Alibaba : the Inside Story Behind Jack Ma and the Creation of the World's
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alibaba The Inside Story Behind Jack Ma and the Creation of the World’s Biggest Online Marketplace Liu Shiying and Martha Avery Contents Introduction Martial Arts Moves . vii Chapter One Put Up Your Fists!................................. 1 Chapter Two Darkest Before Dawn ..............................15 Chapter Three Two Small Enlightenments ..........................45 iv Chapter Four Management ....................................85 Photographic Insert Chapter Five ..................................... Taobao: A New Weapon in Jack Ma’s Arsenal............117 Chapter Six Alipay: A New Milestone in E-Commerce ...............137 Chapter Seven How Can You Catch a Tiger if You Don’t Go into His Lair? ...147 Chapter Eight How Can You See the Rainbow if You Don’t Go Out in the Rain? ....................................167 Chapter Nine The Personal Life and Thoughts of Jack Ma .............177 Chapter Ten Keep It Up! Reorganization and IPO ..................191 Appendices: 1. Jack Ma’s Personal Chronology (with Key Events in China’s Recent History) ..........199 2. Alibaba Chronology ............................202 3. Glossary of Names.............................209 4. Glossary of Terms .............................214 Index .........................................219 About the Authors Credits Cover Copyright About the Publisher introduction Martial Arts Moves libaba was founded by a man named Jack Ma in 1999, in AHangzhou, China. This is the story of how he leveraged his initial capital of $60,000 into a company valuation of billions of U.S. dollars in less than ten years. More than that, it is the story of an unlikely hero—short, scrawny, unaristocratic, and poorly educated—who saw an opportunity, a dream, and scrambled to make it real. On November 6, 2007, Alibaba.com approached the pub- lic for funding: it issued shares on the Hong Kong stock market in an IPO, or initial public offering. The listing was to receive $1.5 billion at the offering price of HKD (Hong Kong dollars) viii 13.50 ($1.74). The share amount represented 17 percent of the total value of one part of the company, since only 17 percent of Alibaba.com shares were allocated to the public listing. The total valuation of Alibaba.com stood at $10 billion at the offer price, but on the day shares were issued, they rose to HKD 39.50, put- ting the valuation of the company at nearly $26 billion. Jack Ma failed the college entrance examination in China twice; he barely passed on the third try. He believes that if he has been able to succeed, most people can do the same. But not everybody has set out to restructure the way business is done around the world by creating a new model for use of the Internet. By systematically putting together the elements of a new model, what he calls an “ecosystem,” Jack Ma started a global movement from a small corner of China. He enabled millions of small com- panies to use the Internet as a primary business tool, to a degree allowing Internet functions inside China to evolve beyond what they are in the West. Through use of this tool, he has effectively leveraged China’s ability to trade; over the past several years, this has changed the weighting of China on the world’s stage. Despite Jack Ma’s “anyone can do it” claim, the fact remains that not just anyone did. The following chapters address the ques- tion of what he did that was different. They describe the story of a scrappy child in southern China who embarrassed his parents by fighting and by failing, who had no educational background in IT industries or business, and whose management style leans heavily on stories of historical outlaw heroes from China’s past. Martial arts devotees will enjoy much of what Jack Ma feels is the secret to success. Almost everything about Jack Ma is counterintuitive—he looks at the world from a unique perspective. His greatest delight is using small to conquer big, quick to conquer slow, and intui- tive insight to conquer conventional wisdom. The abstractions by which he formulates strategic plans are based on the moves of Martial Arts Moves ix martial arts more than mathematical equations, and the mental discipline behind those moves informs his every thought. In Jack Ma, we are looking at the incarnation of a traditional martial arts master. Alibaba.com is only one of the network of companies under the Alibaba umbrella. Others include an online payment service called Alipay, the largest online payment platform in China, and an online consumer marketplace called Taobao, which has all but chased eBay out of China. They include a software development company called Alisoft, which creates business software that “lives” on the Net. All of these lie within the embrace of the Ali family and are ultimately controlled by Ali management