(Chinese Version)

Hu Xiaoming, VP of Alibaba Group and president of Aliyun

Editor’s note:

Industrial Internet targets business users, and is developing an operation pattern that is completely different from that of the consumer Internet. Business elements such as free services, subsidies, data flow, portals and relation chains etc. that have been working in the consumer Internet sector for years seem to be less effective in the realm of industrial Internet.

What are the game rules in the industrial Internet sector? Who will be the winners? Perhaps nobody has the answer yet, but we can bring about more questions.

This year, TMTPost’s team, led by co-founder Liu Mingxiang, will be interviewing industry leaders from the industrial Internet sector, in hopes of getting a glimpse of the future and some answers. This time, TMTPost has interviewed Aliyun’s president Hu Xiaoming. This article is the second vol of TMTPost’s Industrial Internet Series. Click here to read the first vol.

The meeting with Hu was at around ten in the evening. He told me on DingTalk that he had a meeting around 9:30 PM, and another meeting after our interview.

Before the clock struck ten, in stormed Hu Xiaoming, dressed in blue jeans wearing a backpack like a college student. He asked me to go somewhere more relaxing instead of this meeting room.

Hu was thin, and spoke incredibly fast but with logic. He always expressed himself in a certain order. Under his leadership, Aliyun has been growing at a fast pace in recent years, becoming a fierce force that directly competes with AWS and Azure, making into the top league in the industry. Now Aliyun has taken half of the market share in China.

According to Alibaba’s latest earnings report, by March 2017, the number of paying users of Aliyun’s cloud computing service has reached 874,000, contributing greatly to Aliyun’s revenue of ￥6.663 billion. Since the first quarter in 2016, Aliyun has been having a growth of over 100% for eight consecutive quarters. Aliyun registered a quarterly revenue of ￥2.163 billion in the first quarter (January to March 31st 2017) of the fiscal year 2017, which is very close to the entire revenue (￥3.019) of the last fiscal year.

Hu Xiaoming’s nick name is Sun Quan (founder of the state of Eastern Wu during the Three Kingdoms period). He started from Alipay and AliFinance, from traditional finance to the Internet world. At present, he is working on cloud computing.

Cloud computing is forming a great momentum, presenting challenges and also disruptive changes. No company is still hesitating whether to apply cloud technology for their business. Instead, people are beginning to consider what they can do, what the opportunities are, and whether they will be replaced in this cloud era. Hu is no exception.

We spent nearly two hours on the interview. Hu answered over 40 questions from TMTPost on cloud computing and the development of industrial Internet. During the interview, I noticed that he always used the word “respect”. And when I was transcribing the recording, I found that he mentioned “respect” for 12 times (of course, he mentioned cloud computing 68 times, business 19 times, technology seven times, and his boss Jack Ma five times).

What follows is the interview with Hu Xiaoming, done by TMTPost’s founder Liu Xiangming:

This time, private companies are falling behind

TMTPost: What is making you so busy these days?

Hu Xiaoming: This year I launched a Sun Quan Class, teaching about thirty people, who are our best directors and mid-level senior executives. I asked them what exactly cloud computing is. Everyone has a different answer. The tech guys think that cloud computing is flexible, and that it’s an operating system of data centers. People from the marketing department think that cloud computing is disruption.

Aliyun has also been adjusting its positioning in the industry due to the disruption brought by the Internet. Today Aliyun’s clients are not demanding for informatization. In the past, they might use only one machine to process data. They are not asking to use Internet and physical machines to replace that now. The emergence of companies like BAT (Baidu, Alibaba and Tencent), Facebook, Microsoft, and Didi etc. is making people wonder how they can utilize the power of the Internet. This is the first question.

The second question is: How to push the revolution forward when users possess the power of the Internet? Then we have the last question: Who will be replaced during his process? I also found that when companies are going cloud, they will have other problems. For instance, when the overall structure connects with the Internet, the data goes online as well.

