesn’t Alibaba want to learn from Pinduoduo anymore?

Taotian "reverse"

In the past few years, Alibaba was in a passive position. Pinduoduo, with its high labor efficiency, low price strategy and emphasis on sellers, pressed Alibaba step by step and eroded Taobao's e-commerce market share. Until the end of November last year, Alibaba's market value was surpassed by Pinduoduo for the first time, which was a great blow to all Alibaba people.

Jack Ma shared a long article on the intranet. He believed that the most core change in Alibaba over the past year was not to catch up with KPIs, but to recognize itself and return to the track of customer value. Alibaba Group Chairman Joseph Tsai also reviewed similar issues in an interview before: "Alibaba fell behind because we forgot who the real customers are... To some extent we are reaping what we have sown." Wu Yongming also repeatedly emphasized Alibaba's two latest strategic focuses: "user first, AI-driven."

The time has come for Ali to fight back.

At the end of last year, Taotian listed "low price" as one of its core strategies and launched a five-star price power system. As long as merchants lower prices, there will be traffic, which is similar to Pinduoduo's recommendation logic.In addition, Taobao merchants have also moved their main business positions to Taobao. The products retain their previous sales, evaluation and other data labels. With the addition of low-priced products, Taobao APP's homepage has seen multiple "10 billion subsidies" and "flash sales" entrances; in terms of user rights, Taobao has successively implemented a series of policies since the end of December last year, including refunds only, free shipping in Xinjiang, pay after use, and unlimited returns and shipping fees for 88VIP. In order to improve user experience, Taobao even cancelled pre-sales during this year's "618".

However, blindly favoring users and pursuing "absolute low prices" did not bring significant improvement to Taotian's performance - although online GMV, order volume and the number of 88VIP members increased, revenue this quarter fell year-on-year, and CMR fell sharply.

The "refund only" in-competence among platforms has given rise to the "freeloaders" movement, and many normally operating businesses have complained.

Obviously, Pinduoduo's approach is not suitable for Alibaba.The two companies have different genes. Pinduoduo's team had previous experience in gaming, and later started out in agricultural products. They introduced a refund-only policy due to the short shelf life of agricultural products. On the other hand, it was born in an era when e-commerce was mature, and if it wanted to grab market share, it had to compete in some blank areas. Alibaba is different. Its original purpose was to start from the perspective of merchants, "to make business easier for everyone." Now it has turned around and only favors buyers, which is bound to cause it to fail.

After June 18 this year, Alibaba, perhaps realizing the problem, began to weaken its low-price strategy.

According to 36Kr, Taotian Group held a closed-door meeting with merchants after the 618 shopping festival, clarifying a number of strategic adjustments to be implemented in the second half of the year. The most important change is that the search weight allocation system based on "five-star price power" has been weakened since last year and changed back to allocation based on GMV, which can effectively reduce the pressure of low-price competition on merchants.

Specifically in terms of business indicators, this year Taobao's assessment focus has shifted to GMV (transaction amount) and AAC (average consumption amount), and no longer pursues high DAC (order volume) brought by low prices.

The "refund only" policy that only protects the interests of sellers has also been corrected:On August 9, Taobao's "refund only" optimization strategy officially took effect. It is reported that Taobao will enhance merchants' after-sales autonomy based on the new experience score, reduce or cancel after-sales intervention for high-quality stores, and upgrade the abnormal behavior recognition model of "refund only" for received goods, and reject refund only requests with abnormal behavior.

In other words, if businesses want to gain greater autonomy, they must continuously improve their ability to serve consumers.This is not a U-turn from the extreme of favoring buyers back to favoring sellers, but rather a shift in the balance to a neutral position so that the interests of sellers and buyers are balanced.

At a time when leading e-commerce platforms such as JD.com have collectively turned their focus to low-price strategies and started refund-only policies, Alibaba's move seems to be going against the tide. In fact, Alibaba has fired the first shot in the e-commerce "anti-involution" campaign. This road is bound to be difficult, but it is the first step for Taobao to jump out of the "involution vicious circle" and regain the initiative in development.

In the earnings call, when asked how to further narrow the gap between CMR and GMV, Alibaba executives said that it would take some time to promote new products and merchants to realize their business. "For Taobao and Tmall, the current priority is to improve the user's purchase experience, thereby increasing the user's purchase frequency and GMV. Once the market share is initially stable, we will start to accelerate measures to increase monetization and commercialization starting from this quarter."