and employees. Key investors in the network include Softbank in Japan and Ya- hoo! in the United States. The founders of those companies have been keys to Jack Ma’s vision of creating a global company—but one that is owned by and managed by Chinese nationals. In reading Jack Ma’s story and the story of Alibaba, it is useful to place the company in the context of global Internet business. Up until the end of 1995, China officially forbade any news about the Internet in Chinese media. By 1997, however, this policy was overturned, and the steep curve of Internet use in China had begun. Today, there are more than 230 million Internet users in the country, according to the government-backed China Internet Network Information Center (CNNIC). China has more Inter- net users than any other country, including the United States, which it surpassed in early 2008. More than one-half of China’s users, more than 163 million, are connected via broadband, due to the remarkable fiber backbone that the Chinese government has funded throughout the country. China’s telecom growth has also been driven by the expansion of mobile telephony, which contributes to wireless Internet access as well. While China has one of the most sophisticated Internet filtering technologies in the world to censor information, the x decentralization of information technologies and their creative use for nonpolitical purposes ensure the Chinese people rapid entry into a digital age. Jack Ma’s recognition of the potential for the technology allowed him to develop a model that was self- sustaining and economically viable. It focuses on ways informa- tion technology can make small companies more competitive and profitable. Since four-fifths of business in China is done by some thirty-two million small companies, the leveraging effects are substantial. Jack Ma’s model is discussed in this book, but perhaps his biggest lesson for the world is his approach to innovation and implementing innovative ideas. chapter 1 Put Up Your Fists! here are two sides to every fight, and both invariably get Thurt in a battle. Jack Ma does not understand this conventional wisdom, for he loves a good fight. The tougher the fight, the more he enjoys it, and the harder the work, the happier he becomes. The logic may seem strange to some, but Ma has followed this approach since he was a boy. Jack Ma was born on September 10, 1964, into a family that lived on the shores of West Lake in Hangzhou. Ma legend has it that his family was common and ordinary, but ordinary families do not live on the shores of West Lake. Ma’s mother and father spent their lives as professional performers of ping tan, a traditional 2 style of storytelling and ballad singing performed in Suzhou, in southern China. As a result of this background, Ma grew up speaking the Suzhou dialect with his parents, and he has strong attachment to the city and the traditions of that historic place. Suzhou has two kinds of people, as the saying goes: one kind loves to talk, and the other loves to listen. One does not have to look far into Ma’s background to find the roots of his astonishing ability to extemporize onstage and his ability to inspire high perfor- mance through his speeches. From childhood, Ma watched and absorbed the training of professional performers, especially his parents. His own performance style may be attributed to that early exposure: Ma uses simple and direct language to explain precisely what he means. He wastes no words—and he gets to the point. Nonetheless, Ma was not the kind of child who liked to talk much or have anything to do with achievement. Like many boys his age, he was regarded as a rebel: stubborn, naughty, incorrigible, the kind of boy who had to be disciplined repeatedly, but even that discipline did not change him. Much of this striking out against others may have had to do with his status as a social out- cast. The Cultural Revolution in China began shortly after Ma was born, and he grew up in an environment of extreme social tension. The family was on the wrong side of political correct- ness: Ma’s grandfather had been affiliated with the Kuomintang (KMT), the side that lost in China’s Communist-vs.-KMT civil war. Ma was therefore the child of a family that, legally and mor- ally, was regarded as beneath the concern of society. The family was classified as belonging to the “five blacks,” meaning the five categories of people who had earned the ha- tred of the masses. These groups included landlords, rich peas- ants, counterrevolutionaries, evildoers, and rightists, all of whom could be loosely summarized as people on the wrong side of the Put Up Your Fists! 3 political spectrum. Methods of persecution against the five blacks included beating and torture. Perhaps to mute a kind of rage against the world in which he found himself, Ma immersed himself in the lore and romanticism of martial arts novels.