Who Is Zhang Yong, Alibaba's New CEO, and What Did Lu Zhaoxi Get Right and Wrong in His Two Years?

From the low-key, pragmatic Lu Zhaoxi to Zhang Yong, a finance veteran known as a "fighter," Alibaba will gradually return to its roots as an e-commerce platform, but it will not give up its aggressive push for fast growth.

Two years ago, on May 10, Jack Ma announced he was stepping down as Alibaba's CEO. Almost on the anniversary, on May 7, an internal email from Ma made public that Zhang Yong would succeed Lu Zhaoxi as the company's new CEO.

"I wasn't surprised at all. I guessed it long ago," a former employee who spent eight years at Alibaba told QDaily. "Both 'Xiaoyaozi' (Zhang Yong's nickname at Alibaba) and 'Lao Lu' (what Alibaba employees call Lu Zhaoxi) were once my direct bosses. Since the end of last year Lao Lu has hardly come to work, and after that he gave up almost all of his posts."

The step that drew the most outside attention, and that now looks like the last one, came on March 13, when Lu resigned as president of Amap and handed the post to Yu Yongfu, president of Alibaba's mobile business group and chairman and CEO of UC Browser. Recall the date of Alibaba's first strategic investment in Amap, May 10, 2013, and you will see what this post meant to Lu. Alibaba paid US$294 million to become Amap's largest shareholder, and Lu led the deal.

Outsiders saw Lu's appointment as CEO mainly as Ma's arrangement for Alibaba's IPO. "As CEO, Lu Zhaoxi's job was more to carry out strategy than to set it. Setting it was Jack Ma's job," a Taobao employee told QDaily. The former employee quoted above said the same: "Jack told people internally that he would lead Alibaba for another 10 years, but with the listing in mind, he needed a successor."

Lu Zhaoxi and Jack Ma

At the time Lu was considered "the most suitable and most natural choice." "He had worked at almost every Alibaba company and had managed all of those executives. He was the one people would accept most readily," the former employee said. "Now the transition is over, and Lao Lu's historical mission is over too. Apart from Alibaba Cloud, Jack was very unhappy with Alibaba's results last year. He felt the company had fallen behind and hadn't seen much innovation. In short, it didn't meet his expectations."

On the same day Ma announced this major personnel change by internal email, Alibaba released its results for the first quarter of fiscal 2015, for the period ended March 31, along with its full-year results. The quarterly report showed revenue up 45% to US$2.8 billion, but profit down 49% to US$460 million. The full-year 2014 numbers actually looked decent: total transaction volume of 2.44 trillion yuan and total revenue of 76.204 billion yuan. But growth had clearly slowed. From fiscal 2013 to fiscal 2015, Alibaba's annual revenue growth fell from 72% to 52% and then to 45%.

Before this report, Alibaba had just endured a long stretch of distrust from Wall Street: a dispute with China's quality-inspection regulator, its withdrawal from the Taiwan market, notice of a class-action lawsuit, allegations of fake reviews. The string of bad news pushed its share price steadily lower. On May 5 the stock briefly fell to US$77.77, and the company's market value dropped below US$200 billion for the first time since its listing.

After the earnings release, Ma set a new goal: "to become the world's first e-commerce platform with more than US$1 trillion in transaction volume within five years." Zhang Yong is the first person in the group charged with sprinting toward it.

Zhang Yong

"He's the kind of boss who is smarter than you and also works harder than you," said Chen Weiye, who has worked at Alibaba for seven years and now runs Xianyu, its second-hand trading platform. He spoke to QDaily the day after the news broke. He too had learned of the CEO change from the internal email the evening before, and when it came up in the interview his reaction was fairly muted. Before entering the internet industry, Zhang spent 10 full years at the accounting firms PricewaterhouseCoopers and Arthur Andersen, and many Alibaba employees who work closely with him say this gave him a sharp sense of how industries work. "When I told Xiaoyaozi, who was COO then, my idea for Xianyu, he found it very interesting and thought it could be combined with our company's 'Taobao Second-Hand,'" Chen said. A year after launch, the Xianyu app claims about 15 million downloads.

"When it comes to senior executives, Alibaba isn't actually that open. Zhang Yong is the first professional manager to make it to the top," said the former employee with eight years at the company, whom we quoted first. "If you go down the list, there really isn't anyone else who could take the job. Wang Jian (the group's CTO), Wang Shuai (the group's CMO), Shao Xiaofeng (the group's chief risk officer), Zeng Ming (the group's chief strategy officer) and the rest are each fine in one area. Zhang Yong is truly very smart, the most capable of them and the one who works hardest. He often works more than 18 hours a day. Talking to him is quite tiring. He came up through finance and can spot almost any hole in your argument. And he always gets to the point."