Wu Yongming predicts thatIn the next few quarters, the growth rate of Taotian Group's CMR will gradually match the growth rate of GMV.

E-commerce is no longer viable

Not only Alibaba, other e-commerce platforms are no longer blindly focusing on Pinduoduo's low-price "comfort zone". Even Pinduoduo itself has begun to adjust its strategy.

The "refund only" policy allowed Pinduoduo to rise rapidly and captured the hearts of consumers, but it also magnified the conflicts between buyers and sellers.

In July this year, according to the Legal Daily, more than 400 worn skirts were collectively returned, causing the store to lose nearly 8,000 yuan. The online store's return rate also soared, the store's ranking declined, and the weight related to traffic distribution was also reduced. The sellers were unwilling to give in. According to media reports, because only a 9.9 yuan short-sleeved shirt was refunded, the seller chased from Yiwu to Weihai, spanning more than 1,000 kilometers to find a buyer.

As Taobao and JD.com have successively launched the "refund only" service, the controversy over this service has become increasingly louder. "Refund only" is a microcosm of extreme involution:Under the "low-price internal circulation", if merchants want to reduce losses, they either lower the quality of goods or sell at a loss.

He Yudi, a second-generation factory worker born in the 2000s, gave an example to China Entrepreneur: He runs a fishing gear company in Dongyang, Zhejiang, mainly doing OEM for brands. During the operation of his e-commerce store, he found that a fishing line was being sold on a certain e-commerce platform for 5.9 yuan with free shipping. It is impossible to make a profit at this price, so how do his peers make money?

"Later I heard that many of my peers were operating at a loss and were earning advertising fees by slipping free game trial promotion cards from game companies into packages to subsidize their losses," said He Yudi.

He Yudi also revealed that after various e-commerce platforms successively launched the "refund only" service, the return rate of the entire fishing line industry increased to 20%, causing costs to soar.

In terms of policy, we will also begin to regulate behaviors such as "refund only".Starting from September 1, the "Interim Provisions on Anti-Unfair Competition on the Internet" promulgated by the State Administration for Market Regulation will also be officially implemented. The new regulations mention thatPlatform operators shall not use service agreements, transaction rules and other means to impose unreasonable restrictions or attach unreasonable conditions on transactions of operators within the platform.

After Taobao took the lead in correcting the "refund only" policy, Pinduoduo also began to take corresponding actions. According to Pinduoduo's latest rule announcement, starting from August 7, the Pinduoduo platform officially launched new rules. After soliciting opinions from merchants, it announced that for shipped orders, if consumers only request a refund, merchants will have 36 hours to handle the matter on their own.

Pinduoduo said,Merchants have the right to reasonably reject refund applications, and the Pinduoduo platform will no longer intervene.If the merchant does not process it within 36 hours, the system will automatically complete the refund process to protect the rights of consumers. In this case, if the merchant rejects the consumer's application for a refund only, and the consumer seeks the intervention of the Pinduoduo platform, a fair trial will be conducted based on the actual situation.

E-commerce has broken the "involution" and allowed the industry to quickly return to a healthy business state and a reasonable business ecology, which may mean the beginning of the next e-commerce cycle.

How will e-commerce platforms continue to develop without competing for existing market share with low prices?

Ma Shuzhong, dean of the China Digital Trade Research Institute of Zhejiang University, believes that there are six trends in the future development of e-commerce: First, domestic e-commerce and cross-border e-commerce are integrated, and the boundaries are becoming increasingly blurred; second, the boundaries between wholesale e-commerce and retail e-commerce are also becoming increasingly blurred; third, e-commerce will not only offer low prices, but will still offer “more, faster, better, and cheaper”; fourth, the younger generation will continue to drive “equal consumption”; fifth, AI will accelerate the development of digital industrial chains and supply chains; and sixth, the era of “lying down and making money” in e-commerce is gone forever.

In his opinion, in the future, the entire Chinese manufacturing industry will be digitized, structured, hierarchical and classified, and presented in an AI way according to user needs. For e-commerce platforms, merchants and buyers, future e-commerce consumption will definitely be supported by digital supply chains."Merchants need at least 10 percentage points of net profit, which is the basis for the digital transformation and upgrading of China's manufacturing industry."Ma Shuzhong emphasized.

Optimizing “refund only” is just the beginning of e-commerce transformation.