Alibaba: The House That Jack Ma Built

Summary of “Alibaba: The House That Jack Ma Built”: Duncan Clark tells us how, with a China in full swing, Jack Ma, a “simple” Chinese teacher passionate about English, was able to become, with his Alibaba e-commerce site, a web giant and one of the most influential entrepreneurs on the planet.

By Duncan Clark, 2017, 208 pages

Review and Summary of “Alibaba: The House That Jack Ma Built” by Duncan Clark

Note: All the figures mentioned in this summary are taken from the book and therefore date from its year of writing. Since then, these have continued to evolve.

Introduction

Duncan Clark begins his book by presenting us Alibaba through several figures and data. The company is:

• One of the largest virtual shopping centers in the world.
• Led by Jack Ma, the founder of Alibaba, now the richest man in Asia.
• One of the ten most valuable companies in the world (around $300 billion).
• Responsible for handling tens of millions of shipments every day and nearly 2/3 of package deliveries in China.

“Alibaba is playing a central role in the restructuring of the Chinese economy. […] More than any other, Jack is the face of this new China. Already considered a popular hero, he symbolizes the two new Chinese religions: consumerism and entrepreneurship.”

Chapter 1 – The Iron Triangle

In the first chapter of his book “Alibaba: The House That Jack Ma Built”, Duncan Clark explains what the Iron Triangle is, a concept created and used by Jack Ma to refer to the three strategic forces of Alibaba, namely:

• E-commerce
• Logistics
• Finance

1.1 – The E-commerce Edge

The two most popular Alibaba e-commerce websites are:

• Taobao, the 3rd most visited website in China and the 12th in the world.
• Tmall, the 7^th most visited website in China.

“Together, these sites represent 80% of the group’s turnover, or nearly $10 billion per year.”

Alibaba’s First Online Shopping Site: Taobao

Taobao is:

• A gigantic network of digital stores: more than 9 million stores run either by companies or by individuals.
• A distribution platform for manufacturers (without their own inventory).
• An online shopping site offering a wide variety of products that are delivered quickly and reliably.

Merchants have, in fact, two major advantages of selling their products on Taobao:

• Its popularity and huge number of buyers: To such an extent that it has made it an expression in China, just as one “googles” when doing a search, the word “tao” has become a short way of saying that one will “search for a product online.”

• Its free: No charge is levied by Alibaba.

Additionally:

“The site works well because it succeeds in bringing consumers to the fore and replicating the vitality and bustle of Chinese shopping streets on the web.”

Indeed, buying online on Taobao is as interactive as in real life:

• Consumers have access to a chat application to haggle.
• Vendors can display their products in front of a webcam.
• And consumers can get discounts, free delivery, or samples, etc.

Taobao does not make money by charging merchants to sell their products, but by offering paid solutions to help them stand out among the multitude of sellers. Merchants can therefore buy from Taobao:

• Keywords so that their products are better referenced on the home pages.
• Advertising space.

Taobao is managed by:

• The Xiaoers, Taobao arbitrators: Put in place to maintain order in the virtual shopping aisles of Taobao, these customer assistants arbitrate disputes between buyers and sellers. For that purpose, they have substantial disciplinary powers.
• An internal disciplinary team that combats attempted bribery in the company.

Alibaba’s Second Online Shopping Site: Tmall

“If Taobao is like a small plaza, Tmall is like a luxury shopping mall.”

Tmall:

• Is not free like Taobao: Merchants on this platform pay Alibaba a commission on their turnover (3 to 6% depending on the product category) and an annual royalty.
• Houses three kinds of stores:
  • The major brands managed directly.
  • Licensed stores of a major brand.
  • Specialist shops that sell products from different brands. These represent 90% of stores.
• Currently brings together more than 70,000 Chinese and foreign brands.

In addition to these two sites, Alibaba has a third: a group shopping site called Juhuasuan.com, which is one of the largest in the world.

In total, these three sites bring together more than 10 million sellers and offer more than 1 billion products.

Buying on the Internet in China is a Way of Life!

Clark Duncan explains to us here why the organization of the Chinese economy greatly favors the success of online sales in this country, despite the country’s efforts to build many shopping malls, supermarkets, or city stores.

Two main reasons have contributed to the rise of online sales in China:

• • Shopping in China is not a very pleasant experience. Buying online is therefore a way for customers to save time and money.
  • But above all, the price of real estate is extremely high. Traditional bricks-and-mortar merchants have to pay exorbitant rents and deal with expensive inventory costs. Therefore, it is impossible for them to invest as much as e-commerce operators in the areas of marketing, logistics, human resources, and the quality of services, as Western merchants do.

“We understand, under these conditions, why buying online is even more popular in China than in the United States. As Jack says: ‘In other countries, shopping on the Internet is a way of consuming; in China, it is a way of life’.”

On Alibaba Sites, You Can Find Everything!

The best-selling items on Alibaba’s sites are shoes and clothing, then groceries (Alibaba delivers fresh produce in 24 hours to over 60 cities!).

Here is an excerpt from the book that describes the abundance and diversity of what is selling on Alibaba:

“In fact, it is almost impossible to compile a complete list of all the products sold on Alibaba’s sites: from baby items to automobiles, to household appliances, consumer electronics, books, cosmetics, perfumes and even jewelry, you can find it all. Even services, some of which are rather unexpected: you can ‘hire’ a girlfriend for a reception, ‘outsource’ a romantic break-up to an ‘expert’. Wives who doubt the loyalty of their husbands can learn all the tricks to keep mistresses away from their husbands. Young city dwellers who work too much can hire a ‘delegate’ who will visit their parents in the provinces. You can even donate sperm there for a fee of $800.”

1.2 – The Logistics Edge

“There is in China a veritable army of shadows, the one formed by the millions of delivery men who carry on foot, by bicycle, motorbike, van or train the orders of consumers throughout the country. They are the unsung heroes of e-commerce. […] Without this low-cost courier service, Alibaba would never have become the giant it is today.”

Half of the logistics market in China is absorbed by 4 companies, all out of Tonglu:

• Shentong (STO Express)
• Yuantong (YTO Express)
• Zhongtong (ZTO Express)
• Yunda

They are called “three tongs, one da,” and are nicknamed “the Tonglu gang.”

Jack Ma joined forces with the first 3 groups and a dozen others to create Cainiao (China Smart Logistics), a huge logistics platform “with unparalleled power in the world” that:

• Processes 15 million parcels per day.
• Employs over 1.5 million people in 600 Chinese cities.

Cainiao experiments with numerous innovations in logistics (delivery by drones for example) to further reduce delivery costs and times (Alibaba’s ambition being, among other things, to be able to deliver its products in 2-3 hours in the big cities).

1.3 – The Finance Edge

The Alipay Payment System

In the financial field, the third base of the “Iron Triangle,” Alibaba created Alipay.

Alipay is the most popular payment system in China. It is responsible for:

• 750 billion dollars in transactions per year (three times more than PayPal).
• 1/3 of global transactions.

When using this payment system, customers are only debited for their purchases after receiving their orders. And if they are not satisfied, they have seven days to return the products.

Thanks to Alipay, Chinese consumers can also:

• Transfer money.
• Top up their phone account.
• Pay directly in certain shops and restaurants.
• Pay water, electricity, and gas bills.
• Purchase plane tickets.
• Pay their fines or insurance premiums.

“Alipay is de facto the new currency of the Chinese digital economy.”

Yu’e Bao Mutual Fund

Yu’e Bao is an online mutual fund established by Alibaba in 2013.