The nature of all these problems is the answer to all the questions I have just mentioned: Will I be replaced, what are the revolution opportunities, how should I keep up with the Internet today? I told my colleagues that it isn’t the opportunities of enterprise informatization that Aliyun is trying to get a hold of, but the opportunities presented by the process of enterprise transformation.

In China, our clients can be categorized into three typical groups: clients who grow on the Internet; clients with a large scale; and government clients. 80% of clients who started their business in the Internet environment would choose cloud computing, and governments are also increasingly embracing the Internet. Clients with a large scale can be further divided into two groups, which are private companies and state-owned companies.

The problem here is that while state-owned companies are embracing the Internet, private companies seem to be falling behind the trend. Today China’s lowering the economic expectation is like pressing a spring. The more you press it down, the higher it will jump up once you remove your hand. There will be more opportunities for state-owned companies because such changes are from the restructure and upgrade of the entire industry, driven by technologies.

I have been discussing with my team on how to encourage private companies to further embrace the Internet. We want to encourage all those 100,000 companies in Zhejiang province, private companies in Jiangsu province, and the manufacturing industry in Guangdong province to start using cloud. Only in this way can private companies better get hold of the opportunities in this round of technological revolution.

TMTPost: Why do you feel that private companies are falling behind?

Hu Xiaoming: Today private companies have a lot of opportunities, and they think they all they need is some guts. But the reality is, technologies today are transforming fast and many private companies are unable to make use of the tendency shifts driven by technologies. They tend to see the Internet as a virtual economy, which means unstable. They stick to their wholesale business. They haven’t realized that they could reach consumers further with the Internet, or the fact that Internet of Things (IoT) can restructure the entire manufacturing industry, or smarter technologies can enhance efficiency greatly.

In comparison, the government is fully aware of the power of the Internet. Whether it’s Internet+, the Mass Innovation and Entrepreneurship strategy, or cloud computing and big data, all of them have been mentioned in government reports, raising the awareness both internally and externally.

TMTPost: Speaking of technologies, technologies related to cloud computing are changing fast. What’s your opinion on the impact these technologies bring? Aliyun now boasts a rather large scale, and therefore in some way, technological advancements have greater influence over bigger companies since they tend to be slower in pace as a whole.

Hu Xiaoming: We have launched quantum computing and quantum communication. We did that because we respect quantum communication itself. It’s not just Aliyun that has been considering this problem. Our rivals in the U.S., and in the country, are thinking the same question. We can’t be over-confident with our current achievements. The next decade would be a rapid-growth period for the entire cloud computing industry. It’s a great challenge for us to figure out the way the maintain our current growth. In the Internet age, anyone can be the game changer.

Why did you take over Aliyun?

TMTPost: Under your leadership, Aliyun has been having an annual growth of over 100% in these years when faced with rapid changes in technologies, the market and users. What kind of abilities and skills do you think managing a company like Aliyun requires?

Hu Xiaoming: In my opinion, Aliyun is a rather lucky company. Our team is a great fusion of technology and business. In the earlier phase, Alibaba was short on technologies. But today it’s different. Issues from Taobao, Tmall, Double Eleven Shopping Festival, as well as security issues, risk control challenge presented by Taobao and Alipay all require advanced technologies to solve. As the president of Aliyun, I have two principles for myself: Using technologies to expand the business boundary; using business to drive technological development. These two elements are parallel. Today we need to respect technologies, but we need more than technologies developed in labs. We also need to use these technologies to generate greater business value.

The competition between human players and AphaGo is only an entertainment of a marketing move. In comparison, we are trying to utilize AI to fix problems humans can’t fix, including city management, risk control of Alipay, chatbots, even the trial system of the court. We also use AI to do facial recognition, identifying cancers. I personally believe that only by combining technology and business can we truly drive technological advancement forward instead of focusing purely on technologies.

I also believe that China’s basic education and fundamental technology research still lag behind the U.S. To catch up with the U.S., we have to be practical and utilize our population advantage and the urgent demand for innovation. Let’s look at Internet finance as an example. In this area, America is three to five years behind China. Chinese people nowadays can use their smartphone to pay for basically anything. In comparison, Americans are still using checks to pay their utilities.

