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  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.”  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 .
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 . 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 . 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.
 “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
 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
 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
 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