Dingding solo, is it a blessing or a curse?

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Text | Hao Xin, editor | Liu Yuqi

The major events in the world must be divided for a long time. Alibaba Cloud and Dingding are no exception.

On August 14, Alibaba Group made it clear that DingTalk will continue to be an independent business within the group, develop independently and accelerate incubation.

Sources said that DingTalk has always been an independent business under Alibaba. Before the organizational structure adjustment, it was managed by the Alibaba Cloud Intelligent Business Group. After Alibaba Cloud announced that it will spin off and go public from Alibaba Group, DingTalk will continue to develop independently as an independent business.

Starting from 2020, DingTalk and Alibaba Cloud have followed the "Cloud-Talk Integration" strategy and cooperated closely in various aspects such as organizational structure, business cooperation, financial data, and ecological construction. Alibaba Cloud has provided DingTalk with stable and core cloud resources, Business development and internal resource coordination, while DingTalk's low-code platform and ecology provide Alibaba Cloud with an important starting point for 2B implementation, and the two complement each other.

It is worth noting that the source said that Alibaba Cloud and DingTalk will continue to maintain close business cooperation.

That is to say, the focus of this independence, apart from the divestiture of the business, is more about the split of the organizational structure and financial data. After the split, DingTalk needs to conduct independent accounting, be responsible for its own profits and losses, and conduct more intense market competition.

In fact, Dingding's solo flight is both unexpected and reasonable. Not long ago, after Alibaba's "1+6+N" organizational reform, Alibaba Cloud appeared in the first echelon of the listing. Putting aside the group filter, Alibaba Cloud was viewed with a more unified and objective standard. According to analysis by many industry insiders, this separation is for Alibaba. The first preparation for the independent listing of the cloud.

A glimpse into the latest financial report data. Ali’s 2023 Q2 financial report data shows that as of June 30, 2023, the adjusted EBITA of Cloud Intelligent Group was 387 million yuan, a year-on-year increase of 106%. The financial report explained that the recovery of profits was mainly due to the reduction in hosting and broadband costs caused by DingTalk’s usage returning to normal compared with the same period last year.

(Source: Ali Financial Report)

This means that after three years of user surge, DingTalk has returned to normal, and the impact on Alibaba Cloud's costs and profits will be immediate. The divestiture of high-cost and unprofitable businesses has indeed positively stimulated Alibaba Cloud's financial performance.

The three-year honeymoon period has passed. Both Alibaba Cloud and DingTalk will face more severe market competition and assessments, and they can both throw off their burdens and go into battle lightly.

01 Independent DingTalk, can the contract be renewed for another three years?

In September 2022, Ye Jun, the president of Dingding, said in an interview with the media that Dingding’s revenue growth rate exceeded three digits, and the total revenue was not high for the time being, but the gross profit margin was very high, exceeding the average level of the software industry. In June of this year, he once again stated that Dingding aims to achieve breakeven within three years.

After independence, can DingTalk still complete the "three-year agreement"?

Throughout the past few years, DingTalk has gone through two major stages in commercialization.

In the first stage, on the road to commercialization, even though DingTalk is firmly seated at the top of China’s collaborative office, it has been exchanging “free” for user scale. Over 600 million users, more than 23 million business organizations, and more than 15 million paying daily active users, the user payment rate only accounts for 2.5%.

In the past, DingTalk, in order to achieve scale, vigorously implemented the "free" strategy for five years, expanding from the initial simple office functions to industry-specific customized solutions, and the number of users has also increased by as much as ten times .

But "free" is also overwhelming, and the high operating and development costs make it have to face the harsh reality.

In March 2022, Dingding launched a professional version of Dingding for small and medium-sized enterprises, with an annual fee of 9,800 yuan. Subsequently, DingTalk formed three main commercialization models, namely the "three specialties" annual fee model, platform profit sharing model, and hardware licensing model. The "three specialties" refer to the three paid versions of DingTalk, namely Professional Ding, Exclusive Ding, and Exclusive Ding. These three models are currently the main sources of DingTalk's income. Dingding after charging means turning to profitability and abandoning To C’s monthly activity and other standards. This is the second stage of Dingding’s commercialization.