Secondly, the requirement I set for my team is technological progress. I am not a tech guy, but I respect technologies. With that I can see through technologies with a business mind, finding a clear path.
Thirdly, when leading Aliyun’s team, we also need to have a clear understanding of the restructuring of our organization because different people will emerge in different stages. Therefore I am wishing to look at the challenges we encountered today from the perspective of management.

TMTPost: What’s Aliyun’s biggest challenge at present?

Hu Xiaoming: I believe that the first challenge comes from technology itself, that whether we are able to see the risks behind. We even set up internal tech competitions for the staff in an attempt to better prepare ourselves for meeting clients’ different demands. We study the market every day and see if clients’ demands have changed or not.

Secondly, I believe Aliyun’s biggest challenge comes from within, that whether we have enough patience and courage to follow our plan. For instance, at Aliyun we have to consider whether to use physical hosts. Aliyun emerged with the hopes of replacing a mass amount of physical machines and saving resources. We use today’s date center operating systems, Internet framework, and data+intelligence mode to boost the performance, efficiency, while lowering the cost. We aim to provide better and cheaper technologies.

If we traveled back in time to 30 years ago, you would see that Windows system dominated the market as there was no alternative replacement. This provides us with a big opportunity now. When Chinese companies are facing American companies’ increasing technological advantages, we have to consider whether we can compete with them as one of the Chinese data center operating system provided in the global market.

TMTPost: You just talked about going global. How big is the gap between the Chines cloud computing industry and that of overseas?

Hu Xiaoming: Cloud computing is an industry with very high technological barrier. When there isn’t any revolutionary technology, it’s about experience. That’s why I respect American cloud computing companies for their experience. We must learn from others. And of course, they also have to learn from me when entering the Chinese market since to win over the Chinese market is not merely about technologies. You have to consider the network, adequate infrastructures etc. as well, which would surprise overseas companies. They also have to consider influences from industrial policies.

TMTPost: You talked about Aliyun’s relationship with Alibaba. What’s the greatest support from Alibaba you have received at Aliyun?

Hu Xiaoming: Personally speaking, without Alibaba’s help, there wouldn’t be today’s Aliyun. Alibaba Group provided us with the soil on which we thrived, giving us time to make mistakes, technologies, and capital support.

More importantly, I believe the competition among cloud computing companies is about the ecosystem. Aliyun is one of the very few cloud computing companies that do not lack clients. Alibaba’s ecosystem, Ant Financial and Cainiao would get us lots of clients. Globally speaking, it’s similar. We have Google’s Android, Microsoft’s office365, Amazon’s AWS. Their parent companies continue to pump in clients for their cloud business. So from where I am standing, I believe today’s competition is about ecosystems, instead of purely about technologies.

TMTPost: Have you thought of the reasons why they picked you for Aliyun’s president?

Hu Xiaoming: Firstly, one of the reasons could be the fact that I have always been an entrepreneur at Alibaba. I did Alipay, and AliFinance. Even now I consider myself as an entrepreneur. And therefore a leader with an entrepreneur mindset would be more fitted for Aliyun when it was still in the early phase. Secondly, I am not a tech professional, but I knew how to balance the development of business and technology. Thirdly, when I first started to do AliFinance, I actually got involved with Aliyun already. Perhaps I understand Aliyun better.

However, cloud computing is indeed complicated. Actually, I think it’s more complicated than Alipay and AliFinance. One of the complexities is the fact that I am talking to a very different group. 70% of the staff at Aliyun are tech professionals.

How to manage the complex system of Aliyun?

TMTPost: Early this year, YunOS was integrated to Aliyun. What does YunOS mean for Aliyun?

