Synopsis/Summary/Review of Alibaba - The Inside Story Behind Jack Ma and the creation of the World's Biggest Online Marketplace
Chapter 4
Management
Ma soon began to feel that he was losing control. His employees directly under him were world-class professionals, but each felt that his management decisions were correct. To compound the problems, Ma had based Alibaba’s English language Web site in Silicon Valley. Only after this move did he discover that Silicon Valley’s employees were all “techies,” whereas what the Web site really needed was people who understood business. At the same time, Ma narrowed the focus of the company to its original goals and purposes.
SARS
Severe acute respiratory syndrome (SARS) is a highly contagious form of pneumonia. In the spring of 2003, this disease became a scare that swept throughout China. Few who lived through those days can forget them. Alibaba employees were quarantined for about eight or nine days, during which time they continued to work via computer and telephone. Alibaba came through the experience unscathed and with a sense of cohesiveness and esprit de corps that had been missing previously.
Maoist Management Practices
From 2001 to 2003, Ma promoted these Maoist management campaigns because he felt that they were effective ways to reform the company in this particular period. The first campaign, Yan’an Rectification, was intended to unify views and strengthen confidence; the second, Military and Politics University, was intended to cultivate a professional cadre of team managers. The third and final campaign was aimed at training sales people in the concepts and attitudes they should use toward customers.
Swordplay on the West Lake
One of the primary reality checks for Jack Ma in evaluating the direction of the IT industry and his own needs for funding has been a series of annual conferences called the Swordplay Conferences. The first conference convened on September 10, 2000. Ma believes that Internet enterprises have to develop a thick outer skin in order to grow and develop they have to disregard criticism and hold fast to their own mission. At the same time, they have to practice internal breathing techniques, particularly when cultivating management talent. He feels that all Internet companies have similar “internal breath” these include attracting top talent, keeping good employees, cultivating managers, and building a culture with common core values.
Second Swordplay Conference: Alibaba’s Changing Battle Array
The soft light over the West Lake in Hangzhou on October 21, 2001. Most of the previous attendees were there, plus two new ones. Louis Cha again attended, and Jack Ma again took center stage. In his opening speech, Ma emphasized the most significant quality of the Internet: change. He noted that the quality of that change itself had shifted, however, and that guerrilla tactics were now less helpful in meeting challenges; instead, he personally was building a standard army that could, as he said, “line up in a proper battle array.” In earlier years, one had to remain nimble and change fast.
Third Swordplay Conference: Giving Business Back to Business people
The third Swordplay Conference was held on November 3, 2002. Some of the old Internet masters were quietly gone, while others had taken their place. Attending were Tengxun’s CEO, Ma Huateng; the president of 3721, Zhou Hongwei; the CEO of Youcheng, Liang Jianzhang; and the president of Lianzhong, Bao Qiuqiao. The conferences were also helping define how China would participate in an Internet linked world, how the country felt about the sociopolitical impact of this empowering technology.
Fourth Swordplay Conference: Walking on Two Legs
The fourth West Lake Swordplay Conference began behind closed doors on the banks of West Lake on November 3, 2003. This year was the first time the conference had closed its sessions to the media, which piqued the curiosity of all, especially the press. Supposedly it was top-secret and yet everyone knew all about the fact that it was being held. Ma explained that many of the companies attending were in the midst of preparations to list on the stock exchange, and so it would be inconvenient for them to reveal much to the press.
Fifth Swordplay Conference: Cloud-Style Taijiquan
Jack Ma’s Chinese name is Ma Yun, which means “horse clouds.” In martial arts, cloud-style taijiquann is a form of movement that simulates the softness yet invisible power of clouds. Ma was glad to describe this movement one morning on November 4, 2004, to President Bill Clinton, who was attending a Swordplay Conference. Known for his loquaciousness, Ma appeared quite comfortable comparing himself to the master of Jin Yong’s novels. It is true that cloud-style taijiquan can serve as powerful mental training; it was also true that Ma was clearly considering when to make his move.