(DingTalk's current charging standard chart)

After this transformation, the commercialization of DingTalk has made great progress, but it is also difficult to get out of the quagmire of the collaborative office business model.

In the Chinese market, enterprises are generally not willing to pay for software. Small and medium-sized merchants have the largest number of users, but their willingness and ability to pay are not strong. The user stickiness of the subscription charging model is insufficient. Users often follow their needs and cannot form long-term paid subscription habits; The delivery cycle is long, and the digitalization process is full of difficulties. Collaborative office companies do the most tiring work, but the final profit margins are thin.

DingTalk's problem is not an isolated case, but a common problem in the entire collaborative office industry and even Chinese SaaS software. According to the "2021 China SaaS Survey Report" data, the payment rate of office software in my country is less than 15%, while the payment rate of office software in the European and American markets has exceeded 70%.

Dingding is still looking for itself, and Alibaba Cloud will continue to move forward.

Industry insiders infer: If it is calculated independently, DingTalk may be able to purchase resource services from Alibaba Cloud in the form of customers, and DingTalk's expenses will be converted from costs to Alibaba Cloud's revenue. But at the same time, DingTalk's revenue is no longer counted into Alibaba Cloud, and the organizational structure has become flatter, which is conducive to facing intelligent product changes.

Since then, Dingding has faced the test of self-made blood, but it has also ushered in a broader world.

According to multiple reliable sources, there are already investment institutions that want to invest in DingTalk. If the investment enters, it is expected to improve DingTalk's current commercialization dilemma from other perspectives.

The splitting of Dingding will not only affect performance, but also help Dingding’s valuation return. Taking Dingding’s current number of users in China and comparing it with Salesforce, Dingding should achieve good results. On the other hand, it is also more beneficial for Alibaba Cloud to independently introduce capital, especially state-owned assets.

"DingTalk is the to C of to B, and it is a very unique target in the entire industry. If external investors are introduced, they will definitely be scrambled for," said an investor.

Previously, due to the "cloud-nail integration" strategy, DingTalk also lost the possibility of linkage with many IaaS clouds. This time, DingTalk and Alibaba Cloud's deep binding relationship may be released, and it may be able to invest in the arms of more cloud service providers, integrating the strengths of each company, and further consolidating the underlying capabilities.

Scale, PaaS, and ecological. As the leader of the collaborative office industry, Dingding has already handed over the answer sheet of the previous stage. Whether the contract can be renewed for another three years and achieve a break-even balance has become a question that DingTalk needs to answer when starting a new journey.

02 Thickened DingTalk, speeding up intelligent running

"Today we have reached a new time point. We have officially entered the era of BPaaS (business PaaS) from the era of APaaS (application PaaS). We will further open up DingTalk's basic capabilities so that service providers and partners can get more DingTalk’s support.” In 2022, when Ye Jun officially announced that DingTalk will be fully PaaS, he set a goal.

Based on this, in the past two years of "Cloud-Ding Integration", DingTalk is also self-improving its internal strength, which is concentrated in two aspects, one is to build a thick PaaS platform, and the other is to strengthen the ecology.

The cloud computing infrastructure of the lower link and the key applications of the upper link enterprise. DingTalk's strong middle-end capabilities are reflected in the fact that its functions have been extended horizontally to OA, HR, finance and taxation, OKR and other office fields from the beginning of the enterprise communication app. It integrates multiple functions, and at the same time, it has grown a prosperous ecology on its PaaS platform.

Data shows that as of December 28, 2022, the number of DingTalk users has exceeded 600 million, the number of enterprise organizations has exceeded 23 million, the total number of ecological partners has exceeded 4,000, and the number of applications on the DingTalk open platform has exceeded 1,100. At the same time, as of the end of September 2022, the number of low-code applications on DingTalk exceeded 5 million, an increase of more than 120% over the previous year. According to DingTalk's plan, the total number of "DingTalk applications" (low-code applications + SaaS applications) on the DingTalk platform will increase to 10 million in 2024.