Hu Xiaoming: For Alibaba Group, operating system is a grand strategy. Operating system is not only for smartphones. In the automobile sector, IoT, manufacturing etc., an operating system is also required. Of course, cloud might be the direction for operating systems to profit and strike the balance development of technology and business. We are hoping to integrate cloud, data center operating system and client operating system together. This is the opportunity we saw. We will continue to invest in operating systems and go further.

TMTPost: What indicators are under your radar generally at Aliyun, a large-scale company with such a complex system?

Hu Xiaoming: I look at indicators comprehensively, including the cost, efficiency, reputation, stability, consistency, market share etc. I also pay attention to the data involving the entry, upgrade and exit of our clients of all sizes.

TMTPost: How do you evaluate efficiency and reputation?

Hu Xiaoming: Efficiency involves many things, even as detailed as a very specific set of data from the data center operation. These can make sure that we can serve the clients at the optimal cost. The return we can is technology dividend. We even pay attention is a server use more power or less power. When you have a scale, small details can lead to immense outcomes.

TMTPost: What about the reputation evaluation? What are your thoughts?

Hu Xiaoming: Reputation is evaluated based on the recommendation rate among our clients. We have special indicators to assess that. Of course, we will also look up the comments on Weibo and Zhihu. Some praised us some criticized us. We will all look them up.

TMTPost: What is the organization structure of Aliyun like? How many people report to you?

Hu Xiaoming: Today we are in a mobile Internet age. Alibaba’s structure is like a web. For instance, today we make an adjustment, Alibaba Group’s CTO will make a report to our CEO and me. This is a typical web structure, which aims to boost the communication and exchange between our tech professionals. Many people report to me now. In many cases, we do our work under the web structure. We require collaboration within the organizations instead of leaders giving out orders. Thanks to DingTalk, our management efficiency is higher. Tonight I issued a notice. It would reach all the management staff at Aliyun fast. We can work faster this way. I believe that utilizing these tools can organize our teams together and form a formation. This is what I want. Collaboration.

Trust wins it all in the industrial Internet sector

TMTPost: There have been patterns in the consumer Internet sector, like “data flow wins it all” and “social relation wins it all”. What would be the killer element in the industrial Internet sector from your point of view?

Hu Xiaoming: I believe what matters the most is clients’ trust. In the consumer Internet sector, consumers’ trust comes and goes. However, we have to gradually build up the trust with enterprise clients. But once we secure their trust, it’s very unlikely for them to leave us.

These are two completely different business models. Alibaba in the earliest stage was the 2C model, and Aliyun today is providing 2B services. So I always tell my colleagues that we can’t expect to acquire enterprise users with a freemium product. No business can grow into a large scale in the 2B service sector starting with a freemium product.

TMTPost: How’s the development of the cloud market? It doesn’t seem very active.

Hu Xiaoming: The cloud market is an essential part of Aliyun’s strategy, quite an irreplaceable one. For many enterprise clients, the demand gradually expands from external computing and data base towards customized services like office system and chatbots etc. I have also been observing AWS. AWS’s cloud market took off around eight years ago. Previously, AWS only served its clients with its products. But when these clients started to grow on AWS’s platform, their horizontal demands started to increase. Aliyun used to mainly serve mid and small-sized developers, and now we serve mostly mid-sized companies. This is why we integrated Docker and Accenture into our platform.

TMTPost: But the transfer in the cloud market is complicated. It’s not like buying an app from the App Store. You install it and you are good to go. Do the complexities presented by the transfer bring about different demands for Aliyun’s operation?

Hu Xiaoming: This brings forth great demands to Aliyun’s API and monitor system, which challenge Aliyun’s integration capability, that whether we can integrate third-party software into our own platform. Secondly, when third-party software is being integrated into our platform, we have to provide better API for SaaS adjustment to integrate relevant fundamental services. Thirdly, when Aliyun’s services are fused with third-party software, we need to form a complete chain of monitor and surveillance system. This requires Aliyun to keep on learning and exploring. Of course, everyone will encounter similar problems. AWS has also been integrating more and more enterprise applications into its platform in the recent two years. I think Aliyun is approaching the similar stage.

