Alibaba.com

The Yangtze Crocodile

The tale of Ali Baba in China's New Economy

An interview with Ma Yun (Jack Ma), Founder, CEO and Chairman of Alibaba, by Jorge Nascimento Rodrigues, editor of www.gurusonline.tv, December 2005

«Wo men shi Yangzi jiang zhong de e yu» (We are crocodiles of the Yangtze)

Born as Ma Yun in 1964, it seems the young guy loved English. He grown up listening "Voice of America" and guiding tourists in the margins of the scenic Xi Hu, the west lake of Hangzhou city, 2 hours south of Shanghai, in costal Zhejiang Province. He graduated from the city Teacher's Institute in 1988 and became a lecturer in English and International trade.

He was lucky: Ma was part of the Chinese generation - today under-50 - that take-off in graduate studies and professional life in the blossom of the Reform Era of Deng Xiaoping. With the spirit of the Yangtze - the longest river in Asia, known in Chinese also as Chang Jiang, precisely the Long River -, Ma Yun (Jack Ma, for westerners), the schoolteacher, founded a translation business. Far away from today's ranking in the "10 business leaders of the year" in China. He claims that the entrepreneurial impulse comes from the spirit of the "crocodiles of the Yangtze".

He met the "Internet thing" in a bizarre way. A story at the New York Times, last August (2005), described an incredible Hollywood picture around the trip to South California of Jack Ma in 1995. He travelled to the sands of Malibu, in LA,, intending to recover a debt owed to a Chinese joint-venture by an American businessman. But the Yankee refused to pay and held him captive for two days. Ma managed to get his release by agreeing to help the bandit start an Internet company in China! He had no further connection with the guy, but once he returned to mainland, he borrowed $2,000 from relatives to found China Pages. He began designing home pages from his house in Hangzhou for Chinese companies, with the help of friends in the US. His translation company's website went up first, in the middle of drinks, TV watching and playing cards. An Internet star was born. In 1995 it was the true pioneering years of the Net in China.

For a brief period, Ma worked for the Ministry of Foreign Investment and Trade, in Beijing. It was there that he founds by chance in 1998 Jerry Yang, the Stanford student, a Taiwanese native raised in San Jose, heart of the Silicon Valley, that co-founded Yahoo!. He gave Yang a tour to the Great Wall. The two became friends, and, imagine, seven years later they become strategic partners in one of the biggest deals in the Internet market in Asia.

After a stint as head of the China International Electronic Commerce Centre's Infoshare division, he founded from home Alibaba, in 1999, after returning to Hanghzou. He partner with seven colleagues, and all of them put $60,000 over the table to begin an e-commerce business. That was the first round of financing.

Alibaba was a nice brand, inspired in the famous tale "Ali Baba and the Forty Thieves" added to The Book of One Thousand and One Nights by the French orientalist Antoine Galland in the 18th-Century: "We wanted a name that was known throughout the world, since we wanted Alibaba to be a global business. Everyone seems to know the story", told us Jack Ma. And the password "Open Sesame" is a good metaphor: "The Internet was an almost magical place where SME could find opportunities", said Jack.

From 1999 to 2004 he managed to convince international institutional investors to put more than 100 million US dollars in the company in three rounds. Only Softbank, the Japanese group, invested 20 mm USD- even today Masayoshi Son is shareholder number two.

The strategy of Jack Ma and his partners was clear - to occupy most of the value chain of the e-commerce. Alibaba has developed two B2B platforms - one in Chinese for domestic SME and another in English as a bridge for the import-export business -, one proprietary online payment system coined "AliPay" (necessary in China, where credit and debit cards are not widespread) and in 2003 launched Taobao.com (translation: Treasure hunt), a consumer to consumer auction website similar to eBay, the Californian "mother" of auctions online, that in the same year bought the Chinese company EachNet. Through those 3 portals, Alibaba attracted more than 18 million people. Alibaba was named "Best of the Web" five years in a row by the American Forbes magazine and the Far Eastern Economic Review refer the platform as the most popular B2B in Asia.

