Alibaba turns to Open Innovation to harness the power of millions of tech developers around the world

Working with others can be much for productive than we expect

Alibaba is one of the fastest growing online companies in the world. Their growth has largely been fueled by successful innovation rather than operational efficiency. Alibaba’s innovation strategy to crowdsource key aspects of the business such as technological development and logistics has largely benefitted the firm to achieve scale by quickly expanding across geographies without massive capital investments in one particular area. This sets Alibaba apart from other players in the e-commerce industry such as its western rival Amazon, where vertical integration of key business elements such as warehousing and logistics has been used to achieve operational efficiency. Here we will discuss key product development practices that Alibaba uses to boost its technical and logistical capabilities using Open Innovation.

Technological excellence has been one of the key selling points for Alibaba in all their negotiations with getting top sellers and brands onboard. To enhance the experience of their sellers on the platform, Alibaba is constantly trying to innovate new tools and services to help sellers expand and better manage their business online. Alibaba’s Open Platform was built to address this exact objective. Through the open platform, Alibaba is able to share their seller data in a secure manner with millions of freelance developers around the world. These developers are then able to use this data to build apps for photography, marketing, accounting etc. on the Open Platform that Alibaba sellers can use to improve their business. Since its launch in 2011, Alibaba now boosts 150+ open source projects [1] on its platform.

Another area where Alibaba’s open innovation strategy has provided them the competitive edge is in logistics. Most of their competitors like Amazon are vertically integrated to own a lot of the stock and do the warehousing and logistics themselves. Alibaba is different in the sense that they believe in the power of open ecosystem – that working with others can be more productive in many scenarios. As Ming Zheng, chief strategy officer at Alibaba states “The more we build the open system, the more we benefit, and then the faster the ecosystem grows and we become more inclined to this new approach.” [2] Due to this when Alibaba decided to exponentially grow their business online, instead of relying on in house logistics or local old state mail systems that would not have been able to handle such large volumes and would have bottlenecked the growth, they instead relied on local entrepreneurs building their own delivery companies and they all grew exponentially with Alibaba over time.

Considering the long term need for faster open innovation, my recommendation would be for Alibaba to acquire or get into active partnerships with small scale tech firms that are creating ripples in the online business community. For instance, the upcoming marketing influencer apps that help connect sellers with influencers to market their product could be great partners to complement Alibaba’s existing capabilities. One such partnership was recently seen when Alicloud, Alibaba’s cloud computing division jointly opened an open innovation center in Helsinki with Eficode Oy, a leading Finnsih digital company to develop data intelligence solutions targeting increased collaboration between Nordic and Chinese businesses [3].

To conclude, as we consider the benefits that open innovation has brought to Alibaba’s business model, it does raise the question about the long-term sustainability of this strategy. A key consequence of this approach is the reduced need for labor [4]. Alibaba’s hiring for tech talent has reduced as they increase their reliance on freelance developers to build new apps. The trend however has been cyclical as many ex Alibaba tech employees that initially lost their jobs due to the launch of the open source platform have now started their own standalone tech development ventures and are building apps for Alibaba sellers externally through the Open Platform. As more and more tech firms start adopting open innovation, will this cause the labor force to be less concentrated with a few giants and more fragmented across freelancers?

Another issue that open innovation raises is the protection of intellectual property [4]. In order for Open source platforms to work, firms have to share data with external developers to enhance app development. This causes legal concerns around confidentiality as to what level of detail can be shared and the appropriate customer permissions that firms need to acquire before sharing. In the Alibaba open source platform, consumer data is classified across several sensitivity levels and developers are required to go through additional permissions to unmask increasing sensitive data for their apps. Also each customer is required to provide their individual permission for every new category of their data shared via the Open Platform.

 

(769 words)

 

Bibliography:

[1] “12 Alibaba Techs made Open Source in 2017” Medium, Jan 15 2018 https://medium.com/@alitech_2017/alibabas-open-source-core-technologies-of-2017-2734ba5c154a

[2] Curt Nickish “How Alibaba is Leading Digital Innovation in China” HbReview, Sep 11 2018 https://hbr.org/ideacast/2018/09/how-alibaba-is-leading-digital-innovation-in-china

[3] Xinhua “Alibaba Cloud, Eficode jointly open innovation center in Finland” ChinaDaily, Dec 1 2017 http://www.chinadaily.com.cn/business/tech/2017-12/01/content_35149414.htm

[4] B. Bergvall-Kareborn and D. Howcroft “Crowdsourcing and open innovation: A study of Amazon Mechanical Turk and Apple iOS” Presented at The 6th ISPIM Innovation Symposium – Innovation in the Asian Century, Melbourne, Australia December 2013 https://www.ltu.se/cms_fs/1.115874!/file/Crowdsourcing%20and%20Open%20Innovation-%20A%20Study%20of%20Amazon%20Mechanical%20Turk%20and%20Apple%20iOS.pdf

 

 

 

 

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7 thoughts on “Alibaba turns to Open Innovation to harness the power of millions of tech developers around the world

  1. Regarding Alibaba’s work force, I think the company will soon realize that humans add a unique element that cannot be solved by machines or open innovation, and will want to hire back their employees. They are able to use intuition and make judgement calls that is just unique to a person’s abilities. This reminded me of the Valve case we had when the company hired in people who were competing with them. I think Alibaba should hire back the employees they let go to not only harness their tech developments but also utilize their unique decision making abilities.