When it was launched, this fund generated a real “frenzy.” Offering depositors a higher interest rate than that of banks, savers began to transfer hundreds of thousands of dollars to Yu’e Bao. Within 10 months, Yu’e Bao became the world’s fourth largest fund.  But very quickly, restrictions were put on to hinder Yu’e Bao’s rise. Faced with the discontent of banks facing a liquidity run, Jack Ma replied:

“The financial industry needs disruptive players, outsiders in order to bring about its transformation.”

Banking Services

Despite the constraints, Alibaba continues to expand into financial services. It is launching a wide range of products including, among others:

• A microcredit system for traders.
• A crowdfunding platform.
• Its own credit subsidiary (“Sesame Credit Management”).
• Numerous products in the field of wealth management, consumer-to-consumer credit, and insurance.

“Thus, this ‘Iron Triangle’ is a key factor that allows us to understand how Alibaba has become such a dominant player in e-commerce throughout China. But it is first and foremost the charisma of its founder, his ‘magic,’ which enabled him to build this whole structure by connecting capital and people.”

Chapter 2 – “Jack Magic”

2.1 – Jack Ma: A Unique Character

• A Physical Appearance of His Own

The appearance of the founder of Alibaba is rather unique. Nicknamed E.T. by some – because he allegedly resembles Steven Spielberg’s alien – or described as an “imp of a man” by others, Jack Ma doesn’t look like a big time boss.

However, Jack Ma has managed to make a real asset out of his appearance.

• Jack Ma: A Showman

Jack Ma considers himself “100% made in China.” He claims to have built his career on the fact that he was “largely underestimated by his competitors.” Duncan Clark describes Jack Ma as a real showman, taking pleasure in defying stereotypes and very skilled at charming those to whom he speaks:

“He is a unique Chinese combination of spiel and audacity. One of his first foreign collaborators summed up this talent in two words: ‘Jack Magic’.”

• Communication Skills

Charismatic and persevering, especially when it comes to following his own intuitions, the boss of Alibaba also has an incredible talent for communication.

In his speeches, Jack Ma knows how to be funny and to elicit emotions. The man knows how to capture the attention of his audience, in Chinese as well as in English. To achieve this, he uses references to pop-culture with his international audience; and in front of his Chinese compatriots, Jack very often fuels his speeches with references to martial arts novels or to the history of the Chinese revolution. Many of his quotes are popular today.

2.2 – Jack Ma’s Mantra

According to the founder of Alibaba, the basis of the company’s philosophy is: “Customers first, employees second, shareholders third.”

• Customers: Alibaba is not just a distribution channel for customers, it above all guarantees them sustainability (notably for small businesses).
• Employees: These are the Aliren ( Ali’s people) and the strong culture of the company.
• Shareholders: These come last because the founder of Alibaba refuses that short-term pressures, linked to profits, distract him from his great ambitions.

2.3 – A Strong Corporate Culture

Campus Culture

Alibaba’s headquarters, the Wetlands, is a sprawling 240,000 m² campus bearing the imprint of Jack Ma. It is composed of:

• • A complex of glass and steel towers in which we find, in addition to offices, a large gym, a Starbucks coffee, an organic fruit and vegetable store.
  • An artificial lake, where lotus flowers and water lilies float.
  • Villas with black, curved roofs.
  • An extensive library and bookstore that embody Jack Ma’s passion for books, especially martial arts.

The Importance of Teamwork, Camaraderie, and Commitment

“Beyond the design of the campus, the entire corporate culture is steeped in Jack’s spirit.”

On campus, Alibaba employees often ride bicycles, which are provided by the company, in the company’s orange colors. Among these bikes, tandems symbolize the importance that Alibaba places on teamwork, taking precedence over the search for personal success.

At Alibaba, they also place significant weight on camaraderie and commitment. These values are reflected in the daily lives of employees. For example:

• • Every May 10, a ceremony celebrates the recent weddings of Alibaba employees, offering the bride and groom many benefits.
  • Alibaba encourages friendship: Employees should take on a nickname based on characters from Jin Yong’s novels or other martial arts books.
  • Employees have the possibility of organizing a mini referendum on a managerial decision. They are also encouraged, as much as possible, to take responsibility and to undertake or delegate tasks rather than waiting for hierarchical instructions.
  • The most successful employees are “Kings of Soldiers” (bing wang).
  • The fictional character Xu Sanduo is sometimes used to illustrate a management message.

“The Six-vein Spirit Sword”

“Alibaba has codified the values of the company in a singular concept: The Six-vein Spirt Sword. Another idea from Jin Yong’s books. This sword is not a real weapon but refers to the art of building an inner strength to defeat any opponent.”

At Alibaba, the six veins of the sword are:

1. Customers

Customers always come first. This is reflected in the essential function of the “arbitrators” (the xiaoers of Taobao), the composition of the company’s workforce and the priority of personal face-to-face contacts.

2. Teamwork

Teamwork translates into games, chants, outings, the apprenticeship and mentor system, “start in the morning and share in the evening” meetings, rewards and other expressions of gratitude to deserving employees.

3. Embracing Change

Embracing change is embodied by the human resources policy which favors mobility (in terms of product lines and geographical location). In addition, Alibaba invites encourages not to be afraid of failures and mistakes (the company is, at this level, in total rupture with the traditional Chinese culture which considers failure as a shame).

4. Integrity

To maintain this integrity, Alibaba ensures the systematic rotation of positions.

5. Passion

At Alibaba, employees must be passionate about their tasks, passion being the guarantor of honesty and work. Moreover, they work according to this maxim: “Work happily but live seriously” rather than what is usually heard, “Work seriously, live happily.”

6. Commitment

Alibaba employees (around 12,000 new people each year) must live in accordance with the values of the “Six-vein Spirit Sword.” This also affects half of their evaluation scores. And this commitment sometimes lasts well beyond their presence within the company. Today there are around 25,000 former Alibaba employees, many of whom are members of the Orange club (qian cheng hui), an association bringing together Alibaba alumni.

Chapter 3 – From Student to Teacher (Jack Ma’s Youth)

In this third chapter of “Alibaba: The House That Jack Ma Built,” Duncan Clark tells us about the youth of Alibaba’s founder.

3.1 – Jack Ma’s Childhood in China during the Cultural Revolution

Jack Ma was born on September 10, 1964 in Hangzhou, a city about 180 kilometers from Shanghai. His birth name is Yun (which means “cloud”).

Little Yun’s mother (aka Jack) is a factory worker. His father is a photographer. Jack Ma’s parents share a common passion, that of pingtan, a “form of Chinese folk art mixing the singing of ballads, pieces of comedy, punctuated by the sound of castanets.”

When Jack Ma is only 2 years old, Mao Zedong regains control of China. The Communist Emperor, by launching the Cultural Revolution, declares war on the “Four Olds”: the old customs, the old culture, the old habits, and the old ideas.

Jack Ma’s family fears persecution. This is because pingtan, the art in which his parents indulge, is very anchored in Chinese popular culture and becomes the favorite target of the Red Guards. The family could be denounced, especially since his grandfather had been a loyal Kouo-Min-Tang official. Eventually, Jack is taunted at school but, unlike many others, his family does not scatter.

3.2 – Jack’s Love for English Language and Literature

Very early on, little Jack discovers English:

• First as a child, reading “The Adventures of Tom Sawyer,” Mark Twain’s famous novel. For him, it is eye-opening.
• Then, at the age of 14, with the arrival of the first foreign tourists (mostly Americans and Europeans) in China. For 9 years, every morning, the boy offers visitors a free tour of West Lake, in exchange for English lessons.

