According to reports from CNBC and the Wall Street Journal, Chinese e-commerce giant Alibaba Group Holding Ltd., said it plans to split itself into six independently run companies that could seek separate IPOs, effectively dismantling a business empire built over two decades by entrepreneur Jack Ma. Jack Ma is China’s version of Amazon founder Jeff Bezos.
“If you don’t change yourself, you will be defeated by the times,” Alibaba Chairman and Chief Executive Daniel Zhang said in a letter to employees. He added that Alibaba’s various businesses are facing different challenges and market conditions.
Under the restructuring, Alibaba’s various businesses will be split up into six major areas and will revolve around Alibaba Group’s strategic priorities:
Cloud Intelligence Group: Alibaba CEO Daniel Zhang will be head of this business which will house the company’s cloud and artificial intelligence activities.
Taobao Tmall Commerce Group: This will cover the company’s online shopping platforms including Taobao and Tmall.
Local Services Group: Yu Yongfu will be CEO and the business will cover Alibaba’s food delivery service Ele.me as well as its mapping.
Cainiao Smart Logistics: Wan Lin will continue as CEO of this business which houses Alibaba’s logistics service.
Global Digital Commerce Group: Jiang Fan will serve as CEO. This unit includes Alibaba’s international e-commerce businesses including AliExpress and Lazada.
Digital Media and Entertainment Group: Fan Luyuan will be CEO of the unit which includes Alibaba’s streaming and movie business.
Each business group will eventually have its own CEO reporting to a board of directors and be fully responsible for the group’s performance. Alibaba Group is set to become a holding company overseen by Mr. Zhang. The business groups will be allowed to raise external capital and seek initial public offerings when they are ready. Its domestic commerce business will remain a wholly owned unit of Alibaba.
The reason why Alibaba Group is breaking the corporation into six separate groups is to “reinvigorate growth.” The corporation has grown into a giant that encompasses businesses from e-commerce to cloud computing to streaming and logistics. Alibaba Group sees the creation of the six businesses as a way to be nimbler.
“This transformation will empower all our businesses to become more agile, enhance decision-making, and enable faster responses to market changes,” Zhang said in a statement.
Is Amazon Next?
The company that best illustrates the dangers of running a massive conglomerate is General Electric. Under the leadership of CEO Jack Welch, GE increased their market value from $12B to $450B by making a series of acquisitions that greatly expanded the size of the company and industries served. However, upon the retirement of Welch, GE’s fortunes began to unwind with CEO Jeff Immelt at the helm. In 2021, GE announced that the company would separate itself into three smaller standalone companies:
- Jet Engines
- Medical Devices
- Power Equipment
The company that most resembles the Alibaba Group, and to an extent, GE, is Amazon. Founded on July 5, 1994, in Bellevue, WA, Amazon generated $356B in revenue in 2022, and currently has a market cap of over $1T. Amazon doubled in size in 2020 from 800,000 employees to 1.6M.
A logical question to ask is this: Will Amazon follow the example of Alibaba Group, and split up Amazon into different groups? In my opinion, the answer should yes. Amazon has lost its magic. Breaking up the company may sound like a radical idea, but doing so has the potential to generate significant value. Aliba is a 24-year-old company. Amazon is a 28-year-old company. The time for a radical transformation is now.
The company that appeared unstoppable in 2021 has morphed into a company beset by internal and external challenges. For example, shipping costs have exceeded the actual costs of goods sold. This is profound. In addition, Amazon’s cash cow, AWS, is experiencing decreased sales, and the Alexa division remains unprofitable. Worse, Congress and the Federal Trade Commission are investigating Amazon’s business practices.
I first recommended that Amazon split up in 2018. Amazon was growing, and the company had acquired Whole Foods Market in 2017. Instead of becoming another GE, I stated during a media interview, “The best thing Amazon can do is create lots of Little Amazons. How? By breaking up the company.” Executives at Amazon weren’t amused or supportive of my recommendation. Neither were most analysts who covered Amazon.
My opinion on breaking up Amazon hasn’t changed. However, opinions within Amazon have begun to change. Beginning in 2021, executives at Amazon reached out to me and asked for my opinion on whether or not Amazon should split up. I replied that they should. So far, nothing has happened.
The announcement by Alibaba Group provides Amazon CEO Andy Jassy, with an opening for broaching the subject of splitting up Amazon with his S-team; Amazon’s senior leaders. I encourage Jassy to make this a priority.
