Synopsis/Summary/Review of Alibaba - The Inside Story Behind Jack Ma and the creation of the World's Biggest Online Marketplace

Chapter 2

Darkest Before Dawn
Ma himself says that he started the business because he wanted to be a better teacher. Ma realized that there was a need for translation when friends kept coming to him, asking him to translate things. To shore up income, Ma personally went out on the street to peddle things, anything by which he could turn a profit. Ma was generally considered a fool at the time. He himself acknowledges that he learned from his many mistakes. He did accomplish two things: he kept alive a translation house that provided a useful service, and he successfully organized Hangzhou’s first English Corner, a place to congregate for practicing the language. Today, Haibo is Hangzhou’s largest translation house. Its services have been indispensable in the foreign-trade component of the company Alibaba.

Ma Goes to America
Ma’s first contact with the Internet was during his initial month long trip to the United States in 1995. The Hangzhou municipal government was in the process of building a highway between Hangzhou, in Zhejiang Province, and Fuyang, in Anhui Province. An American investor had been talking to transportation department authorities, negotiating a deal, but talks had stalled and no money had appeared. Both sides felt that there must be problems in communication, and Hangzhou authorities thought of the excellent English-language capabilities of Jack Ma. Ma was chosen to serve as both interpreter and mediator in the business talks.

First Personal Contact with the Internet
Jack Ma’s  plan was to be a professor of the English language. After 1995, it was to go out in the world and meet up with the Internet. Ma took a plane from Los Angeles to Seattle instead of going straight back to Hangzhou. He went in search of a small Internet service provider (ISP) named VBN. As Ma remembers it, the VBN people asked him what he wanted to look up on the Internet. He looked for other things Chinese—but “no data.” This interested him. He began to develop his idea of starting a company in China that was specifically related to the Internet and to things Chinese. Ma remembers distinctly that the Haibo page was finished at 9:30 a.m. He had a sense that the Internet would be changing the world, and he wanted to be in on it.

The Haibo Network
In China, there was no way to dial up and reach the Internet from Hangzhou, and it was hard from most other places. Beijing had started a connection from the Academy of Sciences, but information was strictly controlled. From the small beginning, the China Yellow Pages became one of China’s earliest Internet companies.

The “Trickster” and His Yellow Pages
Ma was regarded as a kind of trickster as he went around to businesses trying to get them to spend money promoting themselves on the Internet. He went out every day to sell his Yellow Pages, to get people to agree to be advertised on the Internet. By August 1995, China Telecom started an Internet service in Shanghai. Ma followed up with a Yellow Pages there too.China Yellow Pages began to make money. Soon it was set up in twenty-seven cities throughout China. Ma would initially be regarded as a swindler by people in any city that had no direct access to the Internet, but he kept at it.

Going to Beijing
As the Internet developed in China, Jack Ma found that competition was quickly entering the business. Several major competing Internet initiatives were launched just as his own China Yellow Pages was finally reaching respectable levels of income. Ma looked on all these developments with great interest, then decided to enter the major leagues by taking his company to Beijing. Shanghai had opened a dedicated line for the Internet in July 1995.

Media Promotion
Jack Ma returned to Hangzhou. In December, he resumed his “attack” on Beijing by attempting to mobilize a media campaign. He and his sales director took various materials up to Beijing and began asking friends and acquaintances to help spread the word. The experience proved to be an exhilarating success. Ma had never seen so many journalists in one place together at one time. He spoke for two hours and the journalists, though barely understanding, were wildly enthusiastic. They responded with a promise to publicize his company.

Getting the People’s Daily on the Internet
Based on the lucky chance, Ma was able to lecture twice at the People’s Daily. He spoke of how China was a latecomer to the Internet, the last train in the station. He spoke of how the best defense was an offense, that China had better get itself prepared. By the end, he was exhausted, not so much worried he had failed as because he had whipped himself up so much in the course of the speech. Ma had been successful in getting the People’s Daily on the Internet and he had done it within six months of first trying.

Failure, Success, and the China Yellow Pages
In order to save his China Yellow Pages from certain death, Ma decided to “draw close to a large mountain,” as the saying goes in Chinese. Everyone knows that when you are attacked, it is best to have a large presence right behind you. Ma decided to work together with Hangzhou Telecom. The year 1997 marked Ma’s first failure in business. To this day there are many rumors about why he left the company. The most likely reason is his strong sense of individuality and individual achievement.

