The SF Express–Alibaba Fight Has Quieted Down for Now, but the 6 Questions Behind It Are Still Unanswered

The user always gets the worst of it.

On the afternoon of June 1, the fight between SF Express, China's largest courier company, and Alibaba, its largest e-commerce company, broke out into the open.

SF Express orders stopped showing up in the system of Cainiao, Alibaba's logistics subsidiary. Taobao sellers could no longer ship through SF Express. Each side accused the other of shutting off its data interface.

The next day, JD.com, Tencent, NetEase, and Meituan — which has little to do with courier services — issued statements one after another backing SF Express. Alibaba, meanwhile, won the support of EMS, YTO Express, Yunda Express, and other courier companies.

The fight ended on the third day. Under mediation from the State Post Bureau of China, the two sides restored their data connection.

But the tensions that caused it didn't disappear.

The whole episode lasted no more than 72 hours from start to finish, and yet it dragged a string of questions into view — monopoly power, personal privacy, trust and conflict between companies… When both sides of a fight are companies big enough to shape the lives of hundreds of millions of people, what we're curious about is where their boundaries lie.

The e-commerce and courier giants started out as partners, then clashed as their businesses grew

SF Express and Alibaba began in a symbiotic relationship. Taobao, founded in 2003, has always been China's largest e-commerce platform.

Taobao — and later Tmall and Xianyu — never built a complete logistics network of its own; it relied on courier companies for delivery.

Taobao brought the couriers a huge volume of orders, and in turn it got goods to users at relatively low cost, without having to burn cash on logistics for more than a decade the way JD.com did.

SF Express, ZTO Express, YTO Express, Yunda Express, STO Express, and Best Express became the six most commonly used courier services on Taobao, growing as Taobao grew.

Along the way, SF Express became China's largest courier on the strength of its speed and service. It runs every link of its delivery business in-house, which lets it control quality all the way from front-end delivery to back-end warehousing and transfer. That's why Taobao merchants selling valuables, fresh food, and consumer electronics tend to favor SF Express.

This gave SF Express its own moat, and made it the first choice whenever a user needed speed and certainty. It's also why the other courier companies get lumped together under one label, the "Four Tongs and a Da" — ZTO, YTO, STO, Best, and Yunda.

After Taobao's "Double 11" shopping festivals in 2011 and 2012 buried the couriers in more parcels than they could handle, Alibaba set up its logistics subsidiary Cainiao in 2013, taking in partners in an attempt to control logistics as a whole. Cainiao's investors included Intime Retail, Fosun Group, Fuchun Group, SF Express, STO Express, YTO Express, ZTO Express, and Yunda Express.

At the same time, SF Express, having built a brand of its own, began pushing upstream, trying again and again to get into e-commerce. It tried fresh-food e-commerce and cross-border logistics.

The tension between the two partners was born as each pushed into the other's business.

But none of SF Express's e-commerce ventures grew big enough to threaten Alibaba. Until Fengchao.

Fengchao is SF Express's offline parcel-locker network. STO Express, ZTO Express, and Yunda Express all hold stakes in it.

At the core of the fight: who gets to touch the user

Alibaba's Cainiao has much the same relationship with courier companies that Ele.me has with chain restaurants. It can bring couriers orders, but it also takes away the couriers' direct link to their customers.

When McDonald's signs onto a third-party food-delivery platform, for instance, it also loses its grip on its own user data. The profile of any new customer never reaches McDonald's, which means fewer chances to deal with consumers directly.

It's not only a data problem. In the process, McDonald's gradually becomes one more item listed on Ele.me. When consumers open Ele.me and order McDonald's, they are mostly picking McDonald's while ordering food, not opening the app for McDonald's in the first place.

That's also why McDonald's China launched its own mobile ordering app this past April, despite how hard it is to build an app and get people to use it. Only that way can it keep users in its own hands.

In the same way, inside Cainiao's system, SF Express is just one premium service option.

Clearly SF Express, like McDonald's, doesn't want to be a product on someone else's shelf — it has launched its own app, steered users to its WeChat official account, rolled out a membership points scheme…

Fights like this over who controls the user are not going to end.

Every big company says it wants to build infrastructure, but none of them can resist using that infrastructure as a weapon

When Cainiao and SF Express stopped passing data to each other, what it came down to was that users could no longer check delivery status inside the Taobao app. It didn't stop sellers from choosing SF Express and uploading a tracking number, or users from copying that number and looking it up on SF Express's own site — before Cainiao's system existed, that is exactly how people did it.