Allow me to get the discussions going. Below is an example of how Amazon can split up into separate companies, each with their own CEO, and each with the potential to IPO:
Physical Retail and Technology: Arguably Amazon’s weakest area is its Helter Skelter approach to physical retail. Although Amazon acquired Whole Foods, a company with a reputation for having the “freshest of the fresh” fruits and vegetables, Amazon has opened 42 Amazon Fresh stores with 26 stores in development. If Whole Foods is all about fresh, why the need to open Amazon Fresh stores? Amazon should rebrand Amazon Fresh stores as Whole Foods+ and kill the Amazon Fresh brand. Whole Foods+ stores can sell organic and non-organic fruits and vegetables, and also sell the leading CPG brands like Coke, Pepsi, Tide, salty snacks, and other products traditionally found in supermarkets. Amazon should shutter their Amazon Go stores but continue to develop its Just Walk Out technology. Amazon had plans to build their own department store concept similar to Target, but the project was canceled. Amazon needs a competent CEO who understands physical retail and who has the business acumen to grow the business through strategic acquisitions and organic growth.
E-Commerce: Amazon’s most well-known business but arguably the business that will struggle the most to operate profitably as a standalone company. Regardless, Amazon should run e-commerce as a separate company and force the CEO and executive team to make the required changes.
Media and Entertainment: Amazon acquired MGM Studios in 2022, and provides a streaming service with thousands of on-demand movies and shows via Prime Video. I want to see Media and Entertainment become a separate company for many reasons, primarily, I believe it will increase the chance of Disney acquiring the company and provide shareholders of Amazon and Disney stock with a healthy return. Note: Amazon acquiring The Walt Disney Company is worth exploring. Another option, not my favorite but still possible, is Amazon acquiring AMC Theatres or possibly Cineworld.
Cloud and Technology: This is where Amazon Web Services and Amazon’s technology teams, including Alexa, will work together to grow the business. An interesting option for Amazon to pursue is making Alexa the voice of ChatGPT or another AI application. If Alexa can’t become profitable, Amazon should divest the business.
Robotics and Automation: Amazon has an opportunity to become one of the largest robotics and automation companies in the world. I’d like to see Amazon acquire Agility Robotics, and acquire Boston Dynamics, now owned by the Hyundai Motor Group. The potential for Amazon in this area is limitless. Research can include autonomous vehicles in addition to robotics and automation.
Logistics: Amazon has created the world’s largest and most sophisticated logistics network. Amazon launched its 3PL services in 2022 whereby any company can hire Amazon to manage their logistics. Amazon also operates Fulfillment by Amazon. Logistics is a tremendous growth area for Amazon. This company will become a competitor to FedEx, UPS, and DHL., and also a leader in trucking and last mile delivery; an acquisition of Brightdrop or Rivian would make sense. Note: Amazon won’t confirm my suspicions, but I’m convinced that Amazon is secretly working with several partners to build the world’s largest autonomous cargo carrying vessel.
Healthcare and Pharmacy: Amazon has made several acquisitions related to these topics. Amazon can grow this business much easier if it is a separate company with an innovative and dynamic CEO.
Aviation: Some may wonder why I don’t lump Amazon Prime Air in with logistics. Here’s why I didn’t. Amazon’s only air assets are it fleet of cargo planes. Amazon can make multiple acquisitions of small, medium and large cargo companies to grow their fleet of cargo aircraft. However, I believe Amazon has bigger plans. Amazon can do many interesting things in passenger aviation including creating an in-air shopping service that offers special pricing to individuals who purchase products while flying. Amazon can also create an Amazon Prime Travel Card as a competitor to Visa, Mastercard, American Express, etc. It’s possible that Amazon may choose to acquire a passenger airline; I rank Southwest Airlines at the top of the list. Amazon may also choose to leverage AWS to create a competitor to Priceline, Expedia, and other online travel agencies.
Banking and Finance: This probably isn’t on the list of most analysts, however, I think this is an incredible opportunity for Amazon. Why? I believe Amazon can create a competitor to Visa, Mastercard, American Express, etc., by launching a Prime Credit Card. In addition, Amazon can create a form of crypto currency to also be a competitor to Visa, American Express, and other credit card companies. If anyone can figure out how to create a stable currency that retailers will invest in as a replacement for major credit cards its individuals who will work for this company.
Will Amazon separate into multiple companies? I don’t know. However, I believe Amazon can no longer maintain the status quo. In order for Amazon to disrupt other industries, Amazon should first disrupt itself by breaking up. Think Big, Amazon.