“Let’s Go Home Together”
In the fourteen months that Ma had worked with this team in Beijing, he had never gone on an outing to the countryside with them. They worked all the time. He decided that before leaving the north, they should make an excursion to the Great Wall. The departure from Beijing was in 1999, and it marked the second time that Jack Ma had encountered what he considered a failure. Never one to look backward, he moved on. On the very day that another well-known Internet founder, Ding Lei, brought his company, NetEase, north to Beijing, Jack Ma moved his company and his team south to Hangzhou.

Setbacks
His experience with the China Yellow Pages and his departure from Hangzhou Telecom made him realize that if you want to make money on the Internet, you have to be very concrete.Fourteen months in Beijing had given him a sense of China’s macroeconomic policy. Working at this level, at the forefront of the Internet in China, had also allowed him to evaluate the coming wave of the Internet throughout China. He saw that the challenges ahead included, most of all, how to restrain himself and stick to a plan. Jack Ma had been through sufficient ups and downs to look further ahead and see where the next wave would be coming from, how to ride it, how to see the direction of the Internet’s greatest potential and hold on long enough to realize it.

Chapter 3

Two Small Enlightenments
The first of the two satoris that contributed to the dream came before Ma left Beijing, on the day he and his team scaled the Great Wall. In places, the wall has been defaced by graffiti—names and dates carved into the stone. Ma felt that carving one’s name into an ancient cultural monument was a despicable practice, but at the same time it made him wonder why people felt they had to do it. The satori came in recognizing that graffiti on the wall was an embryonic form of bulletin board systems, or BBS, on the Internet. The second satori came in February 1999, when Ma attended an e-commerce conference held in Singapore. In February 1999, Alibaba began its life quietly in the small residential area of Lakeside Garden, Hangzhou.

Alibaba Is Born
During the preparatory period of Alibaba, the usually strident Jack Ma was as silent as a rabbit. He kept his edge hidden. Soft, quiet, he disappeared from public view. He worked all day and night from his home, in rooms that sometimes had as many as thirty-five people working together. Resources were limited, but nobody cared. Neighbors probably thought the hours of these young people somewhat strange, but they waited and watched to see what the result might be. In March 1999, the Alibaba Web site was officially released. He knew that the company would eventually be international, and that it should have a name that was resonant in all languages and could be understood over the world.

Being Coy: Attracting the Media with Silence
In May 1999, a Hangzhou publication put out an article called “Alibaba Refuses Visitors, While Wanting to Be a Global Trade Marketplace.” This coy attitude only whetted the appetite of the press. Soon overseas media began to show interest as well. The first to come to Hangzhou was the magazine BusinessWeek. Soon Alibaba’s—and Jack Ma’s—reputation was growing by the day in Europe and America. The hit rate from overseas began to increase, and the number of members in what was called the Alibaba Club at that time rose explosively.

Financing
In opening up the virgin territory of e-commerce, the fact that one needed both a market and also capital was brutally apparent: only by occupying a market and also having sufficient funding could Ma and Alibaba hope to succeed. By the end of 1999, money had become the company’s greatest problem. By July 1999, Alibaba’s strained circumstances were already forcing Ma to “borrow” by deducting money from employee salaries.

No Begging
Soon Ma was faced with an army of venture capitalists. Although in need of funding, he claims he was not seduced by their money. Most of them were domestic companies or individuals, wanting terms that he considered extortionist. He needed non-financial elements, such as access to overseas resources, as much as he needed raw funds. Because of this, it is said that Jack Ma turned away thirty-eight potential investors in the early years. Money continued to be scarce. The hard days were not altogether a bad thing, though, for Ma believes it helped in forming a kind of corporate culture, a consciousness of “who we are,” and a sense of values that kept the company intact as a team after Alibaba had become powerful.

