Jack Ma, CEO of Alibaba, which uses the Internet to link Chinese producers with purchasers worldwide.
Improbable saga of China's new Internet king
HANGZHOU, China Everything you hear about Jack Ma is improbable. But today, he looks like one of China's smartest high-tech entrepreneurs.
Yahoo's far-reaching deal with him has turned his company, Alibaba.com, into the largest online operation in China, where Internet use is growing at an explosive pace.
At a time Microsoft, Google and eBay are all seeking to expand their operations in China, Yahoo agreed last week to the largest Internet investment ever made here when it bet $1.7 billion on the future of Alibaba.com and its founder, Ma.
Jack Ma is only 40, and he started out teaching English. But he is now called the "grandfather of the Internet in China," even though he claims not to know much more about computers than how to send and receive e-mail messages.
His admirers and detractors both call him a clever salesman and savvy marketer who knows how to attract foreign money. But few expected him to pull off a deal that now values his company at more than $4 billion. Yahoo said on Thursday that it would invest $1 billion in the privately held Alibaba.com, which operates not only its namesake, a business-to-business auction site that mostly purveys Chinese goods to a worldwide market, but also the consumer auction site Taobao.com, a strong rival here to eBay.
In exchange for a 40 percent stake in Alibaba, Yahoo also agreed to hand over control of its Yahoo China operations, valued at $700 million, putting great confidence in Ma and his management team.
Some bankers say it was a brilliant stroke by Ma, playing off eBay against Yahoo. The two had pursued Alibaba in recent months, according to bankers involved in the Yahoo deal.
Over the years, Ma has surprised doubters again and again.
"He's a visionary," says Mark Su, who works in San Francisco for the venture capital firm H&Q Asia Pacific. "He's been there at the forefront of a lot of trends in the Internet."
Ma has a penchant for clever puns, gimmicky marketing and brash talk. He does not hesitate to declare that his company will crush competitors like eBay.
His critics have fought back by suggesting that Alibaba, which had about $46 million in revenue last year, is more marketing pizazz than substance. "It looks like vapor," said Merle Hinrichs, chairman of Global Sources, a Hong Kong-based competitor to Alibaba in the business-to-business market. "Their numbers from our perspective are exaggerated."
Regardless, Ma is now one of China's most powerful chief executives. And he did not need an initial public offering to accomplish that.
He has in turn persuaded Goldman Sachs, Softbank and now Yahoo to finance his company, helping transform it into a diversified conglomerate that offers e-mail, searching and electronic payment services along with auctions.
At Alibaba's headquarters here in Hangzhou, two hours south of Shanghai, Ma spoke in fluent English about how he had managed to win over Westerners, including Yahoo.
"A lot of people don't understand Alibaba," he said. "In the U.S., B-to-B companies died because they focused on big companies. We're focusing on small and medium-size companies. We're helping them make money."
Ma, who learned English as a youngster by listening to Voice of America here, taught at Hangzhou Teachers Institute for five years. But even then, he had an entrepreneurial impulse, founding a translation agency.
Next came the Internet. "It's a Hollywood story why I went into the Internet," he said, laughing.
As Ma tells it, he traveled to Los Angeles in 1995 to help a Chinese company recover money owed by a joint-venture partner but found that the partner had no intention of paying. The man, he said, displayed a gun and locked Ma in his house for two days. Ma talked his way out of the situation by agreeing to become the man's Chinese partner, promising to start an Internet company.
"It was a terrible experience," he said. "Every time I think of L.A., I have a nightmare."
With no idea how the Internet worked, Ma said, he flew to Seattle, where he told friends about his ordeal and they showed him the World Wide Web. He typed the words "beer" and "China" into Yahoo's search engine, and when nothing came back, he hit upon the idea of creating Web sites for Chinese companies.
When he returned home, he quit his teaching post, borrowed $2,000 and started China Pages, one of the nation's first Internet companies.
He began creating home pages for Chinese companies with the help of friends in the United States. "The day we got connected to the Web, I invited friends and TV people over to my house," and on a very slow dial-up connection, "we waited three and a half hours and got half a page," he recalled.
"We drank, watched TV and played cards, waiting. But I was so proud. I proved the Internet existed."
He then worked briefly in Beijing for the Ministry of Foreign Investment and Trade in a for-profit electronic-commerce venture. It was there that he made his first contact with Yahoo, when he gave a co-founder, Jerry Yang, a tour of the Great Wall in 1998, and the two became friends.
A year later, he went back to Hangzhou. At a meeting with friends in his apartment in February 1999, Ma said, he formed Alibaba. "That day I talked like a crazy man," he recalled jokingly. "Then I said, 'Put your money on the table.' We had $60,000. That was our first round of financing."
Six months later, Goldman Sachs and a group of venture capital firms invested $5 million in Alibaba. Soon after, Masayoshi Son, founder of Softbank, was at the door. "It was love at first sight," Ma said. Softbank, which initially invested $20 million, became one of its biggest backers.
When the Internet bubble burst in 2000 and 2001, the company was forced to pare its operations. It also suffered through the SARS epidemic in 2003, with quarantined employees working on their computers from home.
In 2003, around the same time that eBay acquired Eachnet.com, China's largest online auction house, Ma and Softbank found another way to jump-start interest in Alibaba: they created Taobao.com to go head to head with eBay in China.
The two auction houses have since competed fiercely, with Taobao eating into some of eBay's customer base with its no-fee service, an unprofitable effort that Alibaba hopes will eventually win enough customer support to turn into a fee-paying service. Some competitors and critics question whether Alibaba is generating profit.
"That's nonsense," said Joseph Tsai, the chief financial officer, calling the company "totally profitable." Alibaba's business-to-business operations generated $25 million of free cash flow last year, he said, "and this year we're going to be generating a lot more than that."
But even Ma acknowledged that Alibaba, searching for more traffic, needed a big partner.
He said he began seeing the importance that a search engine could play for auction deals. In May, he met Yang at a conference in Pebble Beach, California, and the two agreed to team up on something. That talk evolved into the Yahoo-Alibaba deal.
"The great challenge for a CEO is saying no to opportunities," Ma said. "But you don't say no to Yahoo."
Softbank, which has a stake in Yahoo as well as Alibaba and helped finance the start-up of Taobao, made a huge profit on the Yahoo deal but still plowed some of that back into Alibaba, according to several bankers and lawyers, coming away with a 30 percent stake in the company.
But analysts are already questioning the deal.
"The challenge which Alibaba now faces is whether it can manage a good business in so many different sectors," said Lu Benfu, an Internet analyst at the Chinese Academy of Social Sciences.
Ma's answer is that he has the focus and the foresight to make things happen. When eBay promised to invest hundreds of millions in China in the coming years, Ma said, he saw an opportunity to strike a deal with Yahoo and shift the game.
Now, posing for photographs in his office, Ma is standing before the smiling Alibaba logo he designed. And his grin is wide.
"Thank you, eBay," he joked. But he is not altogether kidding when he adds, "You made all of this possible."
- International Herald Tribune, 16 Aug 2005.
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