In the same email Ma also wrote: "I'm embarrassed to say that I used to say I feared nothing in heaven or on earth except a CFO becoming CEO, and Xiaoyaozi came up as a CFO. (Ha ha, there is always an exception, and this exception is such a pleasant surprise.)"

Another former Alibaba engineer told QDaily: "He can't match Jack Ma, but Xiaoyaozi is still a very inspiring speaker. And Lu Zhaoxi and Zhang Yong have different strategies. Lu wanted to get social networking going first, while Zhang wants to move into social through Taobao and its sister platforms."

So what has Zhang Yong, whom Alibaba employees call a "fighter," achieved at Alibaba, and what did Lu Zhaoxi get right and wrong in his two years as CEO? QDaily looked at both.

What the New CEO, a Finance Man, Has Done

Asked for their impressions of the new CEO, Alibaba employees call this short Shanghainese man, who sometimes goes back to another city on weekends to be with his family, a "fighter."

Unlike the "Eighteen Arhats," the team that founded Alibaba, Zhang is one of the earliest professional managers among its top executives. Before entering the internet industry, he spent a full 10 years at two well-known accounting firms. He has said that this experience "developed in me an ability to quickly understand the industry a client is in."

Soon after joining Alibaba in 2007, Zhang took charge of Taobao Mall, later renamed Tmall. After the B2B business and Taobao's C2C business, it was another area Alibaba had found that was stable and promised fast growth.

As "Singles' Day" (Double 11) was launched as a Chinese shopping festival and gradually drew quality brands from many sectors, Tmall's influence kept growing. Its sales rose from 50 million yuan in the 2009 trial run to 57.112 billion yuan in 2014, after categories such as cars and overseas goods joined, and Zhang is seen as the most important "operator" behind that growth. It is also the business he has run best at Alibaba in recent years. "Zhang Yong actually has an artistic streak and especially likes things with an international flair, so he wanted to build Tmall Global and Tmall Fashion. His strategy for Tmall was fairly aggressive, but his judgment really is very strong," the former Alibaba employee told QDaily.

Before Tmall, Zhang briefly worked at Taobao as vice president and CFO. By then Taobao had grown into a platform selling every category of goods, with annual transaction volume already at 43.3 billion yuan.

But in 2008, after Taobao president Sun Tongyu, one of Alibaba's "Eighteen Arhats," announced his departure, Taobao's growth began to slow, and Tmall, under Zhang, gradually caught up with it. In recent years Taobao has stopped emphasizing sales and advertising revenue figures, and "Taobao has everything" has become its new brand idea.

Today the "China retail marketplaces" made up of Taobao, Tmall and Juhuasuan remain Alibaba's most important source of revenue.

After Alibaba announced it would go all in on the mobile internet, Zhang was put in charge of the wireless business, which Lu Zhaoxi had previously led. Drawing on the shopping habits of the huge user base it had already built, and on heavy spending in wireless, Alibaba made a fairly smooth shift from PC to mobile. In the latest quarterly report, mobile's share of transactions passed 50%.

What the "Invisible" Former CEO, Lu Zhaoxi, Got Wrong

Jack Ma has "retired but not stopped working" and keeps reappearing at critical moments in Alibaba's development. By contrast, Lu Zhaoxi, who has followed Ma since Alibaba's earliest days, left people inside and outside the company with the impression of a "low-key, pragmatic executor."

In the open letter of May 7, Ma still praised his partner highly: "I especially want to thank Lu Zhaoxi. I know better than anyone that, as the first successor to someone with a personality as loud and larger-than-life as Jack Ma's, and to a group as huge and complex as this one, changing by the day, he has borne enormous pressure these two years, which has taken great courage, responsibility and sacrifice."

Ma said Lu's two years as CEO were "two years in which Alibaba Group's business advanced by leaps and bounds, and two years in which I could focus more on strategy, culture and developing talent." But from the outside, although Alibaba was often in the capital markets during those two years and completed the biggest IPO on the New York Stock Exchange in recent years, the main player was not the CEO. It was Ma, who stayed on as chairman of the board.

Lu joined Alibaba in 1999 and has Ma's deep trust. Ma has said Lu has "a quiet, unshowy willpower to do things to excellence at any cost." As one of Alibaba's veterans, the most important business Lu ran in the early years was Alipay, which now has more than 300 million users registered under their real names.

Alipay was a payment tool that grew up alongside Taobao. When Taobao was founded in 2003, China had almost no online banking, and without payment channels, credit records or verification systems, people were deeply wary of buying things online.