But last week Taobao stepped into a fight that had nothing to do with it. Sellers on Taobao and Xianyu could no longer enter an SF Express tracking number on the shipping screen.

Cainiao is an Alibaba subsidiary, and Taobao is one of Alibaba's e-commerce arms. Alibaba was using its e-commerce business to squeeze a rival of its own logistics subsidiary.

Once things reach that point, it's hard to believe there is any wall between Alibaba's different businesses.

And a company that sets out to build a so-called platform needs that wall.

That probably also explains why companies that compete with Alibaba shake off Alipay wherever they can.

JD.com dropped the Alipay option long ago. When UnionPay recently launched QR-code payments, JD.com was among the most eager backers — the president of JD Finance turned up in UnionPay's press release.

Baidu Waimai and Tencent-backed Meituan are both pushing payment tools of their own. Baidu Waimai has been piloting a policy of closing off the Alipay option for users who have Baidu Pay linked to their account. Meituan's apps bury Alipay under "other payment methods."

A number of other companies have bought payment licenses of their own lately. Vipshop acquired Zhejiang Beifu outright last October, picking up Beifu's internet payment license; Midea Group bought Shenzhou Tongfu that same month, picking up internet-payment and phone-payment licenses; and at the start of last year Xiaomi spent 600 million yuan on Jiefu Ruitong, which also came with a payment license.

Alipay is, if anything, farther from its goal of becoming the infrastructure of online payments than it was ten years ago.

Using infrastructure as a weapon this way is normal in China — see the long list of services Tencent's WeChat blocks.

Netflix, which fights Amazon head-on in video, has nonetheless used Amazon's own cloud service, AWS, for years. The same thing might not happen to a customer of Alibaba Cloud or Tencent Cloud.

Cloud computing is critical infrastructure, but companies in China have few choices

After the fight, SF Express told QDaily that Cainiao cut it off because Alibaba had long wanted SF Express to move from Tencent Cloud to Alibaba Cloud.

That is SF Express's account alone. But as the most important piece of IT infrastructure, cloud computing really does offer few choices in China.

Cloud computing is a business of scale, and it tends to end up in the hands of big companies, because it means building data centers in many places, running them, and maintaining and upgrading the software. Once a big company has built its cloud infrastructure, other companies buy computing power from it.

It works the way water, electricity, and gas do in daily life: someone builds the plant and the pipes, and users pay only for what they use.

Xu, an engineer who runs servers at a financial-data firm in Shanghai, told QDaily his company chose Alibaba Cloud because its technology and its coverage inside China are relatively good. As for Tencent Cloud, in his words: "Only gaming companies use Tencent Cloud. Its supporting services and its offerings both lag behind Alibaba Cloud."

That is a common verdict. Alibaba started in cloud computing earlier, and spent more on it, than any other big Chinese company. Alibaba Cloud began operating as an independent subsidiary in 2009. Tencent didn't offer cloud services until 2013. A Deutsche Bank report last April put Alibaba's cloud business at ten times the size of Tencent's.

So for most companies in China, the choice is Tencent Cloud or Alibaba Cloud. No company wants a repeat of the crashes that greeted LinkedIn China's "Chitu" app — LinkedIn picked the startup QingCloud for its cloud computing, QingCloud's service failed over and over, and users couldn't reach the app for hours on launch day.

That has to do with policy. The world's two biggest cloud services, Amazon's AWS and Microsoft's Azure, are barred by China's restrictions on foreign-owned cloud computing from operating on their own. AWS works through Sinnet in China, and an AWS China account is entirely separate from a global AWS account — the two can't be used interchangeably.

"The domestic AWS is a stripped-down version of the international one; plenty of features simply aren't there. We used it before because AWS had a promotion that made it basically free for two years. Paying full price, AWS is expensive — more than twice what other cloud services cost." That's Xu's view of AWS; he once ran his company's server move from Alibaba Cloud to AWS China.

SF Express went with Tencent Cloud in the end, and that comes down to whether you trust your cloud provider. SF Express worried that Alibaba Cloud might look at its data, though it had no evidence. On questions of data security, Xu said: "In theory those permissions are available to Alibaba Cloud. But the reality in this country is that big companies of every sort pay little attention to data security and privacy. All I can do is stay neutral. If you really mind, you handle it case by case. We have data-security needs of our own now, so we may look at combining a private cloud with a public one."

Yang Lingfeng, a former senior engineer at Juhuiwan, told QDaily: "Whether Alibaba Cloud looks at your data is purely a matter of its own self-restraint. If it wants to look, technically there's nothing in the way. That's true of every cloud service, since your computer is sitting in someone else's house. In theory they can do anything they like with your data. They could log every move you make and there'd be no problem."