TMTPost: What about the recommendation mechanism in the future? Recommendation is quite essential in the cloud market.

Hu Xiaoming: The recommendation mechanism must have the characteristics we have just talked about——consistency and friendly——and the integration level of Aliyun and SaaS. These elements have a huge influence over our recommendation mechanism. At last, it’s up to our enterprise clients to decide who has better SaaS integration. Reputation, stability, cost, and performance etc. will be taken into consideration. We already have such model running.

TMTPost: That said, when a new software comes in it won’t be recommended? It will only be recommended after being used for a while?

Hu Xiaoming: Of course. Today we haven’t got many business models. In the future, we might have things like a bidding rank etc. I believe we are still at an early stage, where the diversity of the cloud market itself is most important. And surely as Aliyun and the cloud market expand, more SaaS providers will be integrated, which means more mechanisms. But it’s not the time for that yet. We are still at an early stage.

TMTPost: What is Aliyun’s sales system like? What is the core drive?

Hu Xiaoming: Our official site, aliyun.com, is our biggest ecosystem. Our second ecosystem is partners. Our third ecosystem is our direct sales platform. It’s similar to AWS who also has three channels.
Why Aliyun is doing so much advertising work?

TMTPost: Aliyun has been putting a lot of efforts in advertisements, for example, at the airports. How is the outcome? What are you trying to achieve as a 2B business?

Hu Xiaoming: The cloud computing marketing today is a market that has been constantly stimulated. According to our survey, the scale of China’s cloud computing market accounts for 3% to 5% of the global market. In my opinion, that’s far from enough. This market is overly underestimated. America accounts for 56% of the global cloud computing ecosystem. I believe that China’s cloud computing market can take up 20% to 30% of the global market. This market needs further stimulation and education.

Of course, we Aliyun are also hoping that cloud computing itself would have better development. I believe that competition will start to fade in five years. What Aliyun has to do is bring about the most appropriate case in the right location and right moment. So today the Aliyun advertisements you see are always showcased in an actual use case. That’s what we are doing. We help clients succeed, and they help us succeed. It’s a win-win situation.

TMTPost: You have mentioned that enterprise users are not sensitive towards the price. But on the other hand, Aliyun is fighting the pricing war. What are your considerations?

Hu Xiaoming: We are not fighting a price war. AWS has been adjusting its pricing in recent years. Aliyun is doing the same. Google is doing the same. This is massively unleashing the technology dividend. By achieving technological advancements, we are releasing our technology dividend. We enhance our performance through the integration of all the resources. So today it’s responsible for me to say that Aliyun is only providing technology dividend instead of using lower pricing to win over market scale. 2B business is never about the pricing war, but a good service.

Industrial cloud is a pseudo proposition

TMTPost: Many people say that the cloud industry in the future might not be in the range of Internet giants like Aliyun because the cost of learning about traditional industries for Internet enterprise is higher. They believe that traditional giants will be the leaders in industrial cloud. What do you think?

Hu Xiaoming: Looking from the aspect of basic infrastructure of IaaS, industrial cloud is a pseudo proposition. From my view, public cloud would have the greatest performance and lowest cost in the future. However, in the whole management process, some public cloud+private cloud hybrids will emerge from the demands such as security. And therefore, the so-called industrial cloud is a pseudo proposition. It’s a concept invented by the hardware makers, in an attempt to construct industrial cloud, agricultural cloud, and transportation cloud through selling hardware. We haven’t seen any industrial cloud with a scale in the world yet. In industrial use cases such as PaaS and SaaS, traditional companies would have more opportunities. The future is about fusion and collaboration.

TMTPost: I think the most exciting launch in the recent Computing Conference was AI products. The combination of cloud and AI would be a very good use scenario, in my opinion. However, would it be very complex for ordinary users in terms of launching it into the market and keep it operating? How do you charge clients? Will the charging strategy be different from that of cloud computing?