It is also from the idea of an American tourist, whose father and husband were named Jack, that the young Ma Yun decides to take this first name and that Ma Yun becomes Jack Ma.

3.3 – Jack Meets the Morley Family

Among the travelers, Jack meets an Australian family in 1980: the Morleys. The father, Ken Morley, is a recently retired electrical engineer. Ken and his wife, Judy, have three children: David, Stephen, and Susan. By chance, Jack Ma befriends David. Eager to keep in touch after the Morleys leave, the two boys write regularly. In these correspondences, Jack calls Ken “daddy.” Ken goes on to help Jack improve his English.

3.4 – Jack Ma’s Adolescence

Jack Ma’s days are quite busy. The young adolescent:

• Guides tourists who are charmed by his amazing talent as a storyteller, his good English, and his cultural knowledge of the town.
• Frequents teahouses, where he plays Chinese chess, cards, and tells stories.
• Accompanies his grandmother to Buddhist temples.
• Practices martial arts, especially tai chi.
• Devours books. He is especially passionate about the books of Louis Cha, alias Jin Yong, in the wuxia genre, which combine history, culture, fiction, martial arts, chivalry from the 6th to the 18th century, Buddhism, Taoism, and Confucianism. In his life as an entrepreneur, Jack is often inspired by a character from his novels: the legendary warrior Feng Qingyang.

3.5 – Mathematics: The Painstaking Matter of Gaokao

One of the defining facts in Jack Ma’s life trajectory is his failing of the gaokao exam.

The gaokao, the equivalent of the bac in France, is compulsory in China to be able to pursue higher education. In fact, it is one of the most difficult exams in the world, which requires a great deal of preparation and important memorization skills. Three subjects are fundamental to a succeeding the Gaokao: mathematics, Chinese, and foreign languages.

When he takes the exam, Jack’s math score is 1/120. With such a mediocre grade, Jack fails and resigns himself to doing odd jobs for a while. But the young man works on his math and retakes the gaokao. Alas, it is another failure.  Jack only obtains 19/120 in mathematics. Without a job, Jack decides to persevere. Every Sunday, he studies mathematical equations and formulas in the library for a third attempt. And this time, his math score, although barely enough, is significantly better (89/120). It allows him to join Hangzhou Teachers College, a local university, to become a teacher.

3.6 – Studies to Become an English Teacher

In 1985, Jack spends a month with the Morleys in Australia. Then, it’s their turn to come back to visit Jack. The relationship between Jack and this family grows and becomes more and more friendly. The Morleys would go on to support Jack, who struggles to survive during his studies:

• Each term, Ken Morley sends the student the equivalent of $5-6 per week.
• When Jack marries Cathy, a student he met at the university, the Morley family offer the couple $20,000 to help them settle in. With this money, Jack and Cathy buy two small apartments at the top of a building, which they transform into a penthouse.

Duncan Clark specifies that:

“Jack always said he would never find the words to thank the Morleys for what they had done for him.”

In fact, Jack Ma regarded Ken Morley as “his Australian father and mentor.” He died in 2004, at the age of 78. However:

“The Ma’s and the Morleys remain close friends to this day and continue to vacation together.”

3.7 – Education

With his English degree in hand, Jack becomes, in 1988, assistant professor of English at the Hangzhou Institute of Electronic Engineering. At the same time, the professor teaches English at the city’s International Youth Hostel. Jack enjoys spending time with these diverse students outside of class.

Aside from teaching, Jack has a dream: he had vowed to start his own business before turning 30. He then decides to get started and begins working part-time on this project after his lessons.

Chapter 4 – Hope and Coming to America

In this chapter, Duncan Clark tells us about the very beginnings of Jack Ma’s entrepreneurial adventure.

4.1 – Jack Ma’s First Company: A Translation Agency

At the age of 29, in 1994, Jack Ma creates his first company, the Hangzhou Haibo Translation Agency, also known as Hope: A translation agency that aims to help local businesses make contacts abroad:

“I wanted to create this translation company as an intermediary between the world of education and the business world,” Jack recalls.

The company has only five employees: Jack and four retired teaching colleagues. Jack was not yet ready to give up his job as a professor. At that time, in China, private enterprise was, in fact, considered risky and bordering on legality. The Cultural Revolution was still fairly recent, so it hadn’t been that long ago that the Chinese were arrested or even executed just for doing business.

4.2 – Zhejang: Melting Pot of Chinese Entrepreneurship

Clark Duncan explains how Zhejang Province has become the cradle of private enterprise in China, the cities of Hangzhou, Ningbo, Wenzhou and Yiwu in particular.

We learn in particular that:

• In 2004, half of the 100 largest Chinese private companies came from Zhejiang.
• Yiwu is now the first wholesale market in the world. Already huge when Jack Ma created his first company (more than 700 stalls), it now has 70,000 shops that are located in the Yiwu International Trade Center:

“This gigantic building, measuring more than 1.2 million square meters, alone generates an annual turnover of more than 6 billion dollars. More than 1.7 million products are offered for sale: toys, plastic flowers, jewelry, luggage, clothing, household appliances, in short everything Made in China.”

4.3 – Jack Ma’s Incredible First Trip to the United States

Hope has a difficult start. To meet the costs of the business, Jack Ma decides to sell various products (flowers, books, rugs) in the streets of Hangzhou. The income from these sales enables Hope to survive for 3 years.

When one day, the Tonglu County government contacts Jack Ma. Local authorities ask him to help them resolve a dispute between them and an American firm in a case involving the construction of a new highway. And to carry out this mission, Jack Ma has to go to the United States for a month…

During this first unexpected stay in America, the entrepreneur would make a discovery that will change his life… As soon as he arrives in Los Angeles, Jack meets the boss of the American company that is a partner of the Tonglu government. But he realizes very quickly that he is dealing with a con artist, that it is a shadow business and that he is in serious danger. In fact, Jack finds himself locked in a villa in Malibu threatened with a weapon by his kidnapper. He is then taken to Las Vegas, where he is “detained in a hotel room on the top floor of a casino.” However, Jack manages to escape and takes a flight to Seattle.

4.4 – Internet: A Revelation!

In Seattle, Jack finds refuge with a friend’s parents. It is there that he touches, for the first time in his life, a computer and it is notably the first time that he connects to the Internet. Clark Duncan makes us relive this first “surf” on the web through the words of Jack who remembers:

“My friend Stuart said to me, ‘Jack, this is the Internet. You can find whatever you are looking for on it.’ I said, ‘Really?’ And I ran a search for the word ‘beer’. […] And I found ‘American beer’, ‘German beer’ (sic) but not ‘Chinese beer’. This piqued my curiosity, so I started a search on ‘China’: no China, no data.” Intrigued, Jack asks Stuart for help: ‘Why don’t we do something about China,’ he suggests. “And we created a very ugly page for my translation agency.”

But very quickly, Jack gets the idea of a new project: “helping Chinese companies to find export sales opportunities via the Internet.” He proposes a partnership with VBN and gets to working hard.

His friend Stuart says:

“We would spend our days in the office, only going out for a snack, then we would come home to do some tai chi, and it was like that every day, no other activity.”

The trip transforms Jack. Admittedly, his mission for the government is a failure. He returns to China empty-handed, without money or a highway. However, he had, in his luggage, a computer with the Intel 486 processor, “the most advanced at the time in China.” He also has in mind the idea of leaving teaching to fully embark on his business creation.