Alibaba’s Use of Human Resources
Ma feels that the question of whether Alibaba can realize its mission depends entirely on the overall abilities of its team. The social technology of this team is paramount, the way it is organized to work smoothly together. The first rule Ma has tried to inculcate at Alibaba is to be happy in what one is doing. Only if employees are happy can customers be happy. Only if customers are happy can the enterprise be profitable. This is another way of saying “customers first.
Using a “Happy Culture” to Attract Talent
Alibaba is considered to be a stingy company. It has assets in the hundreds of millions but puts very little money into advertising or publicity, and its employee salaries are low. One reason is that its funding initially came from venture capital and had to be conserved. Another is that Alibaba is not interested in attracting people on the basis of high promises; it wants to attract them on the basis of its corporate culture. A key part of the corporate culture that Ma tries to emphasize is a flattening of hierarchy, a lessening of the distance be-tween levels of command.
Using Charisma to Attract Talent
Charisma involves a kind of magnetic appeal, the indefinable ability of a leader to get people to do things for him. It takes charisma to make warriors charge into the breach, and also to get highly intelligent people to bow their backs to hard work for a common cause. Cai Chongxin’s entry into the company was undoubtedly evidence that there was something about Jack Ma that one could call charisma.
Mission, Values, Trustworthiness
By the year 2000, Ma and his team had determined that the mission of Alibaba was to “make it easy to do business anywhere.” All of the services, systems, and software of the company were being created in order for Alibaba to make business easy for customers. The mission of the One Hundred and Eight was to implement the dao [the Way] on behalf of heaven. No matter what happened, they were brothers in that endeavor. This reference was drawn from the historical bandit Song Jiang and his outlaw compan-ions from medieval times.
Trust
Ma has placed a strong emphasis on trust as the only effective way to do business in the long term. This trust does not mean some kind of touchy-feely faith in human nature. Quite the opposite: Ma has institutionalized trust by putting in place a series of measures for authenticating and verifying the background of any enterprise on Alibaba. He began this process in March 2002, with what he called a Trust Zone for China Suppliers. The process of supplying credit ratings and verification and authentication services allowed Alibaba to surge forward in its B2B business.
Chapter 5
Taobao: A New Weapon in Jack Ma’s Arsenal
In May 2003, a notice appeared on Alibaba’s internal Web site that seemed to warn employees about a fast-developing Web site called Taobao. In July, Alibaba announced that it was investing $12 million to create China’s biggest personal transaction site in China: Taobao. Only after this announcement did employees realize that Taobao was their very own child. Taobao started from a base of zero and in the short space of two years had become the number one online auction mart in the country. It was a gamble that could have taken Alibaba out of action: Jack Ma essentially mortgaged Alibaba in order to bring Taobao into being.
Bloodbath in the Advertising Arena
When Taobao was launched, Alibaba was therefore already fighting its way forward under the protective shield of a heavy advertising budget. The Taobao advertising strategy involved three stages. The first was to rely completely on word-of-mouth communication, which brought an early group of users into the site. These members were important in laying the foundation for the next stage in Taobao’s growth, that of the “farming villages surround the cities” strategy. The third stage came from the end of 2003 to the beginning of 2004, when Taobao was able to set up a cooperative relationship with MSN China. At the time, several other Internet companies bid more than Taobao for this alliance, but MSN chose Taobao for strategic reasons.
Taobao, Alipay, and Localization
The word in Chinese for localization uses the character for “earth,” and signifies “being of the local earth.” Only by being rooted in local circumstances in China can one hope to sweep away all obstacles, and make oneself invincible. Taobao knew the unique considerations in China and prepared for the challenge. To resolve the secure-payment-system bottleneck, Taobao developed Alipay. Just as Alibaba had incubated Taobao, so Taobao incubated Alipay.
“We Do Not Intend to Make a Profit for the Next Three Years”
Jack Ma went against this mainstream thinking with Taobao. He determined that Taobao would be a completely free service for at least its first year and would not expect any profits for its first three years. In China, as elsewhere, this was called “burning money,” and most people disapproved of the method. Only one who both saw farther down the road and had the resources to survive could play this game.
The Strategy Sounds Good; Will It Work?
