Ali's gaming dream at a turning point? Lingxi Interactive Entertainment is up for sale

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If the news ultimately materializes, this may become another symbolic move in Alibaba’s process of business contraction and focus in recent years.

On June 23, news emerged that Alibaba is planning to sell its gaming business brand Lingxi Interactive Entertainment, and has already started talks with several potential buyers, including gaming companies such as 37 Interactive Entertainment, China Ruyi, Century Huatong, Giant Network, as well as consortiums formed by private equity institutions. The market gives a transaction price range between 7 billion and 9 billion yuan. Alibaba Group did not comment on this.

In fact, compared with frequent capital operation news surrounding Youku, Freshippo, Intime and other businesses, Lingxi Interactive Entertainment has not had a strong presence. But internally at Alibaba, it was once one of the most highly anticipated content businesses.

More than ten years ago, China’s Internet was still in the “ecosystem expansion” golden age. Tencent extended from social into gaming, Baidu moved from search into content, and Alibaba hoped to build a super ecosystem surrounding e-commerce that would cover consumption, entertainment, finance, and services. Film, music, sports, literature, games—nearly every field that could occupy user time, Alibaba once entered.

Alibaba’s gaming dream can be traced back to around 2014. That was a time when “ecosystem” became the industry keyword for the Internet, and BAT were all trying to infinitely extend their boundaries. Alibaba did film, music, sports, literature—and also games.

The logic is not difficult to understand. In the view of insiders, since users already shop on Taobao and pay with Alipay, theoretically they could also be entertained, consume, and socialize within Alibaba’s ecosystem.

But the gaming industry later proved it is not a business that can succeed solely by importing traffic.

In the past, Tencent and NetEase always occupied the top positions in the industry, not because they had more users, but because they established mature R&D systems, publishing systems, and a mechanism for producing blockbusters. Essentially, games are closer to content industries. They require creativity, development, operations, community, and long-term investment—capabilities that are hard to quickly replicate via capital or traffic.

Alibaba once invested massive resources in this. From agency, publishing to self-development, from acquisition to investment, virtually every path was tried.

Lingxi Interactive is one of the few businesses that broke out. Especially with the success of “Three Kingdoms: Strategy Edition,” Lingxi once became one of the most important players in the domestic SLG (simulation game) track. According to public data, this product stayed among the top rankings in mobile game revenues in China over a long period and became the core cash cow of Alibaba’s gaming business.

For a mature gaming company, the success of one product means a beginning; for Lingxi, it was to some degree an end point.

These years, Lingxi never managed to escape reliance on “Three Kingdoms: Strategy Edition.” Even as new products kept launching, it was difficult to replicate the hit-making legend. The team’s entire revenue structure, profit structure, and even organizational resources increasingly revolved around this single product. When a company primarily relies on a single product, its valuation logic gradually shifts from “growth company” to “cash flow asset.”

And it is precisely cash flow assets that are the easiest businesses to sell.

Looking back after 2023, Alibaba’s choices have actually become increasingly clear.

In September last year, Wu Yongming officially took over as CEO of Alibaba Group. Shortly after, he proposed two major strategic focuses internally: “User First, AI Driven.” In the following year, Alibaba launched continuous rounds of organizational adjustments: large model team integration, AI Research Institute establishment, cloud business repositioning, group resource reallocation.

In multiple public forums, Wu Yongming has emphasized this view: the next three to five years will be the key window for AI infrastructure construction, and Alibaba will invest in AI and cloud computing with unprecedented force.

Looking back from today, this statement has actually set Alibaba’s strategic boundaries. AI is the future, cloud computing is the infrastructure, e-commerce is the source of cash flow. These three form Alibaba’s core growth logic for the next stage.

And it’s getting harder and harder to fit Lingxi Interactive into this framework. The synergy between gaming and Alibaba’s future strategy is becoming weaker. In fact, management has sent similar signals to capital markets more than once.

Joseph Tsai previously said publicly when discussing the group’s businesses that Alibaba once owned an overly complex business portfolio, and in the future needs to focus more on core businesses, concentrating capital and management resources onto the most strategically valuable directions.

Seen today, this serves as a footnote for all of Alibaba's asset adjustment moves in recent years. From Intime, Sun Art Retail, to today’s reported sale of Lingxi, the underlying logic is the same: focus limited resources on the most important battlefield. Especially against a backdrop of soaring AI investment, this kind of trade-off is becoming more realistic.

Over the past year, Alibaba, Tencent, and ByteDance have all been continuously increasing capital expenditure related to AI. Data centers, computing clusters, costs for training and inferencing large models—all require real money invested.

The capital market is willing to pay a premium for Alibaba’s AI narrative but will not reprice it for selling a few more games. From this perspective, if Lingxi is eventually sold for about 8 billion yuan, for Alibaba it's more like a resource recycling action.

On the other hand, why are buyers willing to take over? The answer also comes from changes within the gaming industry itself.

In recent years, China’s gaming industry has shifted from an incremental market to a stock market. User growth is slowing, overall industry growth rate is decelerating, new players are fewer, and competition moves from acquiring users to operating users.

Tencent Games head Ma Xiaoyi once openly stated China’s gaming industry is shifting from a period of rapid growth to a phase of high-quality development. NetEase CEO Ding Lei has also repeatedly mentioned that future industry competition will focus more on premium content and long-term operation.

In other words, the gaming industry increasingly resembles the film industry. In the past, everyone vied for the next blockbuster; today they strive for content assets that can earn money for ten years. Thus, the industry’s M&A logic is changing. Rather than spend tens of billions betting on an unknown hit, more and more companies prefer to directly acquire mature products already proven successful.

For 37 Interactive Entertainment, Century Huatong, China Ruyi and other potential buyers, what they truly value may not be the “Alibaba Games” brand, but the stable revenue behind it, mature operating system, and already scaled user base.

From this perspective, the sale of Lingxi precisely shows that China’s gaming industry is entering a new phase, and for Lingxi, leaving Alibaba may not be a bad thing.

In recent years, whether it’s Mihoyo or Paper Games, one of the key reasons they can continuously release new products is their organizations are highly focused on gaming itself. For Lingxi inside the Alibaba system, it has always been merely a business unit within a giant commercial empire.

With the group’s strategy shifting fully to AI, this marginalization trend can only intensify. Thus, selling Lingxi does not necessarily mean failure. In a sense, it is a belated strategic repositioning. Alibaba returns to its areas of strength—e-commerce, cloud computing, AI; Lingxi then gets a chance to return to the natural logic of competition within the gaming industry itself.

Wu Yongming once said, “Alibaba must restart with an entrepreneurial mindset.”

One of the most important skills of entrepreneurs has never been about constantly adding, but about daring to subtract at key moments.

Ten years ago, Alibaba believed in unlimited ecosystem expansion; it thought all user time should stay within its own system. Ten years later, Alibaba is rethinking its boundaries, focusing resources on what is most likely to determine the future.

As AI becomes the new main battleground, those businesses once bearing infinite imagination must answer a new question: Do they belong to the past, or the future?

For Alibaba, the answer now seems increasingly clear.

Risk Warning and DisclaimerThe market has risks, investment must be cautious. This article does not constitute personal investment advice, nor does it take into account the particular investment objectives, financial situations or needs of certain users. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at your own risk. ```