Chapter 5 – China Is Coming On

5.1 – Project of a New Company

Upon his return from Seattle, Jack resigns from his teaching job at the Hangzhou Institute of Electronic Engineering.

He begins to work on a concept of online “yellow pages” (integrated into the VBN site), which lists, in English and Chinese, companies seeking clients abroad.

In 1995, Jack brings together around twenty of his most dynamic and competent evening school alumni to get their opinions on his concept. After two hours of presentation, the pupils decide to vote: of the 24 participants, 23 pupils cast a negative vote. “This idea will never work,” they say.

Jack is not discouraged and persists with his idea. With a computer professor friend, He Yibing, Jack Ma starts a new business: China Pages.

5.2 – Jack Ma’s Second Business: China Pages

Jack Ma’s new venture, China Pages (Hangzhou Haibo Network Consulting by name) is one of the first in China to focus on the Internet.

To start his business, Jack borrows money from his family. The company occupies a 15 m² office where Cathy, Jack’s wife, his sister Zhang Jin, and He Yibing’s girlfriend work. Former students also take part in the project.

However, China Pages faces several obstacles in finding customers. In fact:

• It turns out to be very difficult to prove the validity of the concept of China Pages because it is still almost impossible to connect to the web in Hangzhou. The Internet only became accessible there several months after the launch of China Pages (in autumn 1995).
• More and more entrepreneurs emerge in technology since the installation of telecommunications infrastructure.
• China Pages had to put an end to its partnership with VBN, equip itself with its own server and create a new website to reduce costs.
• The cost of computers is still out of reach for the average Chinese person ($800 per unit); sales of personal computers are therefore still very limited.
• The prices for installing a fixed telephone line and a web connection are high.
• People still don’t quite know what the Internet is.

5.3 – The Sale of China Pages

Jack redoubles his efforts but, despite some success, China Pages does not take off. Jack Ma’s company is no longer able to pay the salaries of its employees.

In 1996, Hangzhou Dife Communication makes an offer to buy China Pages. Eventually, the two companies agree to create a joint venture called Dife-Hope:

• Dife owns 70% of the capital after an investment of 170,000 dollars.
• Hope keeps the remaining 30%.
• Jack is appointed CEO of the new entity.

But over the months, Dife would completely crush his partner. Despite his role as CEO, Jack loses control of his business. At the end of 1997, he sells his shares and leaves his position of chief executive officer to his partner He Yibing.

This experience has a profound effect on Jack Ma, who thinks he has launched his business too early. After this failure, he accepts a civil servant position in Beijing:

“Jack shelved his dreams, accepted a job in Beijing, at the Ministry of Foreign Trade and Economic Cooperation. He felt like a fish out of water there, counting the days leading up to the day of when he could once again dive into the ocean of the Chinese Internet, which was about to get even deeper.”

Chapter 6 – Bubble and Birth

“Alibaba could well have been the company with a thousand and one mistakes. But we survived for three reasons. We didn’t have the money, we didn’t have the technology, and we didn’t have a plan.” – Jack Ma

In this chapter of “Alibaba: The House That Jack Ma Built,” Duncan Clark describes the beginnings of Alibaba created in 1999. After striving to establish his first two companies, Hope and China Pages, and after having spent an unpleasant period in the Chinese administration, this new company finally seems to be the right one!

6.1 – The Three Chinese Internet Pioneers

Duncan Clark first describes the strange wind blowing in the Internet industry at that time. Just as Jack Ma lost control of China Pages, so many other entrepreneurs in the Internet business were also themselves being pushed out of their businesses by large crown corporations. Yet despite this, these large crown corporations fail to compete with private Internet content creators.

And, indeed, a trio of pioneers would largely stand out in this field. The companies are:

• Sina, created by Wang Zhidong
• Sohu, created by Charles Zhang
• NetEase, created by William Ding

6.2 – “If I Stayed in Beijing, I Couldn’t Have Done Anything Great; I Couldn’t Have Achieved My Dreams by Remaining a Civil Servant”

The creators of Sina, Sohu and NetEase ride the rising wave of the Internet. Meanwhile, Jack Ma, who has moved to Beijing, holds the chief executive officer position of an electronic commerce unit attached to the Ministry of Foreign Trade and Economic Cooperation (MOFTEC). His work leads him to develop two websites for the ministry. But bureaucratic red tape results in these websites being unattractive. Jack is a firm believer in the future of e-commerce, but it must, he says, “be the business of the private sector.”

In the ministry, Jack doesn’t take to the influence of the hierarchy (that of his boss in particular). He also becomes very frustrated with the success of the three Internet portals Sina, Sohu, and NetEase. Jack himself dreams of starting his own internet business as well. He knows that he will not be able to “do anything great” by remaining a civil servant in Beijing…

His position as a civil servant nevertheless gives him a pleasant surprise. His first meeting with Jerry Yang, the co-founder of Yahoo, then considered the king of the Internet, visiting China in 1997 to identify opportunities in the Chinese Internet market for Yahoo.

6.3 – Alibaba: An Odd Name for a Company…

Why didn’t Jack Ma take inspiration from his passions for martial arts, history, or Chinese folklore for the name of his company?

Duncan Clark explains that Jack Ma chooses the name Alibaba because the name:

• Is known to everyone (and thanks to this, a lot of marketing investment will be avoided later).
• Is immediately associated with the expression “Open Sesame!”, which, according to Jack, has a real suggestive power. It fits perfectly with its objective of “opening the doors of e-commerce to small and medium-sized businesses in the country.”
• Is easy to pronounce in all languages.
• Starts with the first letter of the alphabet.

Jack Ma would pay $4000 to a Canadian already using that name to give it to him. Today, the imaginary world evoked by Alibaba (Forty Thieves, Open Sesame, 1,001 Nights, etc.) is very often used by Jack Ma to fuel his speeches.

6.4 – 1999: The Launch of Alibaba

Jack Ma and 17 of his friends and former colleagues launch Alibaba in February 1999:

“It was a team of ‘ordinary people’ brought together by Jack’s energy and his unconventional management methods. To build that team spirit, Jack drew upon his love of Jin Yong’s novels and gave each of the team members a nickname. His was Feng Qinyang. In the novel titled “The Smiling, Proud Wanderer,” Feng is a master of fencing and kung fu, who teaches his young students to be heroes.”

Alibaba is born at the apex of the Internet bubble. The number of Internet users explodes, as do PC sales (due to falling prices for personal computers). The cost to connect becomes much more accessible.

However, Alibaba comes late into the Chinese Internet world. The market is already dominated by Sina, Sohu, and NetEase. Jack must then find a niche. He also needs to hurry to get money from risky investors if he does not want to be left in the dust by the three pioneers.

The founder of Alibaba calls on his employees “to learn the spirit of Silicon Valley,” based on hard work. And to motivate his troops, he sets the goal of an IPO within three years.

6.5 – The Arrival of Joe Tsai at Alibaba

In 1999, Jack Ma meets Joe Tsai, an investor of Taiwanese origin living in Hong Kong. When Jack Ma introduces him his vision for Alibaba, Joe is immediately convinced by his idea of helping executives market their products abroad (it would save them from going through state trading companies). That said, he is especially impressed by:

• The cohesion around Jack Ma and his “loyal” team, “who believed in him.”
• Jack Ma’s personality and “the sparkle in his eyes.” For him, the man is a true leader, different from other entrepreneurs.

Duncan Clark describes Joe as calm and reserved, “the exact opposite of Jack with his exuberance and unpredictability.”

