Alibaba by Duncan Clark (Key Points)

October 25, 2017

The book gave colour to a poor man's son who desperately sought to build a future in China. Here are my favorite parts:

  • Jack Ma fell in love with literature and wanted to learn and improve his english. Since the age of 14 in late 1978 when China launched the "open door" policy, he would wake up early before dawn and cycle 40 minutes to the Hanzhou hotel to practice his english with foreign tourists (giving them a free tour of West Lake "Xihu"). His name Jack was given by an American tourist.
  • In 1980, Jack met an Australian family (the Morleys) which was touring Hangzhou that changed his life. Ken Morley, a recently retired electrical engineer, became Jack's pen pal and writing buddy who sent back his letters with english edits to help him improve.
  • He failed the university entrance examinations (gaokao) multiple times due to his weakness in Mathematics. He became a regular at Zhejiang University to memorise Maths formulas and scored 89 on gaokao. He finally made it into Hangzhou Teachers College in 1984 studying a Bachelors in English.
  • College was free but live-in expenses were not. However they were beyond the means of Jack's family. The Morleys gave him $120-250 check every 6 months.
  • Jack graduated in 1988 and took a job as a lecturer in English and international trade at the Hangzhou Institue of Electronic Engineering
  • The Morleys gave Jack and his wife 22,000 AUD (about USD$18,000) to help finance their house.
  • He resolved to start his own business at age 30. In January 1994, at 29 years old he started Hangzhou Haibo Translation Agency (Hope Translation). He rallied the retired teachers at his institute he taught.
  • He became famous for English and in 1994 was given a translator role to help negotiate a contract for the construction of a highway with a USA partner. It turns out the USA partner was not what they were to be and the story goes unclear here - the negotiations failed... but Jack manages to go from Los Angeles to Seattle and find a company set up by a teacher-colleague's son-in-law, Stuart Trusty known as Virtual Broadcast Network (VBN). They tested setting up a webpage for Hope Translation, in 3 hours he got 5 emails (3 from USA, 1 form Japan, 1 from Germany). They ended up makingĀ  partnership dealing to grant Jack the exclusive right to make web pages in China (China Pages)
  • Soon after this he then quit as a teacher, he had worked as a teacher for 6 years.
  • He had tremendous work ethic and populated the first version of the site by translating a large number of companies himself.
  • He then got a group of his smartest students and people he knew and asked them what they thought of his idea (23 said it won't work, 1 guy said if it doesn't work out, come back to him - he might still offer him a job.
  • He started ChinaPages.com but was swallowed by additional board members who joined after a joint-venture
  • He then joined a job to promote China through foreign investment. He had the chance to meet Jerry Yang, Yahoo's co-founder here.
  • The full force of the euphoria of the dot com mania started kicking in when Chinadotcom, a company led by Peter Yip, a deal maker from Hong Kong, raised $400MM in a second offering of IPO which led the company to a valuation at $5Bn! And the China.com only had $4MM in revenues of which it had lost $9MM. Crazy times.
  • So Jack managed to raised $5MM through Goldman Sachs's Shirely Lin to start Alibaba and another $20MM through Softbank with a post-money valuation at $60MM in October 1999
  • When the dotcom bubble burst, Jack was very happy as it is a very healthy market since most competitors will have to close their doors - they had only spent $5MM of the $25MM so they have "plenty of gas left"
  • In the dotcom period, Jack would cup his hands in front of his face and say, "I can see the light at the end of the tunnel"
  • Savio Kwan was brought in as COO to "ground Alibaba in reality and make it into a business"
  • They began cutting expenses overseas and hire more cost-effective talent in Hangzhou
  • This was dark time for the company. Jack even considered quiting so that he could return to teaching before he turned to forty
  • Jack later referred to ther period of 2001 and 2002 in his pep-talks as the following - "At that time, my slogan was 'Be the last man standing' Be the last person to fall down. Even on my knees, I had to be the last man collapsing. I also believed firmly that if I had difficulties, there must be someone who had worse difficulties; If I had a hard time, my opponents had an even harder time. Those who can stand and manage will win eventually."
  • Jack Ma "There are one hundred million Internet users today but only 5 million are doing online shopping... eBay wants to buy the Chinese market, but we want to create China's Internet trading market"
  • Jack went ot Tokyo at the end of 2002 and had Softbank to commit $80MM to Taobao. Masayoshi Son was in a great mood as Yahoo Japan managed to repell Yahoo from its shores.
  • Ebay had managerial issues with clashing cultures. Alibaba had an all local team.
  • Ebay moved server hosting to US but this means poorer service as the China firewall would come into play. To make matters worse, Ebay was never a tech tech company. Alibaba instead included new features such as live chat to haggle prices.
  • In five months of the launch of Taobao, they launch Alipay which was an escrow service mainly operated manually from fax to confirm that clients had wired the money to Alibaba's bank account. Ebay's Paypal was going through a lawsuit and took time to cover ground.
  • Ebay eventually managed to get Paypal in the picture and Meg Whitman announced an additional $100MM into the China operations. Jack Ma responded with the following "If you use money to solve problems, why on earth would the world need businessmen anymore. Businessmen understand how to use the smallest resources to expand."
  • Yahoo then funded Alibaba with $1Bn which is quite a big move considering the balance sheet of Yahoo was $3Bn at that point. But the main reason the management of Yahoo had sufficient comfort was "but if you met Jack, and having got to know him and seeing what his vision was, you certainly thought it was worth it. And he really had an inside track on being very dominance commerce platform in China..." (according to Jerry)
  • "The $1Bn was enough to scare off eBay" (according to Jack) - This deals brought the much-needed experience in M&A which would then become important in the future
  • Then the 2008 GFC crisis hit and Jack was still intensely focused on creating community experience rather than marketplace transactions. He cut the price of Gold membership for Alibaba by 60% but revenues did not drop as customer volume growth offset the price drop completely. (Luxury good???)
  • After the GFC, Alibaba did not increase price but added more value-added services.
  • The VIE investment structure and the formation of a new entity that is 80% owned by Jack Ma to operated Alipay became a big controversial issue that challenges the relationship between Jack, Yahoo and Softbank
  • Alibaba has IPOed and faces many challenges ahead but one cannot deny the remarkable story of a poor boy who wanted to learn english