Hu Xiaoming: In what cases will AI emerge? Personally speaking, I believe that AI would emerge from big data. Secondly, AI will be driven by the use case. Thirdly, we would need a mechanism that would affect the decision. Fourthly, we need enough computing capacity. Today, in terms of AI, Aliyun is building an open and comprehensive platform, which integrates analysis tools for big data, and analysis of video, image and voice. Industrial companies can directly use our tools and gather insights in smart manufacturing. We can put on data from the meteorological department and conduct relevant analysis. We can even put up the CT scans from medical companies for deep learning process. These can all be included into a one-stop function through API. As for the pricing, it is all about the computing capacity.

TMTPost: The computing capacity?

Hu Xiaoming: It’s about the computing capacity, and the mobilized tools. Hundreds of clients are using them on our platform. So the growth is considerable.

TMTPost: What is the core competition in the cloud computing market?

Hu Xiaoming: It’s different for everyone and all competitions are included I think. We are now competing on the computing capacity, the cost, the data base, network, and the extension AI capacity. But I personally believe that the core lies in our technology dividend. Secondly, we are improving the service depth to forge a reputation and build up a brand. Thirdly, we are competing on the ecosystem. To sum up, I believe technology, service and the ecosystem are the most important in cloud computing.
Where are Aliyun’s boundaries?

TMTPost: How does Aliyun define its boundary with the partners? Is there a clear principle that decides what tasks are for Aliyun and what tasks are for the partners?

Hu Xiaoming: I have told all of our ecosystem partners in the ecosystem market that Aliyun needs a great amount of partners, and that many SI and SV that relied on IOE to survive are entering the transformation phase. So many of our partners are turning to us to talk about Aliyun’s integration and integrated cloud computing.

I believe that, for instance, 85% of the profit would be distributed to our partners while Aliyun earns 15% in the future.

In addition, Aliyun only considers technological challenging projects that are standardized with a scale. For instance, platform functions such as computing, storage, network, security, data base, and AI etc. would form momentum and nurture more vertical and industrial service demand for our partners in our ecosystem. For example, we let our partners learn about our agriculture clients. This is a rather clear boundary. Another boundary is the judgment of whether a service will reach a certain scale. If it would, Aliyun would look into it. If it’s about customization, it’s not Aliyun’s criteria, but our partner’s. These two boundaries are for our strategic partners.

TMTPost: Who are the users of cloud computing?

Hu Xiaoming: CEO and CFO make the decisions. What does CEO want? Revolution. The CEO wants innovation. He or she wants figure out the best way to embrace the Internet and become the leading role in the Internet revolution. He or she would be more passionate about cloud computing compared with CTO and CIO. Then we have CFO. The CFO would consider utilizing the flexibilities to lower the cost. And therefore, my opinion might be different from that of others. So it’s always the CEOs and CFOs that are friendly towards Aliyun, then it’s CTO and CIO.

Technology changes my value

TMTPost: When I was on the plane reading Drucker’s Management Challenges for 21st Century once again, this particular sentence really resonated with me, “You have to consider the backbones of your application, including your judgment on the changes in the world.” Cloud computing is a tool, but a very powerful tool that has an immense impact on the users. In some way, it’s shaping the users as well. This is like lord of rings. You put it on and you are being affected by it. So what is cloud computing’s influence on you?

Hu Xiaoming: Cloud computing has a huge impact on my value. I studied finance. And I was able to see how inclusive finance can solve the financial service issues for the poor and the rich. It’s the same for technologies. Today’s big enterprises can enable more small and mid-sized startups. So for me, it’s very empowering to lower the threshold of technology services.

Secondly, we are running a technology business, a business about trust. Our clients basically entrust us with their lives. We need to take up the responsibilities.

Thirdly, the competition in the market today is vicious. It’s a great challenge for us to unleash dividend and benefit more users. I have a different opinion on this. I used to think that technologies were just lines of code. Now I realize that technologies also have their own lives.

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Translated by Garrett Lee (Senior Translator at PAGE TO PAGE), working for TMTpost.