After some hesitation, Joe Tsai makes the risky decision to quit his highly paid job in Hong Kong. With his pregnant wife, Joe arrives in Hangzhou and gets to work. His first two tasks are:

• To identify precisely the shareholders and the number of Alibaba customers until now “kept on pieces of paper.”
• To find capital urgently (Alibaba does not yet have any turnover).

Also, after registering an offshore structure, Joe Tasi and Jack Ma leave for San Francisco to meet venture capital firms (at the time, there was no start-up funding possible in China). But the trip is a failure. Investors do not have interest in business-to-business (B2B) e-commerce.

It is ultimately a completely unpredictable event that will trigger “the Chinese Internet gold rush” and change the fate of Jack Ma: the listing of China.com on the Nasdaq stock exchange after the company receives $34 million from AOL.

“This event triggered a frenzy of investment, as Chinese entrepreneurs thought: ‘If China.com could do it, why not me?’”

Chapter 7 – Goldman Sachs and Softbank

7.1 – Goldman Sachs: Alibaba’s First Investor

After China.com goes public, more and more investors want to invest in the capital of Chinese Internet companies. Jack Ma starts to get noticed by the horde of foreign media coming to cover the rise of the Internet in China. Everyone sees in him something different.

Joe Tsai, for his part, contacts Shirley Lin, a Taiwanese friend trained in the United States, in charge of evaluating investment opportunities in early-stage high-tech Asian companies for the investment company Goldman Sachs. Although limited to investments of $5 million, Shirley has a lot of leeway. When Joe brings up Alibaba, a particularly interested Shirley decides to visit Jack. Like Joe before her, Shirley is impressed by the project but especially by the quality of the team. She decides to invest in it.

After several negotiations, Goldman Sachs ends up investing $5 million in exchange for 50% of the capital (33% for Goldman Sachs and 17% for other candidates).

“Jack had managed to attract a big name, which would prove to be crucial in Alibaba’s history. At the same time, he regretted having had to give up 50% of the capital, which he would never get back.”

Moreover, 5 million dollars is a good start, but it is nothing “compared to the coffers of the three big Chinese Internet portals.” In fact, Sina raises 60 million dollars at that time, Sohu $30 million and NetEase $20 million.

7.2 – The Development of the Alibaba Company

Late 1999-early 2000, Alibaba:

• Aims to become the first Chinese website connecting sellers and professional buyers in nearly thirty sectors of activity including clothing, electronics, and industrial equipment.
• Develops a new website. At the time, it has more than 40,000 users.
• Is now open to the idea of an IPO.
• Moves to new premises of 18,000 m².

7.3 – Obstacles to Overcome

Alibaba continues to grow but also faces many obstacles:

The Difficulty of Finding Talent

In the internet fever, Alibaba struggles to recruit competent employees, often obsessed with the search for higher incomes or with the project of launching their own start-ups. In fact, despite the 4-year shareholding plan offered to each recruit, the salary remains modest in return for the 16 hours of work per day to be carried out, not including Saturday or Sunday. Also, Duncan Clark tells us that Jack always welcomes newcomers with his favorite quote:

“Today is brutal, tomorrow will be even more brutal, but the day after tomorrow will be magnificent. The problem is, the majority of people will die tomorrow night. They won’t see the sun come up the next day. Now we, the people of Ali, will have to be able to see the dawn rise the day after tomorrow.”

• With the price of computers still a little high and the lack of computer skills, some companies are reluctant to get involved because of the price of computers. Others do not have the requisite IT skills.
• Lack of confidence in e-commerce: Suppliers fear they will never be paid; overseas buyers fear receiving defective or counterfeit products, or not receiving them at all.
• Alibaba’s difficulties in describing precisely its core business:

“Yahoo is a search engine, Amazon is a bookseller, eBay is an auction site. Alibaba is an electronic marketplace.”

• The rapid need for liquidity, especially considering the company has just opened new offices in Hong Kong and Shanghai.

7.4 – Softbank Comes into Play

Jack Ma is invited to meet Masayoshi Son of the Japanese investment firm SoftBank in October 1999 during speed dating sessions. Known for making quick decisions, Masayoshi Son has been Yahoo’s main shareholder for several years. He is a multibillionaire.

“As soon as he met Son, Jack knew he had met a soul mate. ‘We didn’t talk about turnover, let alone the business model. We just shared our visions. And the two of us liked to make decisions quickly. I wasn’t even wearing a suit that day. It took us five to six minutes to appreciate each other’.”

Masayoshi Son agrees to invest 20 million dollars in Alibaba for 30% of the capital:

“This agreement proved to be decisive for Alibaba. In less than a year, Jack and Joe had managed to raise $25 million from two of the world’s largest and most prestigious investors.”

7.5 – The American Dream

Now, Jack’s ambition is to get noticed in Silicon Valley. He then succeeds in poaching John Wu from the Yahoo headquarters and offers him the management of Alibaba’s research and development team in California.

“Rich in new money, new recruits and more than 150,000 users from 180,000 different countries, Alibaba’s future was bright. But the Internet bubble was about to burst.”

Chapter 8 – Burst and Back to China

This eighth chapter of “Alibaba: The House That Jack Ma Built” retraces the years 2000-2001 strewn with difficult events for web companies. These years are today part of the legend of Alibaba which managed, despite the challenges, to remain standing.

8.1 – The Chinese Authorities’ Compromise regarding the Development of the Internet: The Concept of VIE

Alibaba continues to thrive (1,000 new users per day in spring 2000). However, the company does not operate in a context that favors its development.

In addition to the emergence of numerous competitors benefiting from fresh capital, the rise of the three pioneer Chinese Internet portals has increased the government’s desire to control all this content now accessible to the Chinese via the Internet. The Chinese authorities put in place several rules in order to filter out content that may represent a threat to the Party or the country. However, they are incapable of truly stopping the Internet. Furthermore, many administrations are paradoxically convinced that computerization and the Internet are essential elements for the development of the country.

China must therefore seek a solution so as not to discourage the development of enterprises while at the same time subjecting them to a certain control.

“China wanted a Silicon Valley that it could control and build on its own terms.”

Finally, after months of debates, the authorities find a strategy that meets their expectations: The concept of VIE (“Variable-Interest Entity”):

“This structure allows foreign investors to benefit from the income accumulated by a Chinese company without it being considered foreign.”

With this solution, the IPO of the three Internet portals is finally possible. This public offering took place on April 13, 2000, but under very bad conditions: The Internet bubble had just bursted.

8.2 – The Beginning of Notoriety for Jack Ma

“From March 2000, the Nasdaq, then at its peak, began a long descent that would last two years. […] No Chinese Internet company was to go public for three years. The door was closed, including for Alibaba.”

However, for Jack Ma, the bursting of the internet bubble represents a real opportunity. Investors would, according to him, stop financing his competitors and at least 60% of Chinese companies in the Internet sector would close. And of the $25 million raised, Alibaba had spent only $5 million.

The company then began to recruit many foreign employees. Jack Ma travels all over the world, especially in Europe, which he does not yet know and where he experiences culture shock. During this period, Jack Ma becomes an international personality. He notably makes the cover of the magazines Forbes International and The Economist.

8.3 – New Strategies

• The “Back to China” (BTC) Strategy

In 2001, Jack Ma realizes that his business was difficult to conduct in California. Sharing the technical teams between China and the United States, with the differences in language and culture, led to breaking up his teams:

“Trying to promote a Chinese company in the United States and Europe, with an Arabic name, was not easy.”

