Alibaba – Early days

Alibaba is on the right path with Yun OS.

• Alibaba is a giant in the e-commerce space but it has very little in the areas that are likely to see the most growth in China over the next 10 years.
• This is the digital mobile ecosystem and Alibaba knows that it must address this space or find itself falling behind its peers.
• Mobile is already very important as its mobile payments system, Alipay, already sees 54% of its transactions coming from mobile devices.
• This is where all its problems begin as its efforts to move into mobile have been fraught with problems.
• It has its own ecosystem based on a proprietary OS called Yun OS but it has had almost no impact in the market so far.
• Alibaba currently has 1,600 engineers working on Yun OS (aka Aliyun) which is very loosely based on Android.
• Most Android forks take the Android Open Source Package (AOSP) and then implement their ecosystems on top.
• Yun OS is much more involved as many parts of the AOSP (such as the run time (where 3^rd party apps run)) have been replaced with proprietary variants.
• This means that Yun OS is already a fully proprietary system that is in no way compatible with any version of Android.
• This makes life much more complicated for Alibaba but it also explains why it needs 1,600 engineers to maintain its code.
• I suspect that this is the way that all variants of Android will be forced to go over time.
• This is because Google is taking more and more of the AOSP and putting it into its own proprietary software called GMS (where the apps that make the Google ecosystem are to be found).
• This means that less and less code remains in the AOSP.
• Hence, the creators of other ecosystems based on Android have more and more code of their own to write.
• I suspect that at the end of the day they will be writing almost all of the code themselves just like Alibaba does.
• While Alibaba has this problem under control, it still has no real ecosystem with which to enchant users as Yun OS offers a user interface and very little more.
• This is where the real challenge lies as writing a working OS is pretty easy compared to the challenge of creating Digital Life services that users will love.
• This is why I think that Xiaomi will never do a deal with Alibaba.
• In creating its own ecosystem, Alibaba is now a competitor of Xiaomi and the only way Yun OS is likely to find its way onto a Xiaomi device is if Alibaba buys the whole company.
• By 2016E China is likely to have close to 1bn smartphone users meaning that there is space for 3 large ecosystem to flourish in this market alone.
• Currently, these are shaping up to be Tencent, Alibaba and Baidu with Xiaomi as a challenger.
• I view Xiaomi as a challenger because it has nothing like the resources of its three competitors and ecosystems require huge investments to be successful.
• When it comes to getting the basics covered, Alibaba looks like it is ahead with its decision to build Yun OS almost from scratch, but there remains a very long way to go.