The strategic alliance with Yahoo! was the last stone. With Yahoo.com.cn, Alibaba gets the search segment of the value chain and the money invested by the American friend is pocket money for the ambition of being number one in the Orient, where the bigger e-business market of the world will develop in the next decade.

Jack Ma remains as chief executive officer and chairman of the board after Yahoo! acquired a 40% stake (35% voting rights) in Alibaba in exchange for 1 billion USD plus all of Yahoo!'s Chinese-based assets (valued at $700mm). Some critics said this was "irrational exuberance", that Yahoo! has overpaid Alibaba, one more incredible event of the Chinese Internet bubble going on. If we calculate the global potential value of Alibaba, the figure we get - more than $4 billion - means 170 x the free cash flow of last year. "But it could become a tremendous investment in the long term. This is simply because Alibaba has built some interesting and practical business model", says Zhibin Gu, a Shenzhen consultant and author. Also, you have to forecast Alibaba in a future IPO, probably in the Nasdaq.

Jack was chosen by the World Economic Forum as a "Young Global Leader".

Alibaba has international offices in Hong Kong, offices in China, US and Europe. At the end of 2005 the group will have over 3,000 employees.

You can explore Alibaba in the Web at www.alibaba.com
Media contacts: porter@alibaba-inc.com

Interview

«You can see that e-commerce is converging at a much faster rate in China than in other countries, and I think the world is learning from this. Now, we have business-to-business marketplaces, consumer marketplaces, online payment and search under one roof. You will probably see a similar convergence trend outside of China, based on what people are learning in the China market.»

What are the main consequences for the extended China market (including the Diaspora abroad) of the strategic partnership with Yahoo Inc?

Our strategic partnership with Yahoo is going to allow us to focus on building the world's best Chinese-language search engine. Although this search engine will be focused on the domestic China market, using simplified Chinese characters, the site will also be available for Chinese-speakers anywhere in the world. So while the Diaspora outside of China is not our main focus, the search technology will be available to any Chinese language searcher, which will be a great benefit to the extended China market.

Why you decided to partner with Yahoo! ?

Our main reason was to add search to Alibaba's portfolio of businesses. Search has emerged to become especially important for e-commerce. Alibaba is an e-commerce company, and search is going to play a huge part in helping entrepreneurs in China find buyers in China and around the world. And since our companies have very similar company cultures, with similar values, we felt that Yahoo represented the best partner with which to do search.

What are the main consequences for competition in the global market from your strategic movement?

You can see that e-commerce is converging at a much faster rate in China than in other countries, and I think the world is learning from this. Now, we have business-to-business marketplaces, consumer marketplaces, online payment and search under one roof. You will probably see a similar convergence trend outside of China, based on what people are learning in the China market.

Do you think the Chang Jiang/Yangtze spirit is stronger than the Silicon Valley Culture (where competitors like Google, eBay, even Yahoo Inc, were born)?

Interesting question. The Yangtze river delta is home to one of the most entrepreneurial engines in the world. Alibaba is based in Zhejiang province, where the entrepreneurial spirit has to be seen to be believed. Although entrepreneurs are in industries that are seemingly low-tech, more and more are moving into high tech. So yes- I actually think the entrepreneurial spirit in the Yangtse river delta could be much stronger than in Silicon Valley. Today the industries may be ball bearings and bicycles. In the future it may be semiconductors and biotechnology.

Can you explain better the role of your 1000 sales force? Is it a secret advantage and a differentiation from Chinese and multinational competition?

Our sales force is critical to our success. We operate one of China's largest call centres and we have 14 local sales teams throughout China. We consider ourselves more a service company than an internet company, and the sales team's first role is to provide great service to our customers.

Why an English schoolteacher decided to play the card of Internet in 1995?

I could see that the Internet was going to change the world. And I knew that it was just getting started in China. So I decided there was no better way to really make a large contribution to China than get involved in the Internet.

Do you plan an IPO at Nasdaq in the near future? Or at other stock market?

We will go public some day but only when we feel we are ready. 3-5 years is the most reasonable time frame and Nasdaq is a very likely place.