Alibaba therefore decides to refocus its activities in China by adopting the so-called BTC, “Back to China,” strategy.

• The Creation of New Services

To reassure his investors who are starting to get impatient at not seeing the company’s turnover grow, Jack launches new services linked to credit, transport, and insurance.

• The Recruitment of a New Operations Manager: Savio Kwan

The hiring of Savio Kwan leads Alibaba to a reorganization of the company around its four key men:

• • Jack Ma: Chief Executive Officer
  • Joe Tsai: Chief Financial Officer
  • John Wu: Chief Engineer
  • Savio Kwan: Chief Operating Officer

8.4 – Return to China

Having just arrived, the new COO, Savio Kwan, implements a multitude of measures to rectify the situation. But these don’t work miracles. Without really satisfactory results and a situation which does not improve, Jack Ma thinks, at one point, to leave Alibaba and to resume his teaching profession. However, he pulls himself together:

“My motto then was to remain the last to stand, the last to fall. Even on my knees, I had to be the last to die. I firmly believed that if I was having this hard of a time, then my competition must be even worse off. Whoever stood on his feet last would win.”

Finally, in the years following the burst of the Internet bubble, Alibaba managed, despite the lack of capital, to stay on its feet. And that was thanks to a new activity launched in 2003: A success the extent to which even Jack never imagined…

Chapter 9 – Born Again: Taobao and the Humiliation of eBay

9.1 – Pivot Towards Mainstream E-commerce

In the early 2000s, few Internet business leaders managed to stay at the head of their companies or maintain them. Alibaba is among those that still survive. However, the B2B e-commerce model remains uncertain. Jack Ma then begins to think about another strategy, that of mainstream e-commerce, as chosen by Amazon and eBay. Moreover, several Chinese companies have already had the idea of replicating these concepts. The best known are:

• Dangdang.com and Joyo.com: These two companies operating on the Amazon model have some success.
• Each.net: A sort of “Chinese eBay” created by Shao Yibo (called “Bo”), a Harvard MBA graduate, who does quite well despite his recent arrival on the Chinese Internet scene and the arising challenges.

9.2 – Chinese eBay

In fact, there are many reasons for the eBay concept to work in the Chinese context, which is particularly challenging. Indeed, in China:

• It is not common to trade second-hand goods. With the consumer market being very new, the Chinese do not have much to sell.
• The number of Internet users is still low (around only ten million Chinese to hundreds of millions of Americans).
• People don’t trust online business.
• Online payment is almost non-existent.
• The deliveries are very expensive and unreliable.
• The credit card, which has only been authorized since 1999, is still complicated to use in traditional stores, and extremely rare for online purchases.

Over time, Bo realizes that the Each.net project will be long and arduous. For him, the only way to make it happen is to sell Each.net to eBay… For her part, eBay boss Meg Whitman, who had just left the Japanese market, sees the Chinese market as a real opportunity to launch eBay into Asian e-commerce. And the perfect way to conquer this market is to buy Each.net, a local player that has already established itself.

This is how eBay acquires Each.net.

9.3 – The Creation of Taoboa

Jack Ma also intends to take his place in the Chinese e-commerce market. He knows that “if he let the American company get too far ahead of the mainstream market, he would have difficulty keeping Alibaba afloat in the single sector of professional e-commerce.” He must therefore counter eBay.

The preparations for what Jack Ma calls “Operation Treasure Hunt” get under way in the utmost secrecy. Masayoshi Son brings him new cash: $80 million. The entrepreneur sets up a special team, which he asks to be kept strictly secret. The “secret” team gets to work and creates a new website called Taobao – “treasure hunt” in Chinese.

The launch of Taobao takes place on May 10, 2003.

9.4 – The SARS Attack: A Blessing in Disguise for Alibaba

Here, Duncan Clark discusses the SARS (Severe Acute Respiratory Syndrome) epidemic that began in China in 2002. In fact, it is a period that has a positive effect on Alibaba, for two main reasons:

• This virus, of unknown origins and effects, terrifying everyone, will ultimately help strengthen the bonds between the members of the Alibaba team.
• The SARS episode validates the relevance of mobile telephony and the Internet in the country. For the millions of Chinese confined to their homes for several weeks, the Internet becomes their main source of information and entertainment. Thus, the crucial impact of SARS for Alibaba is having convinced the Chinese to engage in online shopping.

9.5 – eBay’s Mistakes and the Emergence of Taobao

eBay makes a series of mistakes that would lead the company to ruin in the Chinese e-commerce market:

• First mistake: Believing that, with Each.net, eBay has already established itself in the Chinese market.

Very quickly, difficulties related to cultural differences appear between Each.net and eBay.

For example, eBay redesigns the Each.net website according to its own criteria for presenting and classifying information. This throws off Chinese users, who now find the site to appear “foreign” (the rather sparse American sites being stylish and neat in no way resemble Chinese sites, which are rather cluttered, teeming with banners and pop-up ads).

The Alibaba site described by Duncan Clark is more appealing to the Chinese:

“Taobao is a site designed by the Chinese, for the Chinese, and it shows. It looks like a multi-colored general store crumbling under merchandise, like the one in Yiwu.”

• Second mistake: Not taking into account the particularity of Chinese e-commerce.

In China, e-commerce is very specific. It is counterintuitive to that in the West. The CEO of eBay would also admit, a few years later:

“In China, you can’t just export a system or products that have been developed to the United States or Europe.”

Jack Ma has the advantage of knowing the trade traditions of Zhejiang. Alibaba, for example, immediately understood that one of the key factors for success is free service.

• Third mistake: Migrating the site from China to the United States.

Indeed

In fact, the Chinese authorities have put in place multiple protection systems leading to numerous obstacles for sites hosted abroad such as:

• • Very long download times.
  • Blockages: Requests must pass a series of checks to verify that foreign sites do not disseminate “sensitive” information. The Chinese firewall therefore blocks many requests.

9.6 – The Other Decisive Element: Online Payment

In 2005, Jack Ma declares:

“eBay may be a shark in the ocean, but I am a crocodile in the Yangtze. If we fight in the ocean I will lose, but in the river I will win.”

It is around the issue of online payments that Alibaba would gain the upper hand. Indeed, eBay uses its PayPal subsidiary for payments. However, in China, setting up PayPal proves to be very complicated. So, eBay decides to create a system specific to China and wastes a lot of time.

Meanwhile, Alibaba wins over more and more customers with Alipay, its own online payment system launched in October 2003 and which, while eBay gets bogged down in problems, has plenty of time to perfect itself.

9.7 – eBay Loses China

Faced with the situation, the only way out for eBay to regain the Chinese market is to buy Alibaba. Meg Whitman offers to meet with Jack Ma. However, the meeting “turns into a disaster.” Meg makes an offer for 150 million dollars, Joe and Jack want 900 million.

As a last attempt, Meg Whitman reinjects capital into Chinese operations to improve its payment system, recruit new employees, broadcast an advertising campaign, but eBay’s stock price begins to suffer from its difficulties in China. It is the end; eBay loses China.

Chapter 10 – Yahoo’s Billion-Dollar Bet

In this tenth chapter, Yahoo plays a decisive role in the trajectory of Alibaba and its founder Jack Ma.

10.1 – Jerry Yang: The Chinese Icon of Silicon Valley

Duncan Clark begins by telling us about the journey of Jerry Lang, co-founder of Yahoo: This software engineer born in Taiwan, of a Chinese father, who became a billionaire at a very young age, fascinates the Chinese.

