Alibaba's World Read online

  Alibaba’s World

  How a Remarkable Chinese Company Is Changing the Face of Global Business

  Porter Erisman

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  For Mom and Dad

  Contents

  Cover

  Title Page

  Copyright Notice

  Dedication

  Author’s Note

  Introduction: The Great Leapfrog Forward

  1: The Right Person: @ the Right Place @ the Right Time

  2: Boom!

  3: Bust

  4: The Foreign Experts

  5: Alibaba’s Cave

  6: Around the World with Jack

  7: Alibaba’s Falling Carpet

  8: Back to China

  9: Last Man Standing

  10: Lock Up

  11: War on eBay

  12: The Google Guys

  13: Crocodile in the Yangtze

  14: The eBay-Alibaba Hotline

  15: Yahoo!

  16: The Deal Heard ’Round the World

  17: The China Search Wars

  18: Free Is Not a Business Model

  19: AliMania

  20: Leaving Alibaba

  21: Winter

  22: Spring

  23: Alibaba’s World

  24: Alibaba and the Forty Lessons

  Notes

  Index

  About the Author

  Copyright

  Author’s Note

  My goal with Alibaba’s World is both to educate and inspire. I hope that entrepreneurs and others chasing a dream can read the book to learn from Alibaba’s successes and mistakes. And I hope that others can learn from Alibaba’s story to better understand what it was like on the ground during a transformative time when the Internet brought China face-to-face with the West. In pursuit of this goal I’ve made every effort to present an accurate and authentic reflection of my experiences.

  Fortunately much of Alibaba’s history was captured in the 200 hours of video archives that I gathered in preparing my documentary, Crocodile in the Yangtze. This, and detailed notes I took during my time at Alibaba, provided a valuable reference for this book.

  All the dialogue is based on actual conversations, but at times I combine two separate conversations with one person into one conversation. The same is true of some of Jack Ma’s early speeches where I have sometimes combined public comments he made separately at the time into one speech. I also paraphrase Jack Ma’s English occasionally to account for the fact that it is not his native language and sometimes includes small grammatical errors. In all cases I have made every effort to preserve the accuracy and authenticity of what was said by all parties.

  In a few instances, when discussing confrontations or conflicts with former colleagues, I have left some minor characters unnamed. In a fast-growing start-up, there are always bumps and bruises, internal disagreements. However, my goal here is to use issues or conflicts as illustrations from which others may learn, not settle scores with individual colleagues. In the spirit of fairness, I also do my best to point out the times when I myself made mistakes or held the wrong assumptions.

  This book was written independent of Alibaba, with no involvement by the company. Whether readers agree or disagree with my take on events, the opinions are entirely my own. It’s my hope that sharing the story, in the most candid way possible, of how a schoolteacher rose from obscurity to build the world’s largest e-commerce company can serve as a great case study for students, entrepreneurs, and anyone else setting out on a journey of their own.

  Introduction

  The Great Leapfrog Forward

  November 7, 2006, was the day I realized that Alibaba had finally arrived. As I stood at the back of a packed auditorium at the Web 2.0 conference in San Francisco, my boss, Jack Ma, took the stage. With a typically entertaining speech he captivated the high-level audience, a who’s who of the Internet world.

  “I’m 100 percent ‘made in China.’ I learned English myself, and I know nothing about technology,” Jack explained. “One of the reasons why Alibaba survived is because I know nothing about computers. I’m like a blind man riding on the back of a blind tiger.”

  As the audience laughed, I noticed someone crouched down in the back of the auditorium, scribbling down every word Jack said. Curious, I leaned over to see who was so intent on transcribing Jack’s speech. I was shocked to find it was Jeff Bezos, the founder and CEO of Amazon.

  Bezos—the father of e-commerce—eager to learn from Alibaba? This was the man who had pioneered e-commerce and grown Amazon.com into an Internet behemoth. This was the entrepreneur named Time magazine’s Person of the Year back in 1999 when Alibaba was still an obscure start-up in Jack Ma’s apartment. Bezos was a business leader we had always looked up to and admired—not to mention borrowed ideas from. And now he was borrowing ours!

  Jeff continued taking notes as Jack spoke to the rapt group.

  “Believe in your dreams, find good people, and make sure the customer is happy. I see a lot of US companies sending professional managers to China. They are making their boss in the US happy but not the Chinese customer.”

  Jack had always wanted to meet Jeff Bezos, so I leaned over, introduced myself, and gave Jeff my card. Jeff said he’d love to meet Jack as well. After Jack’s speech the two of us met with Jeff in the convention center lobby. With his trademark laugh and infectious enthusiasm, Jeff commended Jack on his speech: “You made some great points up there, Jack! I’d love for you to visit us in Seattle someday.” As Jeff walked away, Jack and I beamed like two starstruck groupies in a garage band who’d just been validated by their favorite rock star.