When a fight breaks out, the "national team" always turns up right on time

By SF Express's account, the trigger came in March and April, when Cainiao demanded that every parcel-locker notification be routed through Cainiao, with pickup codes handed over to Cainiao unconditionally.

That meant Fengchao, the locker system SF Express runs, would have to send Cainiao data on every parcel, including orders with nothing to do with Taobao or Tmall. SF Express said it couldn't accept those terms. The fight broke out after that.

Timeline of the Cainiao–SF Express fight

March–April 2017

Cainiao demands that SF Express send back data on every parcel in its lockers, whether or not the parcel came from a Taobao-affiliated platform; SF Express refuses

May 27, 2017

Cainiao emails SF Express to say the data interface will be switched off on May 31

June 1, 2017

Cainiao says it received notice from SF Express that the data interface was being suspended

June 1, 2017

SF Express says it was Cainiao that took the Fengchao interface offline, at midnight on June 1

June 2, 2017

SF Express issues two statements in a row, accusing Cainiao of not telling the whole story

June 3, 2017

Cainiao and SF Express settle under the mediation of the State Post Bureau of China.

Right after the Cainiao–SF Express fight broke out, a screenshot of an EMS internal notice went up online: "As soon as the joint-stock company got word of the incident, it activated its headquarters marketing company, took the entire share SF Express used to hold in Cainiao's warehousing and distribution system, fired the first shot in the battle to 'seize SF Express's e-commerce customers,' and is now working hard to seize phones, consumer electronics, and other parts of SF Express's 'bread-and-butter business.'"

After China's postal system separated government functions from business operations, it split into the State Post Bureau and China Post Group. China Post Group is in turn divided into express and logistics, the Postal Savings Bank, and post office operations.

EMS, the express and logistics arm, is SF Express's direct competitor.

Alibaba and China Post are in fact close. In 2014 the two signed a strategic cooperation framework agreement to work together on logistics, e-commerce, finance, information security, and other areas. "Jointly building China's smart logistics backbone network" was placed in the most prominent spot in that agreement.

The "national team" stepping in when an industry is thrown into turmoil is nothing unusual. Since last November, cities across China have issued draft ride-hailing rules one after another, restricting which vehicles and which drivers qualify. Shouqi Yueche, as a player in the industry, took part in the comment process for Beijing's ride-hailing rules.

"They asked me about the Beijing-residency question when the first draft went out for comment. I don't think ride-hailing is the only business that restricts things by hukou — plenty of industries limit things to Beijing hukou holders." That's what Shouqi Yueche CEO Wei Dong said at a media briefing at the end of the year. Beijing's detailed ride-hailing rules took effect on December 21, and the next day Wei Dong submitted Shouqi's application for a ride-hailing operating license to the Beijing regulator. This past February, Shouqi received Beijing's first ride-hailing platform operating license.

Last, there's user privacy — big companies gather information with no boundaries to speak of

A handful of big companies can already sketch most Chinese internet users with some precision.

Alibaba, for one, knows a user's education, spending habits, and finances directly through Alipay. By paying utility bills on a user's behalf and comparing the payer's name against the property owner's, and the province on the ID card against the city where the rent is paid, it can tell whether someone is renting far from home; by looking at how often a user buys products meant for the opposite sex and where they are delivered, it can tell whether someone is dating, and whether the relationship is long-distance. Tencent, likewise, knows users' social circles and spending habits through QQ and WeChat.

In the American series Criminal Minds, the forensic scientists on the FBI's Behavioral Analysis Unit profile suspects by pulling driver's license, medical, spending, and civil records and putting them together with evidence from the crime scene. Big companies worked out the value of data long ago, and once they know everything about a user they can, to some degree, use a few settings to influence or even control everything you do. That influence can be plain commercial gain through precisely targeted advertising, or it can be surveillance in another form.

But the argument between Cainiao and SF Express over data raised one more privacy question. Cainiao demanded that Fengchao hand over courier data from outside Taobao.

No courier other than SF Express has raised the issue. It is fair to assume they are already sending their delivery data to Cainiao.

Which is to say that even the data of users who never shipped anything through Cainiao ends up at Cainiao.

In the data age, companies holding the data of hundreds of millions or even billions of users have more ways than ever to get at users' private information. And they keep passing that information around among themselves.

The one party with no say in any of it is, in the end, probably the user.

Cover image/LifeHacker