While studying at Stanford University, Jerry Yang befriends David Filo, a young assistant professor. The two young men together create a directory of Internet sites: Yahoo. The site would quickly grow to phenomenal scale, reaching two million visitors per day in 1995.

Jerry and David officially found their company Yahoo in March 1995 thanks to investments from Sequoia Capital ($2 million) and SoftBank (also $2 million). When in 1996, SoftBank invests $100 million (with 41% of the shares), Yahoo gets listed on the Nasdaq stock exchange and raises $33 million.

10.2 – Yahoo Establishes Itself in China, but with Difficulty

Yahoo cannot ignore the ever-growing Chinese market.

Founder: Yahoo’s First Partner in China

To develop his presence in China without suffering from information censorship, Jerry Lang decides to sign an agreement with Founder, a Chinese producer of personal computers and software, which has close relations with the government.

Of course, this partnership enables Yahoo to establish itself in China. But Founder is not at all a partner that lives up to Jerry’s expectations. The relations between Founder and the government, “which were to serve as a shield for the American company against the mistakes of Chinese regulators,” prove, in the end, counterproductive and slow down the integration of the entrepreneurial culture.

3721: Second Attempt at Partnership

After the failure of its partnership with Founder, Yahoo tries a new partnership with the Chinese website “3721.” It is the fourth most visited site in China, after Sina, Sohu, and NetEase. However, as was the case between eBay and Each.net, the clash of cultures between the two companies drives the partnership to failure.

Alibaba: Yahoo’s Third Partnership

As a third attempt, Jerry Lang turns to Alibaba. He offers “a billion dollars to Jack and the keys to Yahoo in China for 40% of Alibaba’s capital.”

“This transaction was a powerful driver of transformation for both companies. Alibaba had the adequate means to end eBay in China and make Taobao and Alipay the giants they are today.”

Now, Alibaba has enough cash to fight eBay. The company enters the exclusive club that would be called BAT, alongside Baidu and Tencent.

Yahoo, on the other hand, which had just transferred its activities to Alibaba, faces major difficulties linked to two events: its split with Zhou Hongyi, the “bad boy” of 3721 and the imprisonment of journalist Shi Tao. In the latter case, Yahoo is accused by many activist groups of being a police informant. This episode is, according to Duncan Clark, very indicative of the risks to which a foreign company operating in the Chinese Internet is exposed.

Chapter 11 – Growing Pains

11.1 – Shattering IPO and Financial Crisis

Alibaba chooses to only list on the stock exchange its B2B branch, Alibaba.com. Although promising (170 million users and $30 billion in sales), Taobao, Alibaba’s e-commerce site, still is not making money because of its policy of free services. Alibaba.com, on the other hand, now has 8 years of service on the market and 25 million users in China and abroad.

Alibaba.com’s initial public offering on the Hong Kong Stock Exchange takes place in November 2007. It causes quite the frenzy. It is the largest IPO since Google’s in 2004. Out of 1.7 billion raised, only 300 million are allocated to the development of B2B. The remaining 1.4 billion goes into Alibaba’s reserves, which thus constitutes a considerable and useful war chest to compensate for the absence of profits from Taobao and Alipay.

However, B2B activities are particularly affected by the financial crisis. Only a few months after this staggering IPO, Alibaba suffers from the global economy and consequently a serious drop in the price of its stock.

11.2 – Alibaba in Turmoil

From One Misadventure to Another with Yahoo

Alibaba survives the global financial crisis. However, the business goes through tough times. Duncan Clark recounts here all the twists and turns of the situation and all the decisions taken by Jack Ma during this period, in particular because of his connection to Yahoo. The CEO must notably manage several events likely to have a significant impact on his relations with the country’s authorities:

• • First, the possibility of a takeover of Yahoo by Microsoft: Not only does Microsoft have ambivalent relations with the Chinese government, but if it bought Yahoo, this company would make Bill Gates the largest shareholder of Alibaba, not without implications for Jack Ma’s Chinese company. Ultimately, Yahoo would reject Microsoft’s takeover proposal.
  • Then, the arrival of Carol Bartz as CEO of Yahoo. In addition to the extremely cold relations between the two leaders, the stance of the new CEO towards the Chinese government (which she accuses of infiltration in an attempt to obtain user information, for example) expose Alibaba to severe repercussions.

Jack Ma is forced to publicly reaffirm his independence and distance himself from Yahoo, specifying that he “does not share Yahoo’s views.”

Two Crises Weaken Alibaba

Two discoveries will destabilize Alibaba and tarnish its image. The first:

• • Concerning a fraud to the tune of $2 million, in which around 100 Alibaba.com employees and 2,300 merchants are involved.
  • The second concerning the transfer of Alipay’s ownership of a company 80% controlled by Jack Ma.

The latter episode has an even more negative impact on Alibaba’s image and the company’s relations with its two main partners. Duncan Clark recalls that Alipay is, at that time, a system that manages more than 700 million dollars of transactions per day on Taobao, that is to say more than 50% of all the online payments of the country. Alibaba explains this transfer by the establishment of new rules of the Chinese Central Bank (PBOC) “requiring that the capital of non-financial institutions be held exclusively by Chinese entities”. Finally, after a long period of controversy, Alibaba and its partners reach an agreement, in July 2011. The transfer of Alipay was confirmed but, in compensation, it will be paid between 2 to 6 billion dollars to Yahoo at the time of the Alipay IPO.

Chapter 12 – Icon or Icarus?

12.1 – Alibaba’s Initial Public Offering on the New York Stock Exchange

The final chapter of “Alibaba: The House That Jack Ma Built” begins by discussing Alibaba’s IPO on the New York Stock Exchange in September 2014. Duncan Clark describes the atmosphere of the dazzling show given by Jack Ma on this occasion: The room filled with investors, his unforgettable speech recounting his career, his successes, and his challenges. The author then continues this chapter by describing several events which have affected the life of the company in recent years.

12.2 – Alibaba Accused of Counterfeit

In January 2015, the State Administration for Industry and Commerce (SAIC), the authority that regulates business activity in China, accused Alibaba of selling counterfeit products and receive kickbacks from companies in exchange for better ratings on the site. This accusation gave rise to long disputes, until the SAIC and Jack Ma ended up “burying the hatchet”; the SAIC removed the report from its site. As for Jack Ma, he would promise to “actively cooperate with the government and commit more resources to fight against counterfeiting.”

To fully understand the impact of such a case on Alibaba’s entrepreneurial journey, Duncan Clark recalls a specific aspect of China: the importance of cultivating good relations with officials who can, in this country, truly influence the fate of a company.

“In China, entrepreneurs constantly live under the threat of arbitrary decisions or regulations. To reduce their risks, they may need to collaborate with the government.”

In concrete terms, to keep its promise, Alibaba:

• Expands its teams which are responsible for combating counterfeiting.
• Creates a “secret task force” of bogus traders to spot counterfeit products.
• Introduces sanctions.

Despite this, not everyone is convinced by “Jack’s good intentions”. The Alibaba site is, for example, registered on the list of “questionable” sites of the US Trade Representation (USTR). In Europe, Alibaba also faces criticism; the company is even taken to court for violation of trademark law.

12.3 – New Competitors on the Horizon

Alibaba faces increasingly broad and active competition. To strengthen its position, the company is investing with traditional distributors to follow a new trend in commerce called “multichannel marketing” or “online to offline,” or O2O.