In 2005 Ma began to test this idea. He led Alibaba’s buyers and sellers over to Taobao and encouraged Taobao sellers to put product on Alibaba. He was seeing if the companies could indeed break through the barrier between B2B and C2C, cross-fertilizing and thus increasing the total market. Jack Ma heard all this, and he must have smiled. He sat there biding his time, with a massive amount of cash in his back pocket. He knew that sometimes you had to be patient, but he was ready to take the gamble.
Forming Alliances: The Three Big Portals and the Three Big Auction Houses
Although Ma is independent by nature, he has never rejected the benefits of forming strategic alliances when it serves a business purpose. Ma is aware that forming an alliance is an art form: it requires matching up the synergies of appropriate partners and avoiding traps, but in this case, he had to take the risk, for others were recognizing the same logic. Since the early 2000s , the field of players has been shifting and reconfiguring: Sina allied with Yahoo! and NetEase came to an agreement with EachNet, while Sohu allied itself with Taobao.
Taobao and Sohu Link Up
On April 12, 2005, Sohu and Taobao announced that they too were forming a strategic alliance. Both enjoyed a large customer user base. They agreed to cooperate both online and off in promoting the advance of China’s Internet-based economy. Sogo, under Sohu, was one of the best-known Internet brands in China, with tens of millions of registered users and tremendous traffic; its contents and search capabilities were unique. Taobao also enjoyed superior brand recognition and premier technology.
Two Dragons Fight for the Pearl
In China, when there is talk about eBay, people generally mention Taobao in the same breath: despite their realignment, the two continue to be heated contenders for the online auction marketplace. At first, this seems to be comparing apples and oranges, for until recently Taobao has not come close to being in the same class as the global giant eBay. Any direct challenge against eBay would have been foolhardy. From today’s perspective, however, eBay seems to have been all but chased out of China, and Jack Ma can sit back and smile.
The Seemingly No-Move Move: Alibaba’s Competitive Advantage
In order to ensure that Alibaba users were satisfied, Ma brought over a new concept from the home electronics company Haier. This was called the “one piece of fabric” concept, and it was used successfully at Haier. When its servicepeople first started going into people’s homes to install an air conditioner or refrigerator, they would bring with them a piece of fabric with which they would wipe up their tracks before they left. This simple gesture of respect made people so happy that it became a very effective sales tool.
Chapter 6
Alipay: A New Milestone in E-Commerce
Alipay is currently the largest online payment platform in China and is similar in most respects to PayPal in the United States. It has more than fifty-eight million active users and over three hundred thousand merchants accepting the ser vice. It has close contractual relations with China’s largest banks. It is owned and controlled by the Alibaba Group. The company is in that new and nebulous region of Internet banking and finance that is witness to the rapid convergence of financial and information industries.
No Thieves on Earth: The Taobao Version
In 2004 and 2005, Taobao rode the wave of a popular television show in China called No Thieves on Earth. The plot involved a male thief and his female accomplice, and two pickpockets called Wang Bao and Wang Li. Jack Ma felt that the role of this Bumpkin was tailor-made for promoting Alipay. He invested some $1.2 million on a promotion campaign that linked the show’s celebrities with Alipay: ads connecting the two in people’s minds were everywhere. Taobao’s symbol was well placed in the TV show; later every prop used by actors in the show was sold at auction on Taobao.
Casting Off the Old Self Without Changing the Bones
Alipay split off from Taobao in the spring of 2005. Jack Ma had just returned from Davos, Switzerland, where he attended the World Economic Forum, held there every year. The idea of making Alipay an independent entity was implemented shortly afterward: the intent was to make it the online payment standard for the entire Chinese e-commerce industry. Ma recognized that for Alipay to become the gold standard, it had to differentiate itself and separate itself financially from Alibaba and Taobao. Otherwise, companies such as eBay-EachNet would be threatened by it and not use it. If, on the other hand, Alipay could become a generally used platform in the industry, the benefits that would bring to Alibaba in terms of business revenue would be huge.
Trade accomplished through Alipay exploded after this announcement. Cooperating with Alipay incurred costs for the banks, but Ma announced that Alibaba would be absorbing these for the time being. He had committed to three years of free service to Taobao users, “and so these intermediary fees naturally have to be borne by us.” This was an almost necessary concession.