The capabilities of the middle platform have increased, and the ecology has initially matured. DingTalk has widened the distance from similar collaborative office software such as Feishu and Enterprise WeChat. This may also be the confidence for DingTalk to be independent.

The leader of the "cloud nail integration" period is also taking the lead in the era of intelligence.

After the wave of large-scale models came, DingTalk became the intelligent product with the fastest iterative update speed within Ali by maintaining the frequency of one action per quarter:

• On April 11, the day when the Alibaba Tongyi Thousand Questions model was released, DingTalk announced that it will be connected to the "Tongyi Thousand Questions" model in the future for a comprehensive transformation.

• Only a week later, DingTalk quickly held the 2023 Spring Ding Summit, and took advantage of the opportunity to launch the integration of intelligent function products based on Alibaba's Tongyi Qianwen big language model. Users can activate a variety of artificial intelligence functions including article creation, meeting minutes summary, image generation, building DingTalk applets and robot training by entering the slash symbol (/).

• Also in Q2, DingTalk's ability to access Tongyi Qianwen was opened to enterprise customers for testing, and the application was implemented.

• Coming to Q3, DingTalk has shifted from B-side to C-side. The personal version of DingTalk with built-in AI function is open for testing. It supports document writing functions such as writing article outlines, marketing copywriting, and video scripts. Each user is equipped with AI "little two" intelligence. assistant.

• Recently, DingTalk has put a lot of emphasis on the combination of AI and PaaS platforms. How to deeply integrate the technical advantages of DingTalk and ecology with enterprise service scenarios is the focus of future development.

• Intelligence is the trend of the future. In the era of high-speed product iteration, internal efficiency cannot be low. Lightweight DingTalk has jumped out of the management system and audit mechanism of large companies, and entered the intelligent track with a more flexible and free attitude. It can respond quickly in the market, adjust direction in time, make decisions and upgrade iterations . From the perspective of sales strategy, the sales strategy gap between DingTalk and Alibaba Cloud after intelligent iteration will be even greater. This requires DingTalk to set up a differentiated sales team and service team to dynamically adjust according to DingTalk's characteristics and market conditions. After all, apart from the product differences between the IaaS layer and the SaaS layer, the intelligent business path is still in the stage of feeling the stones and crossing the river. DingTalk needs to face enterprises and users more directly, and deeply co-create a new path with enterprises in the era of intelligence. In addition, a person transfer also revealed some new information. According to media reports, Dingding COO Ku Wei will return to Alibaba Cloud with another appointment, and the reporting target will be changed from Ye Jun, vice president of Alibaba Group, to Zhang Yong, chairman and CEO of Alibaba Cloud Smart Group. It is understood that Ku Wei was previously the vice president of Alibaba Group and the former general manager of IoT of Alibaba Cloud. He joined Dingding in March 2022 and was responsible for the Dingding key account team, including product, sales and ecological functions. It is worth noting that Ku Wei was a senior executive of China Unicom and has rich experience in government and enterprise customers. However, government and enterprise customers are the focus of Alibaba Cloud, but not necessarily the focus of DingTalk. After the split of Yunding, Dingding may reshape the market and sales system. Whether it will open up the management system of large customers and small and medium-sized enterprises is also the focus of attention in the future.

03 end

To complete the mission of the previous period, Dingding and Alibaba Cloud are destined to look forward. To complete the mission of the previous period, Dingding and Alibaba Cloud are destined to look forward. DingTalk has its own commercialization legacy problems to solve, and it must also seize the new opportunities of this wave of Gen-AI; environment, seeking profit growth and listing. No matter who it is, the burden on them is not light. What kind of future will DingTalk and Alibaba Cloud go to? Wait for time and the market to give answers.

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