The most threatening competitor for Alibaba is JD.com. This company is bold on several points. It has:

• its own stock of products and its own logistics network, which it believes ensures better product quality and faster delivery to consumers.
• the backing of Tencent, another big rival for Alibaba in the Chinese Internet.
• phenomenal success with its WeChat messaging service. Launched in 2011, this mobile phone application brings together more than 650 million regular users and provides access to a much wider range of services than a classic messaging type Messenger or WhatsApp.

To counter JD.com, and in this area in particular, Alibaba also created a messaging application, Laiwang. However, launched two years after WeChat, Laiwang never managed to live up to its competitor.

12.4 – Various Investments

In recent years, Alibaba has made new investments:

• In mobile technology:
  • Alipay: Development of a “mobile wallet”.
  • Yu’e Bao: An online mutual fund.
  • Mybank: Alibaba’s online bank.
• In other areas:
  • Support from Kuaidi Dache, a taxi company operating on the Uber model.
  • Yungfeng: Alibaba’s own private equity firm, a sort of “billionaire club” that invests in various companies.

12.5 – Alibaba’s Three Future Areas of Development

In the future, Alibaba plans to deploy around three main strategic areas:

• First Area: The “Cloud”

Thanks to Aliyun, the Big Data subsidiary of Alibaba (data analysis), the company thinks it can “help Alibaba customers to better forecast the evolution of their turnover, control their supply chain, anticipate the expectations of their customers.” ”.

• Second Area: Rural Markets

Despite all the logistical challenges that this entails and the lack of education of local populations, developing in rural areas by broadening relations between producers and consumers is a crucial objective for Alibaba, because the Chinese countryside actually represents between 600 and 700 million inhabitants who just want to improve their standard of living.

• Third Area: Alibaba’s Expansion Outside of China

This prospect coincides with the plans of the government, which wants Chinese companies to become real global powers in the world market, not just exporting companies.

Alibaba is already enjoying great success in Brazil and Russia. Its ambition is now to conquer Europe. After having set up its headquarters in London, Jack Ma’s company has opened “embassies” in France, Germany, and Italy. Jack Ma has let it be known that he was not looking to, on the other hand, “invade” the United States market nor therefore to enter into direct competition with Amazon or eBay. Alibaba actually prefers to stick to its initial strategy in the United States, which consists of “helping small and medium-sized American companies to sell their products in China.”

12.6 – Jack Ma’s Other Fields of Interest

• Environment

Jack Ma is known to be a philosopher, but he is also, according to Duncan Clark, a philanthropist, and an environmentalist. In fact, Jack Ma regularly takes a stand, publicly, on the need to develop renewable energies. Moreover, he has created a foundation dedicated primarily to the environment and health.

• Health and Happiness

For Jack Ma, environment and health are areas that also fit into his business aspirations. He has thus invested in a pharmaceutical database company renamed Alibaba Health. This company aims to partially remedy the deficiencies of the Chinese public health system in two specific areas nicknamed the “2 H‘s” by Jack Ma: health and happiness.

•  Entertainment

Alibaba is now one of the largest Chinese investors in film, television, and online video. In fact, the group has acquired:

• • A Hong Kong film company, renamed Alibaba Pictures.
  • A film and television studio in Beijing: Huayi Brothers.
  • A company specializing in the sale of movie tickets: Yulekei.
  • The Youkou Tudou website, the Chinese YouTube.

Furthermore, Alibaba has launched its own streaming platform, Tmall Box Office (or TBO) and plans to make it a producer of similar programs like Netflix in the United States. This operation is particularly a good idea in China where the authorities have just regulated more heavily the distribution of imported content on viewing and downloading platforms.

• The Media

Alibaba also bought the South China Morning Post (SCMP), Hong Kong’s leading English-language daily newspaper. This initiative has been the subject of much speculation given the context in which companies operate in China.

Afterword – Alibaba and France

• The Conquest of French Brands

In recent years, Alibaba has been increasingly present in France:

• • In 2014, Jack Ma signed an agreement with the French Minister of Foreign Affairs, which allowed Alibaba’s e-commerce sites (especially Tmall) to have greater access to French brands; knowing that, for the Chinese, the French label is a guarantee of quality, of craftsmanship and of sophisticated design.
  • In 2015, Jack Ma opened an “embassy” in Paris to “help French companies and winegrowers make the most of Alibaba’s platforms.” For France, the fate of Jack Ma is seen as the symbol of the “Chinese dream”. The Legion of Honor was awarded to him.

In Paris, Alibaba’s offices are headed by Sébastien Badault, a former Amazon and Google employee. According to the latter, Alibaba’s sites represent a real opportunity to be seized for distributing French brands in China. In fact, e-commerce is much more developed in China than in France, and the most popular products (fashion, cosmetics, food, wine) are precisely products in which France is a world leader. In addition, the 200 French brands present on the platform benefit, following an agreement signed between Alibaba and La Poste, from a specific and appropriate logistics channel.

• French Challenges

Alibaba faces several challenges on the French market:

• • Competition: JD.com, Alibaba’s main competitor, has also succeeded in carving out a place for itself on the French market (its site attracts a good number of French SMBs).
  • The mistrust of certain brands: This accuses Alibaba of promoting counterfeiting.
  • The search for payment solutions for Chinese tourists traveling to France: Alibaba’s goal is for them to be able to use Alipay’s services as easily in Europe as in China.

• Jack Ma’s Passion for Wine

Duncan Clark ends his book “Alibaba: The House That Jack Ma Built” by describing to us Jack Ma’s new passion for wine. On this subject, we learn in particular that the CEO of Alibaba recently acquired a French wine chateau and created a promotional event on the Internet called the “9.9 Wines and Spirits Festival.”

Conclusion of “Alibaba: The House That Jack Ma Built” by Duncan Clark

The Inspiring Journey of an Atypical Entrepreneur

Through the story of Jack Ma’s life, Duncan Clark recounts the journey of an inspiring man. Starting from nothing and having an unusual personality, Jack Ma is today not only a very great entrepreneur, but he is also a symbolic figure of the new Chinese economy. His global success was built on the sole strength of his entrepreneurial determination. Happenstance has ended up stringing together his destiny, which the man is still strategically determining. Thus, his meeting and his unwavering friendship with the Morley family, his catastrophic math scores during the gaokao, his strange first trip to the United States and his discovery of the Internet, his two entrepreneurial failures before Alibaba, the launch of Taobao and Tmall…and many other significant events with ups and downs, shed light on the founder of this Chinese Internet giant beyond the public arena.

A Door to Another Model of Corporate Culture

The history of this man is mixed with that of a country in the midst of political and economic upheaval. We learn, through the career of Jack Ma, how China has opened up to the major technological and global media challenges, and how its people have seized upon them.

“Jack embodies the consumer and business revolution in China, advancing on new fronts like finance or media, which have long been dominated by the State.”

Jack Ma’s journey takes us through Chinese neo-capitalism and has us discover the world of Chinese entrepreneurship driven by the Internet. The book also opens doors to a very vast universe: Chinese entrepreneurial culture, which is light years away from Western models.

Finally, “Alibaba: The House That Jack Ma Built” is a captivating book, which, in addition to depicting us the life of Jack Ma and the behind the scenes of his entrepreneurial empire, expands on general culture in terms of entrepreneurship.

Strong points:

• The inspiring journey of an atypical man who started from nothing.
• The documented account of the life of Jack Ma but also of the Chinese economy.
• The discovery of a corporate culture very specific to Asia and very different from the West.
• The behind-the-scenes making of a web giant.

 Weak point:

• The timeline is not always easy to follow.

My rating :   

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