Once the undisputed leader in the Chinese technology industry, Alibaba(NYSE: BABA) has faced difficult times in recent years in growing its business due to its sheer size and a highly competitive environment.
But the tech giant is not giving up yet. Instead, it is betting heavily on artificial intelligence (AI) to help it regain its former glory. Whether in its core e-commerce operations or cloud computing offerings, Alibaba has made enormous efforts to leverage AI to become more efficient and grow its revenue.
Here, I'll highlight some of the company's efforts in this area and why those moves are critical in the company's next development phase.
Image source: Getty Images.
AI and e-commerce
AI might have gained huge popularity lately, but it is not new to Alibaba. The e-commerce company has incorporated AI in various parts of its business.
Let's start with areas where consumers have a clear visibility. Alibaba has been using AI features like automated replies and chatbots to help merchants better serve their customers. These features are beneficial since they are available 24/7 to answer the basics and common questions, especially when customer service staff are unavailable -- for example, at midnight.
Another example is using AI in advanced image and voice search to help customers search for their desired products. This is extremely helpful since Alibaba has a massive catalog of products with millions of items. Without AI, this feature would not be helpful to customers.
The same principle applies as Alibaba leverages AI technologies to provide personalized recommendations, especially as online shopping habits evolve from traditional search-based to more diverse and personalized product recommendations. A highly accurate product-to-customer matching system will result in better sales conversion and higher customer engagement, ultimately enhancing customer loyalty and retention.
Beyond customer service, AI will be critical in enhancing the efficiency and effectiveness of Alibaba's supply chain and operations. For instance, using advanced AI and robotics enormously helps warehouse operations, such as sorting, packing, and shipping products to customers. Likewise, AI can help Alibaba's logistic service, Cainiao, optimize its delivery network, which will help improve unit cost and enhance overall service levels.
These are a few examples of the countless ways AI could enhance Alibaba's e-commerce business. The key message is clear: Alibaba must continue to invest and incorporate the latest AI technologies to remain relevant in this competitive, ever-changing e-commerce industry.
AI and cloud computing
Another area in which AI will significantly impact is Alibaba's cloud computing business.
Operationally, AI will help enhance the efficiency and effectiveness of Alibaba's cloud computing operations. For instance, AI will help optimize resource allocation, automate repetitive tasks, predict downtime to optimize maintenance, and enhance the security of its services. These improvements will help reduce computing costs and improve the quality of service to customers, resulting in better customer satisfaction.
But that's just one part of the equation. The most significant opportunity that AI will bring to Alibaba Cloud is the ability to sell its AI technologies and services to external customers. The company can do it by cross-selling additional AI products to existing customers, helping them implement the latest AI technology, like machine learning and generative AI, into their operations. It could also attract new customers with AI services and later leverage that relationship into other cloud computing services like computing and storage.
For example, Alibaba Cloud was a major cloud service provider for the Paris Olympics Games, providing cloud computing and AI services to Olympic Broadcasting Services. Some notable achievements from that relationship include overtaking satellite signals as the primary means of broadcasting for the Olympics, reaching billions of viewers in real-time, and integrating AI technology in replays with its 360-degree real-time replays.
While still in the early days, AI services have contributed to the growth of Alibaba Cloud's business. For instance, in the second quarter that ended June 30, AI-related product revenue grew at triple-digit rates, significantly ahead of the overall cloud computing revenue growth of 6%. This trend should continue in the coming years as Alibaba introduces even more AI tools and services by leveraging the ongoing development of AI technologies.
What it means for investors
Alibaba recently lost its mojo among investors as it faces ongoing challenges to rekindle growth. However, as the tech titan positions itself to benefit from the rise of AI, there is a decent chance that it could finally return to growth mode. All eyes are on the company executing its AI strategies in the next few years.
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Lawrence Nga has positions in Alibaba Group. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