Alipay was created to solve that. Over the following years, as internet use spread, smartphones arrived and one step of the transaction after another was linked up, Alipay's user numbers began to grow fast. According to Alipay's own figures, the Alipay Wallet mobile app alone passed 100 million users in November 2013 and reached 190 million in October 2014.

Alipay is now the foundation of Alibaba's financial business and has spawned a series of new financial products, including Yu'e Bao, Zhaocaibao and Sesame Credit. Yu'e Bao is seen as the most innovative product launched during Lu's time as CEO. Within a year of launch it had 100 million users and 600 billion yuan in assets.

In 2008, after Taobao president Sun Tongyu left, Lu was urgently moved off the Alipay team, and from then on he served as a "firefighter" across e-commerce, cloud services, mobile and other areas. What outsiders have questioned most may be Laiwang, the Alibaba social app he pushed hardest.

As WeChat was winning huge numbers of users and trying to move into e-commerce, payments, local services and other fields, Lu believed Alibaba, which lacked a social product, had to fill that gap so that its e-commerce strength could be amplified through social networks. So Lu raised Laiwang to a "strategic-level product."

But eight months after Laiwang launched on September 25, 2013, it had only just passed 10 million users. Rumor has it that this was when Lu and Ma first began to disagree. Alibaba then changed course and re-entered social through Alipay Wallet and DingTalk, its newly launched workplace collaboration app.

To lift its market value before the listing, and to find new sources of growth afterward, Alibaba made a dizzying series of investments in 2013 and 2014. The most expensive, the acquisition of Amap, was also led by Lu. After the deal closed, Lu doubled as Amap's CEO for a full half year, until the integration was largely complete, and then handed the job to Yu Yongfu of the UC team.

Some Alibaba employees told QDaily that of all the acquisitions, the one Lu cared about most was the expansion into digital entertainment. Through Youku Tudou, Culture China, Huayi Brothers and Enlight Media, along with Taobao's movie-ticket sales and Yulebao, an entertainment investment product sold through Alipay, Alibaba has now entered almost every link of the entertainment industry, and it owns a Hong Kong-listed company into which it can inject quality assets.

The cost, of course, was more than 20 billion yuan, plus a much longer effort afterward to win a real say in the industry.

Beyond investment decisions, though, Lu kept a low profile. In September 2014, after Alibaba's successful US listing, Ma acknowledged as much in an interview with Forbes: "Lu Zhaoxi is learning to be a CEO. So we are between generations."

Alibaba Under the New CEO

At the annual meeting of Alibaba's Beijing company on April 23, Ma stressed a strategy of "integration." That is no surprise. According to statistics from the US Securities and Exchange Commission (SEC), no more than 30% of companies that go through horizontal mergers end up producing synergies. The same holds for Alibaba, which has been trying to enter new fields through a frenzy of investments and acquisitions.

Ma laid out his plan: integration will produce seven business segments. They are Alibaba's e-commerce services, Ant Group financial services, Cainiao logistics services, big data and cloud computing services, advertising services, cross-border e-commerce services, and internet services outside those six, meaning Amap, UC, Alibaba Health, Alibaba Pictures and other businesses. This is the "combat system for five to 10 years from now" on which Ma pins great hopes. One Zhihu user's verdict was: "Alibaba will go from going all in on wireless back to e-commerce, the business it lives on, and these future business segments will have to work together with the e-commerce business."

Besides Lu, Alibaba also announced that a group of core executives would step down: group CTO Wang Jian, CMO Wang Shuai, CRO (chief risk officer) Shao Xiaofeng and chief strategy officer Zeng Ming will gradually hand over day-to-day management. Alibaba presented their departure as the moment the "post-1970s generation" formally enters the group's top management. But set age aside and you can see that, apart from Wang Jian, none of these executives took part in building the group's core businesses. Alibaba's earlier announcement that Zhang Jianfeng would oversee its three core businesses, Taobao, Tmall and Juhuasuan, may likewise signal that Alibaba is pulling its forces together and returning to its essence as an e-commerce and services platform.

Data released by Alibaba show that among all its current managers, those born in the 1980s make up more than half, at 52%, and those born in the 1970s make up 45%. All presidents of front-line businesses will be from the 1970s generation.

"Jack Ma is still the one who decides." Alibaba employees and former employees we interviewed kept adding that line when QDaily asked their views of the new and former CEOs. "But I think Zhang Yong will work with more rhythm and more focus, and he'll do more for Alibaba's whole industry chain. He has always cared about making the industry chain more efficient," the former employee said. "He may also do things with more cosmopolitan style. He has a more international outlook, and his English is pretty good too."