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this article is written based on public information and is for information exchange only and does not constitute any investment advice.

alibaba has always had a "big health" dream.

as early as 2011, alibaba began to get involved in the pharmaceutical business, but due to the regulatory policies at the time, its layout in the pharmaceutical field could only be superficial and did not go deep into the essence.

in august 2013, the state administration for market regulation approved the first batch of online drug retail qualifications for third-party internet platforms. hebei huiyan pharmaceutical successfully obtained the license and became one of the first ten companies that could carry out pharmaceutical b2b2c business. the policy opening soon attracted alibaba's attention. in january 2014, alibaba teamed up with yunfeng fund to spend us$170 million to acquire 54.3% of the shares of hebei huiyan pharmaceutical's parent company, hong kong-listed citic 21st century, and renamed it ali health.

since then, ali health has successfully entered the capital market through a backdoor listing.

in the following 20 years, alibaba continued to inject assets into ali health, and investors took advantage of the opportunity to push ali health's market value to nearly hk$500 billion. however, with the entry of capital groups such as jd.com, meituan, douyin, and kuaishou, the competition in the internet medical track has become increasingly fierce, and ali health has gradually sunk in the competition, with its market value falling by 90%.

figure: alibaba health’s revenue in each fiscal year, source: jinduan research institute

looking back at the development history of ali health, the injection of ali health assets has given ali health a new look in its fundamentals. however, during the asset injection process, the strategic drift of the management team has led ali health gradually astray, thus missing out on the biggest opportunity in today's medical o2o.

now that the former "helmsman" shen difan has returned, can the still young ali health get back on the right track of development?

01

wang lei’s period: pioneer in pharmaceutical o2o

after entering ali health, alibaba quickly made senior management adjustments. wang lei, the former general manager of the taodiandian business unit, was appointed ceo of ali health to lead overall development.

although alibaba did not inject any assets into ali health at that time, the company's overall plan was very clear: to become a pioneer in domestic pharmaceutical o2o. from today's point of view, ali health's o2o layout was early, and if it had been extended, it would have had a chance to dominate the industry.

as early as february 2014, alipay started o2o cooperation with more than 20 major domestic drugstore chains, including neptune star, guoda drugstore, shuyu pingmin, jianzhijia, and dasanlin, laying the foundation for subsequent o2o layout. in may 2016, ali health officially established the "china pharmaceutical o2o pioneer alliance" with 65 drugstore chains, including parknshop, suhe, deshengtang, and baicaotang.

at that time when mobile internet was not yet fully mature, ali health proactively targeted the opportunity of medical o2o. it was also in 2016 that alibaba first invested in the ele.me platform, which complemented ali health's focus on o2o.

figure: ali health o2o model, source: founder securities

the first project of the medical o2o alliance was launched in jinchang, gansu. patients can use the ali health online hospital platform to provide "one-minute clinic" online medical consultation services to pharmacies, thus completing the closed loop from seeing a doctor to picking up medicine. at that time, ali health's o2o alliance already had the prototype of the modern medical o2o model. what the company needed to do was to replicate this model in more cities across the country.

with the right model and strong capital, ali health's o2o model will work without any surprise. however, just when everyone thought that internet medical care would come to an end, an accident still happened.

in may 2017, alibaba officially injected its first asset into ali health: the tmall platform's "blue hat" health food online business. in order to ensure the smoothness of the asset injection, alibaba appointed shen difan, the former general manager of aliexpress, as the ceo of ali health.

after the injection of new assets, ali health's revenue scale soared, from 475 million yuan in fiscal year 2017 to 2.443 billion yuan in fiscal year 2018. however, although the injection of assets has increased ali health's performance, it has also made the previous strategy of focusing on pharmaceutical o2o lose focus.

since then, ali health's o2o business has been gradually marginalized, replaced by the rise of traditional b2c represented by tmall, marking the transformation of ali health from the b-end to the c-end.

02

shen difan period: integration drives growth

after shen difan took over, his main task was to ensure the smooth injection of tmall health assets. the core logic of ali health can be summed up in two words: integration.

following the initial injection of assets into ali health in may 2017, alibaba injected "tmall medical devices and health products, adult products, medical and health services" and "tmall products and services, tmall international products and services" into ali health in may 2018 and february 2020, respectively.

with the introduction of tmall health business in batches, ali health's core assets have been officially transformed into a mature b2c business, and the tmall platform has become the business entity of ali health. the injection of tmall business has helped ali health quickly obtain many ali-related traffic entrances, and taobao, dingtalk, and alipay have all begun to divert traffic to ali health.

figure: ali health’s closed-loop ecosystem, source: cicc

although ali health was also engaged in the "buy medicine without leaving home" business at the time, the company's overall strategic core had long since shifted from the previous o2o to b2c based mainly on the tmall platform.

in that era of internet traffic dividends, owning ali's traffic was like owning a huge user base. from fiscal year 2018 to fiscal year 2020, ali health's revenue doubled, and its overall revenue soared from 2.443 billion yuan to 9.596 billion yuan. however, although ali health's revenue has grown explosively, the company's overall operations are still in the red. for ali health at the time, tmall health was a very mature business, and the next stage of the task was how to convert scale into profit.

therefore, shen difan, who was good at resource integration, retired after his success, and was replaced by zhu shunyan, an alibaba "veteran" with rich commercial promotion experience. he joined alibaba with uc browser. before joining alibaba, zhu shunyan had rich commercial experience in uc browser. later, he served as alimama, greater entertainment, and alibaba music business.

zhu shunyan’s task is simple, which is to make money through “commercialization”, which is what he is best at.