  Seven months later I picked up the Wall Street Journal to find an interview with Jeff, who was announcing an expansion in China. He described how he was determined to avoid the problems other foreign Internet companies had encountered in China, explaining that the reason they struggled was “because the Chinese management team is busy trying to keep their American bosses happy, instead of trying to keep their Chinese customers happy. And that’s a mistake we will not make.” Yes—it seemed Jeff had learned something from Jack.

  Little did Jack and I know that in just a few years, Alibaba’s sales volume would surpass those of both our idols—Amazon and eBay. Combined. Not just in China. Everywhere.

  When Alibaba got started in Jack Ma’s apartment, it seemed far-fetched to think that Western Internet companies would someday be learning from China’s e-commerce founders. With only two million Internet users in China, less than 1 percent of the country’s population was online. And of that 1 percent, even fewer would consider purchasing something online. The barriers were simply too great. Consumer purchasing power was too low. Credit card penetration was negligible. Logistics infrastructure was primitive. It was unclear whether the government would embrace or reject the Internet. And e-commerce seemed impossible in the context of China’s Wild West capitalism, where scammers were all too common and where buyers and sellers who had never met in person simply didn’t trust each other enough to do transactions online.

  Fast-forward 15 years, and the difference in the numbers is astounding. Alibaba now has approximately 300 million customers and executes about 80 percent of China’s
e-commerce transactions. More than half of all packages shipped in China are from deals that originated on Alibaba’s websites. And during its 2014 Singles’ Day promotion—a shopping holiday that Alibaba invented—Alibaba’s consumer shopping websites handled $9.3 billion in transactions on just one day—more than the total US online sales on Black Friday and Cyber Monday combined. All this in a country where the per capita income is just $6,800 per year and only about 25 percent of the population has ever shopped online. Compared to the United States, China’s e-commerce boom is just beginning.

  Alibaba’s experience has shown that, although e-commerce was slower to take off in China than in the West, when it did take root, it was far more important to the overall economy. In just 15 years China’s e-commerce infrastructure has leapfrogged its Western counterparts’ and is introducing entirely new ways of doing business. China has become a dynamic laboratory for e-commerce innovations, with important lessons for businesses everywhere.

  Alibaba is also branching out into a number of entirely new frontiers, well beyond traditional e-commerce. Within a year of launching its first money market fund, Alibaba’s finance unit was operating one of China’s top funds, with over $90 billion under management. It has started a movie studio to produce original content. Will Alibaba someday realize its goal of becoming China’s largest bank? Will it give Fox and Disney a run for their money in film production?

  The scale of Alibaba’s growth grabbed the business world’s attention when it went public on September 19, 2014. Alibaba’s was the largest IPO (initial public offering) in history, dominated global business headlines, and made Alibaba the most valuable e-commerce company in the world. And Jack, who began his career making less than $20 per month, was suddenly worth $19.5 billion soon after the IPO.

  This book is the inside story of how all this happened. How a schoolteacher and 17 of his friends rose from obscurity and overcame immense obstacles to build an e-commerce powerhouse that is transforming global business.

  The founding of Alibaba was really the birth of e-commerce in China. From 2000 to 2008, I worked at Alibaba as a vice president in a variety of roles as the company grew from a small apartment into the behemoth it is today. I’ll chronicle both the successes and missteps the company made on the road to riches. In the process I hope to explain how Chinese e-commerce got to where it is today, where things are headed, and what it means for the global marketplace.

  After leaving Alibaba in 2008, I produced and directed Crocodile in the Yangtze, an independent documentary film about my experience. The film premiered at the Sonoma International Film Festival in April 2012, and I subsequently spent two years traveling the world to show the film to festival audiences, students, and entrepreneurs. The journey took me to more than 50 cities on six continents—from Silicon Valley to Bangalore to Nigeria and just about everywhere in between. It taught me that the Alibaba story, so multifaceted, has universal appeal, and from each Q&A session I got a greater sense of which aspects people in different places were interested in. The plucky start-up spirit that challenged eBay and Amazon when they ruled the e-commerce roost? The rise of a schoolteacher from the far-flung provinces to economic royalty in what is still a Communist country? Or the seismic shifting of the world’s attention from West to East?

  My time at Alibaba challenged a number of my assumptions about business and life. My experience was a positive one overall, and this memoir reflects that. I saw a company grow from a small apartment into China’s first global Internet company, battling—and beating—eBay in China along the way. And I saw a team of ordinary people come together to build a company that has fundamentally reshaped the way people do business in China and beyond. But the goal of this book is not simply to say that Alibaba is great or that Jack Ma is a hero. It is simply to answer this question: What made Alibaba so successful where so many of its competitors failed?