Angel Funding from Goldman Sachs
The superheated atmosphere of the Chinese Internet in 1999 attracted the attention of many international investment banks and venture capital companies. They invested serious amounts of money in the Chinese Internet market. Goldman Sachs had previously looked only at traditional industries in China and had little experience in high-tech investing there, so Cai did not harbor great hopes. As a result of Lin’s recommendation, however, Goldman Sachs sent a man to Alibaba to look it over. As lead investor in a group of investment banks, Goldman invested $5 million in Alibaba in October 1999.

Masayoshi Son Takes a Liking to Alibaba
Masayoshi Son is of Korean cultural heritage but was born and raised in Japan. It is said that his family originally came to Korea from China and that his genealogy from generations past includes high officials in China’s diplomatic service. He even patented a device that eventually sold to Sharp Electronics for $1 million. With this investment, he imported video arcade games to Berkeley and placed them around the campus, which generated excellent cash flow.

Ma sent an e-mail to Son. “I hope to join hands with Mr. Masayoshi Son and enter the Internet together . . . [but] if our cooperation was not meant to be, then we should still be good friends.” Jack Ma received a response from Son. “Thank you for giving me a business opportunity. We will definitely help to put Alibaba’s name out in the world, help it become an Internet site on the level of Yahoo!” Son agreed to Ma’s suggestion: a Softbank investment of $20 million, with Alibaba’s management team still holding a controlling number of shares.

The Largest Private Offering in the History of China’s Internet
By 2004 Alibaba was considered to be the world’s largest B2B e-commerce Web site. On February 17, 2004, Alibaba announced in Beijing that it would be raising the large sum of $82 million in strategic investment. This was the largest private offering up to that time in the history of China’s Internet. By December 27, 2001, the number of members in Alibaba’s China Supplier Club had topped one million, making Alibaba the largest B2B Web site in the world in terms of membership. This was a critical moment for Jack Ma, for it began to lend credence to his idea that B2B e-commerce could indeed be profitable.

TrustPass
The company now undertook an initiative called TrustPass in order to facilitate its expanded vision. A way for businesses to rank the trustworthiness of partners, the TrustPass service authenticates and verifies documentation on an enterprise; it requires registration and various types of vetting. This service was marked by a little symbol that first appeared on the Alibaba Web site in March 2002. The TrustPass certificate was an important step in publicizing the value-added services provided by Alibaba.

A New Age of E-Commerce: Net Business
Jack Ma has long believed the Internet is transitioning from being an information gathering and social networking tool to becoming first and foremost a venue for online business. This has vindicated Jack Ma’s belief not only that the Internet is a viable tool for business but also that focusing on the small suppliers that make up 85 percent of business is a profitable business model. It has furthermore reinforced his belief that the Internet in general is moving into a new era. The use of Internet has changed over the years in China, with the predominant users of the Internet being classified first as “Net people,” then “Net friends,” and finally now “Net business.”

Hangzhou’s Role
Two trends had become evident over the years since the first e-commerce conference in 1999. One was the dominance of the city of Hangzhou in China’s information industries. Hangzhou is at the forefront of e-commerce and is recognized by many to be the Silicon Valley of China. It lies at the center of the core region of entrepreneurial activity in Zhejiang and is already known as the “capital of Chinese e-commerce.” A second trend was seen in the depth of the “China shockwave,” the degree to which China has become the primary supplier to the world. That wave has owed a certain amount to the use of e-commerce and the ability of China’s small companies to access world markets directly.

Alibaba’s Goals
Up to now, Alibaba has consistently been able to achieve the goals set by its founder. Under Ma’s constant pressure and his motivational management, Alibaba’s goals have been met. Ma had always felt strongly that Alibaba should be thoroughly Chinese, that in the end it would prove to the world that a Chinese company could be a premier multinational in the IT world. In order to attract global human talent, he set up a technology base in America and a branch in London, and then began the arduous process of finding global buyers by making himself into a kind of global sales machine.

The Astronaut
Ma’s efforts led to an explosive rise in club membership back in China, and revenues of Alibaba quickly rose. Such publications as Forbes and Fortune took note of Alibaba, and the company began to gain traction as a respectable enterprise. Ma recognized that the company had to be international at the same time it developed inside China. Ma held on to the dream that one day e-commerce would be a reigning reality, saving costs and allowing global effficiencies in use of resources. He believed that Alibaba would become a common asset to the world.