Not enough volume

Xiami founder, Wang Hao

Jeff Bezos says that to have major successes, a company probably needs to experience a few major setbacks too.

“Amazon will be experimenting at the right scale for a company of our size if we occasionally have multibillion-dollar failures,” he wrote in the 2019 annual letter to shareholders.

“If the size of your failures isn’t growing, you’re not going to be inventing at a size that can actually move the needle.”

Alibaba has experienced something similar in ventures of its own. There have been spectacular successes in a range of businesses. But not everything has gone to plan.

For a start, there’s Laiwang, its aborted effort to challenge Tencent’s mobile messaging app WeChat. Shenma Search also faded after failing to take market share from Baidu and Sogou.

The e-commerce giant will likely add Xiami (not to be mistaken with the smartphone maker Xiaomi) to the list of initiatives that haven’t worked out. In late November, a post on weibo claimed that the underperforming music streaming service, which means ‘small shrimp’ in Chinese, will close down permanently early next year. Alibaba has refused to address the rumour directly, but commentators reckon that it is only a matter of time before the e-commerce giant pulls the plug on the service. Indeed, it signalled it last year, when it spent $700 million for a 20% stake in NetEase Cloud Music, a rival platform.

Xiami is currently the fifth most popular music streamer, trailing Tencent’s three streaming platforms Kugou Music, QQ Music and Kuwo, as well as NetEase Cloud Music, by a huge distance in subscriber numbers.

Xiami was founded in 2006 by Wang Hao, an Alibaba engineer, who wanted to create a streaming service that gave music lovers other options beyond the mainstream hits. A guitar player himself, Wang made a point of featuring lesser known musicians and niche bands.

However, much changed with Alibaba’s acquisition of the platform in 2013. At the time, the e-commerce giant saw Xiami as a means of combatting fellow internet giant Tencent, which had made much greater headway in music streaming. The platform’s more independent spirit did not appeal to Alibaba in furthering this mission. Soon the e-commerce giant was trying to monetise more of Xiami’s traffic by turning it into a marketplace where singers and songwriters could sell their music too. Other contributors could list their venues for hire or sell their promotional services. Some joked that the service had become the music industry’s version of Taobao.

Despite Alibaba’s involvement, Xiami fell further behind the competition. In 2016 Tencent purchased China Music Corporation to strengthen its catalogue of songs. Early this year it grabbed equity stakes in Universal Music Group and Warner Music (see WiC498), broadening its access to over 90% of the music licenced in China. Xiami only has rights to 20%.

Alibaba’s financial reporting shows that as of the end of September, businesses under ‘innovative initiatives’ – including Xiami, AutoNavi and DingTalk – had net losses of Rmb4.3 billion ($657.9 million), compared with a loss of Rmb2.9 billion in the same period last year.

Wang – who was moved to DingTalk around five years ago – has also revealed in an interview that Xiami’s annual licencing and copyright fees are 10 times its revenues.

“Without innovation, user growth stalls and the number of active users goes down too. Without active users, copyright holders will not sell you their rights, and without copyrights, user growth will continue to drop,” an industry insider explained to Bianews, a tech news portal. “Being stuck in this vicious cycle, it is no wonder that Xiami has been marginalised.”

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