03

zhu shunyan period: failed brand independence

under shen difan's management, tmall health was successfully integrated into ali health. the first thing zhu shunyan considered was how to expand the "brand" of ali health.

tmall health is an existing business and was relatively mature before it was merged into ali health. in order to further expand the value of this business, zhu shunyan finally chose the path of brand independence. in september 2020, the ali health app was officially upgraded to "yilu". the new version of the app integrates medical services on the homepage, weakening the e-commerce attributes. it is obvious that zhu shunyan hopes to enhance the value of ali health by magnifying the "medical" attribute.

figure: ali health app before and after transformation, source: spdb international

it coincided with the covid-19 pandemic at the time, and people's acceptance of internet medical care increased significantly. in addition, ali health has traffic portals such as taobao mobile, koubei, dingtalk, and alipay, which also prompted its stock price to continue to rise, and finally reached a peak of hk$30.15 in february 2021.

however, despite the favorable stock price of ali health, it was quietly surpassed by its old rival jd health. as jd health set a record market value of hk$630 billion, ali health's stock price gradually began to fall. although ali health's revenue increased from 15.518 billion yuan to 26.763 billion yuan from fiscal year 2021 to fiscal year 2023, the company's stock price fell from a peak of hk$30.15 to less than hk$4 in just one year, a drop of more than 86%.

such a horrific drop is obviously difficult for shareholders to accept.

looking back, although ali health hopes to enhance its value by focusing on the "medical" attribute, after the epidemic, users are no longer satisfied with traditional b2c business, but are more focused on instant services. this is actually the direction that ali health initially laid out, but now it has been occupied by jd health and meituan pharmacy, which also prevented the "yilu" brand from becoming popular.

in order to enhance the value of "yilu", ali health began to further enhance its value through acquisitions, and successively acquired a number of start-ups such as lingke technology, jiyinga, and xiaolu chinese medicine. however, all this did not stop the loss of "yilu" user attention. for ali health users at that time, they still mainly used ali health's services through traffic portals such as tmall, taobao, and alipay, while "yilu" that zhu shunyan worked hard to build lacked core users.

strictly speaking, zhu shunyan did not complete the task assigned to him by alibaba very well. although ali health achieved profitability in fiscal years 2021 and 2023, all this still relied on the solid foundation of the original tmall health business. the independent transformation of "yilu" was obviously a failure.

04

shen difan returns: refocus on the b-side

in november 2023, alibaba once again injected assets into ali health.

ali health announced that it has signed an equity subscription agreement with alibaba group, obtaining the exclusive marketing review rights and ancillary rights of alimama's healthcare category for a consideration of hk$13.512 billion. the company will receive 20% of the marketing service fees collected for product promotion under the alimama healthcare category in the form of service fees. this is the fourth time that alibaba group has injected assets into ali health, and the first time it has injected digital revenue assets.

it is worth noting that along with the alimama health business, the former "helmsman" shen difan was also injected into ali health. on november 28, 2023, ali health officially appointed shen difan as the company's ceo, replacing zhu shunyan. shen difan took over ali health in order to ensure the smooth integration of alibaba's injected assets. now ali has invited shen difan back again and injected new assets again. it seems that the "integration" plot seven years ago will be staged again.

alimama is alibaba's digital marketing platform, covering marketing products such as search, display, information flow, and interaction for all consumers, as well as alibaba's commercial marketing ip, and various digital business tools that meet the full-link business needs of merchants. after the injection of alimama's health assets, ali health's profitability will be significantly enhanced, and it will also focus more on the expansion of b-side business.

four months after injecting alimama's assets, ali health "temporarily" shut down the operation of the "yilu" app, which means that ali health officially gave up zhu shunyan's construction of c-end influence and returned to focusing on b-end marketing capabilities.

after the closure of the "yilu" app, the impact on ali health's overall c-end business is relatively limited, because it still has heavyweight traffic entrances such as taobao and alipay, and the focus on the c-end can further improve ali health's profitability. in addition, shen difan is very good at resource integration, and it is not ruled out that ali health will have more b-end assets injected in the future, such as saas platform, cloud computing, ai services and other businesses.

shen difan’s return is equivalent to a “error correction” for alibaba. it will no longer compete with hospitals for c-end traffic, but will learn to better integrate into the construction of the entire medical ecosystem.

05

conclusion

in the matter of "selling medicine", ali health has lost completely. users are no longer satisfied with the "cost-effective" b2c services, but care more about the "experience" of o2o services, which is the fundamental reason for the rise of jd health and meituan pharmacy.

ali health was once the no. 1 pharmaceutical o2o platform in china, but due to the need to compromise with the company's overall strategy, ali health eventually had to abandon its o2o business and focus on b2c business. today, the battle for pharmaceutical e-commerce has long been transformed into a battle for user minds. ali health, which has shortcomings in the o2o field, is destined to no longer be the first choice in the minds of c-end users, so it has gradually lost its c-end competitiveness.

in fact, there are many controversies about the development of ali health. when ali health focused on o2o, it was completely unnecessary to rashly inject tmall assets. although tmall's business scale is large, it is an established stock business, and the medical o2o that ali health was doing at the time was a potential innovative business that was in line with the pulse of the times. ali health gave up its potential and chose to realize its performance. this is nothing but right or wrong, and can only be regarded as a pity.

however, it is still too early to define ali health as a failure. after all, ali health is backed by the huge alibaba, and it can still use alibaba's assets on the b-side to consolidate its own value on the b-side.

so after alibaba failed to incubate the "yilu" platform, it really replaced zhu shunyan and re-formulated a new development strategy. with the return of shen difan and the injection of alimama's business, ali health's business will become increasingly difficult to "understand", but the company's profitability may quietly increase.