Alibaba Group Holding's e-commerce platform in Southeast Asia is accelerating investments in generative artificial intelligence to regain its standing in a fiercely competitive market with limited opportunities for margin expansion.
Lazada Group, which once enjoyed a near monopoly in the region, is overhauling its shopping site with generative AI technology to win over more diverse users. It will offer personalized shopping recommendations and provide shoppers with after-sales services through an AI agent.
Sellers can also use the platform's AI tools to create content that attracts customers from different markets as well as predict demand and plan logistics effectively.
"I hope a lot of little improvements will all connect the dots eventually," James Dong, chief executive of Lazada, told The Wall Street Journal.
Alibaba has pumped around $2 billion into its Southeast Asia shopping site over the past two years, and Dong said that some of the funds will be used for AI and logistics infrastructure.
"In the next two to three years, your experience will be different, hopefully revolutionized," he said.
Singapore-based Lazada, which began operations 12 years ago, was acquired by the Hangzhou-based e-commerce giant through a series of investments starting in 2016. Since then, the company has made several leadership changes. Earlier this year, it laid off hundreds of employees to streamline operations and keep a lid on cash burn, people familiar with the matter said.
E-commerce margins are razor thin in Southeast Asia, where Amazon.com has a limited presence and where most players have suffered losses for years. Industry consolidation in recent years has reduced the field to a handful of companies, which are pivoting to focus on profitability, including cutting costs and raising seller commissions.
Lazada has been facing stiff competition from Sea's Shopee, a relatively new entrant. According to estimates from Bernstein Research, Lazada had a 20% market share in the region last year, up from 19% in 2020, but way below that of Shopee, which dominated the market with a 45% share.
ByteDance's TikTok has emerged as a competitor, garnering 20% of the Southeast Asian market in 2023. The video-sharing app resumed retail operations in Indonesia after its local arm merged with GoTo's e-commerce platform Tokopedia.
A recent report from KPMG showed that platforms like Shopee and TikTok Shop have surged in popularity among the younger crowd, who are more adept at shopping via livestreaming and social media. Lazada, on the other hand, appeals more to older shoppers.
Official estimates of Lazada's share of Alibaba's total order size aren't available, but market-intelligence company Cube Asia reckons the Southeast Asian unit has become a crucial driver, contributing 25% of Alibaba's international e-commerce orders.
Lazada's first-half sales fell more than 10% from a year ago despite the Southeast Asian e-commerce market witnessing over 15% growth, the research firm said, another example of how competition is chipping away at earnings.
A person familiar with Lazada's performance said that compared with a year earlier, order volume grew in the first nine months of 2024, but gross merchandise value fell due to the lower pricing strategy adopted by the company.
Analysts say the adoption of AI could help e-commerce companies improve their revenue and efficiency in the next 18 months. However, they caution that the window for gaining a competitive edge with AI may be brief due to the sector's low barriers to entry.
Lazada's planned AI features are the kind of thing consumers will like, said Simon Torring, co-founder of Cube Asia. "But...at the end of the day, can they make up the gap in subsidies, promotions, assortment?," he said.
"AI is the next battleground for e-commerce companies," said Marc Einstein, analyst at Counterpoint Research.
Write to Raffaele Huang at [email protected] and Tracy Qu at [email protected]