  After 15 years the Alibaba story is, in many ways, still just beginning. And how it ends is up to Jack and a new team of colleagues—and how well they adhere to the values that have carried them this far. Alibaba is no longer a David. It is a Goliath. And as a Goliath it will face an entirely new set of challenges. But whether Alibaba ultimately succeeds or fails, its rise remains one of the most fascinating and instructive business stories of our time. By sharing my experience at the company as candidly as possible, I hope that entrepreneurs or others setting out on a similar journey may gain some inspiration and avoid some mistakes. It is my sincere belief that the spread of e-commerce, and the grassroots economic opportunities it provides, can transform the lives of millions, if not billions, of people around the world.

  The Right Person

  @ the Right Place

  @ the Right Time

  I slid into the backseat of the taxi as the driver dropped the meter’s flag and turned to me. “So where you headed?”

  “Wensan road. Alibaba headquarters.”

  We bumped along the Hangzhou streets for a bit, past construction sites, shops, and Hangzhou’s West Lake. Then the driver struck up a conversation.

  “Do you work at Alibaba?”

  “Yes, I joined the company in 2000. I’ve worked there for about six years now,” I said.

  “Oh, really? I didn’t know Alibaba had foreigners. So why did you decide to work in a Chinese company?”

  “I thought it would be more fun to help a Chinese company go global than to help a foreign company enter China. It’s an exciting challenge.”

  The driver hesitated a bit and then went on.

  “I actually know Jack Ma. We were in grade school together. The same class. Do you work with him much?”

  “Yeah, we work closely together. I’ve traveled with him to a lot of different countries.”

  “Do you want to know why Jack Ma is so successful today?” he asked.

  Hmm. I wasn’t sure I wanted to know where the guy was heading, but I let him go on.

  “It’s because he’s lucky. He was at the right place at the right time.”

  Having seen all of the hard work that Jack and his team had put into building Alibaba, I tried to resist getting defensive. If building China’s largest e-commerce company was just a matter of being at the right place at the right time, I thought, why didn’t 1.3 billion other people in China see and grab the same opportunity when the Internet came to China? And if the driver and Jack were classmates in the same city, wouldn’t the driver have been at the right place at the right time as well?

  But I kept mum, because I didn’t see any point in debating him. Yes, Jack had been in the right place at the right time. But on paper millions of other people were more qualified to start an e-commerce business than a schoolteacher from Hangzhou who twice failed his college entrance exams. Yet Jack was the only one who seized the moment. He was the right person at the right place at the right time.

  So why Jack? What made him different? What motivated him? In many ways the answer lies in his life before Alibaba, a story I heard in bits and pieces over the years.

  Jack was born on September 10, 1964, just two years before Mao’s Cultural Revolution. Jack’s early years were no doubt shaped by the political turmoil that marked the period from 1966 to 1976, a time when intellectuals, artists, and capitalists were tormented by round after round of class warfare. As the grandson of a landlord and son of a performer of Pingtan—a traditional folk art combining music with storytelling—Jack was on the wrong side of history in the eyes of the Communists. This led to Jack’s being bullied by classmates, and his frequent fights got him into trouble at his school and with his parents.

  Perhaps as an escape Jack spent his free time absorbed in martial arts novels. He started with the Chinese classics and then moved on to the contemporary writer Louis Cha, whose popular wuxia (martial arts and chivalry) novels told tales of noble warriors defending the common people and underdogs using their wits—rather tha
n brute strength—to defeat more powerful opponents.

  The martial arts stories may have helped Jack overcome the first thing anyone ever notices about him—his appearance. Alternately described as elfish and impish by the media, Jack’s diminutive figure brought him unwanted attention and ridicule. Even within his own family he was sometimes teased as being the runt. When introducing his three kids, his dad was known to joke, “And this one we found in the garbage.”

  You’d think being teased about his appearance and bullied by peers would destroy a young person’s confidence. But in Jack’s case it somehow gave him strength. As China opened after Mao’s death, foreigners began to trickle into Jack’s home town of Hangzhou to visit West Lake. When Jack’s middle school geography teacher told him that she’d seen foreigners near the lake, Jack became curious and went down to see for himself. He soon made a daily habit of pedaling his bicycle to the lake to befriend foreign tourists and practice English with them.

  Jack developed a relationship with one Australian family in particular with whom he bonded over a game of Frisbee. They remained pen pals for many years. Through his relationship with the Australian family, Jack first traveled out of China, which he said “showed me that everything I had learned about the outside world in my Chinese textbooks was wrong.” The family became such a strong influence on Jack that he described the family’s father as “like a father to me.”

  Jack’s many friendships with foreigners improved his English well beyond his contemporaries’ in Hangzhou while also opening his mind to international thinking. So he was a natural candidate to become an English teacher. Despite failing his college entrance exams twice because of his struggles with math, Jack finally entered the Hangzhou Normal University, a teachers’ college, where he was elected president of his class.

  After graduation he began work as an English teacher at a local university, where he made $12 per month. Most Chinese teachers required rote learning from textbooks, but Jack taught extemporaneously, straying from the texts and relying on storytelling and humor to engage his students. He incorporated in his lessons a bit of showmanship learned from his performer father, and Jack became a favorite teacher on campus.