  2. Tatiana – Thank you for the essay. One thought I had regarding sharing seller data to external parties (in addition to confidentiality) is whether Alibaba is compromising its competitive advantage by sharing these massive data that Alibaba is accumulating. Alibaba can leverage all its data to understand its consumers and sellers better, which I consider to be a very important strategic asset to the company. I think there is a trade-off between sharing Alibaba’s proprietary data vs. achieving innovation through Open Platform. One potential solution is to limit Open Platform to be within Alibaba (only Alibaba’s employees can participate), though this may limit the benefit of having a wide group of people contribute to innovation.
    You also raise an interesting point regarding the reduced need for labor. I personally think that companies would still need specialists who know their companies very well, even though majority of innovation is done externally through open innovation. Though there will be a large pool of freelancers participating in open innovation projects of tech companies, I still think that there will be needs to hire company specialists and the impact on the overall labor market from open innovation would be limited.

  3. It is very powerful to see how Alibaba not only create a platform to match seller and buyer but to also create a community of alike people where they can share their thoughts and build on each other’s idea.

    I agree with your comment regarding the benefit of open innovation, reducing labor force. However, I think we should not worried that open innovation will encourage people to be freelancers and big tech firm will not be able to attract talents. Working in a big firm provides benefits that freelancers cannot obtain; for example, the sense of working in a team, mentoring process and the learnings you can get from peers. Working as freelancers despite being flexible, you do not get to interact with or learn from others. There is definitely a trade-off between two options. Therefore, the questions now become what do labor force value more – Flexibility or Learnings from big corp.

  4. Tatiana, thank you for your insights on this topic! With their current size and marketplace model, I’m sure they are able to attract many partners through open source innovation and the risk of a competitor using available data to replicate their model is relatively low. There are also clear cost and growth rate benefits to the open source innovation and partnership approach that Alibaba has taken so far. However, I wonder if there is a limit to this approach as the firm continues to grow larger and more complex. As primarily a software platform, maybe they are uniquely positioned to find these smaller developers and scale their technology across the Alibaba business, while a more capital-intensive business would find it much more difficult to work with many small partners.

  5. Thank you for the interesting read, Tatiana. I totally echo your concern that confidentiality and protection of intellectual property are major issues that are going to dominate the agendas of many organizations around the globe over the coming years. However, given the value that such schemes generate for the end consumers, I fundamentally believe that there will be a way to make access to such sensitive datasets secure without compromising integrity or personal data. Europe already took a decisive step with the introduction of the General Data Protection Regulation which regulates without killing such information sharing. To your point about the potential reduction in the need for labor, I do believe that this won’t scale by orders of magnitude as companies will still require specialized employees that are familiar with companies systems and way of conducting business and will want to retain this talent. That said, I see a great opportunity in remotely engaging people across geographies in your company’s innovation process, something that might prove extremely useful given the shortage of talent in specific areas of expertise (e.g., S/W developers) in certain geographic regions (e.g., USA).

  6. Thank you very much for the insightful note Tatiana! I also wrote about open innovation in a traditional conglomerate, but after reading your report, I found Alibaba’s open innovation has tremendous opportunity and potential to grow themselves and industry as a whole. The most interesting thing for me is that Alibaba can share seller data in a secure manner with millions of freelance developers around the world. By doing this there is a clear benefit for companies who work open innovation with Alibaba, so that I can imagine many companies would like to join the open innovation community with Alibaba. Such that, the open innovation can bring the maximum benefit for Alibaba.
    Another interesting thing is that Alibaba is involving local entrepreneurs building their own delivery companies. I agree that it is the fastest way to expand their territory, but at the same time I feel it has a potential risk of logistics mishandling. I wonder is it viable to do open innovation for Alibaba’s core existing business.
    Lastly, I would like to listen more about the cooperation with Eficode Oy about what benefit they can bring to Alibaba. Let’s talk about it in another day!

  7. Fascinating article! I really enjoyed reading about the implications this might have on the labor market long-term. I agree that the need for talent might be reduced at tech giants – such as Alibaba – as a consequence of open innovation and increased reliance on freelance developers. However, I think this is a great way to foster innovation as this might encourage developers to start their own ventures and build other apps. And this works perfectly in a growing and healthy economy. My only concern would be to ensure that the labor market has the right mechanisms to protect freelancers in a case of an economic downturn.

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