Alibaba spins off its cloud, AI and business messenger unit

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 2014 in New York, the largest IPO at the time. Not long after Hong Kong relaxed rules around two-class structures, allowing founders to retain some control while opening the company up to outside investment, Alibaba sought a secondary listing in the city in 2019. Rising tensions between the US and China have also prompted many Chinese companies to withdraw from the Nasdaq and NYSE in recent years.

“We are taking concrete steps to extract value from our businesses and are pleased to announce that our Board of Directors has approved a full spin-off of the Cloud Intelligence Group through a stock dividend distribution to shareholders, with the intention of becoming an independent becomes a listed company. business,” Daniel Zhang, Chairman and CEO of Alibaba Group, announced today in the company’s earnings report. Zhang is also one of the cloud arm’s board of directors.

Alibaba aims to complete the spin-off in the next 12 months and plans to bring outside strategic investors into the group through private financing.

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

Marrying AI and cloud

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

The cloud company Alibaba Cloud dominates the Chinese market. According to market research firm Gartner, by 2021, Alibaba Cloud will be the world’s third-largest infrastructure-as-a-service (IaaS) provider of public cloud services. Add platform-as-a-service (PaaS) and private cloud to the mix, Alibaba placed fourth in Q4 2021, according to another market research firm Synergy Research Group.

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

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

It makes sense for Alibaba to group its cloud business and AI research team under one umbrella, as the two go hand in hand. With each new breakthrough in AI, the amount of computing power required to train data increases exponentially, as does the cost.

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

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

The timing seems appropriate. Earlier this week, Beijing unveiled a draft policy calling for cloud providers to work more closely with AI companies and support them with whatever computing resources they need.

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

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