News analysis

Alibaba's $20b R&D budget is nothing to shout about

Look beyond the headline figure and Alibaba Group Holding's massive bump in research and development spending is actually quite tame.

China's biggest e-commerce company plans to boost expenditure to US$15 billion (S$20.4 billion) over the next three years, it said yesterday. In making the announcement, the house that Jack Ma built has coined the term Damo: discovery, adventure, momentum and outlook.

It will set up a new research academy bearing that moniker with labs in China, the United States, Russia, Israel and Singapore.

That dollar number certainly looks huge and equates to roughly doubling R&D over two years. Relative to sales, though, the company is simply keeping spending in line with where it has been for the past couple of years at a little over 10 per cent. That is because revenue next year is also expected to double, compared with last year.

By this measure, Alibaba has been quite a way behind both Facebook and Alphabet (aka Google) for the past few years, and even slightly adrift of Amazon.com. 

Alibaba said the new academy aims to "increase technological collaboration worldwide, advance the development of cutting-edge technology and strive to make the world more inclusive by narrowing the technology gap". 

That statement has all the right terminology for a company hoping to be a global technology contender. Readers playing catchword bingo would be jumping out of their chairs.

But do not be fooled by that US$15 billion figure. The company would have spent as much anyway without all the song and dance.

In reality, if Jack Ma truly wants Alibaba to make a splash, he will need to be a lot more extravagant.

BLOOMBERG

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A version of this article appeared in the print edition of The Straits Times on October 12, 2017, with the headline 'Alibaba's $20b R&D budget is nothing to shout about'. Print Edition | Subscribe