Alibaba is big. The sheer size of the Chinese e-commerce behemoth dominated headlines after the company filed plans Tuesday to offer shares in the United States, valuing itself at more than $100 billion.
But how did Alibaba get so big? And how did an English teacher barely acquainted with the Internet create what is by some measures the world’s largest e-commerce company? The answer can be summed up in four metaphors that are the favorites of Jack Ma, Alibaba’s chairman and founder.
“A blind man riding on the back of a blind tiger”
In 2008, Ma told Inc. magazine he had never even used e-mail when he launched his first online business 19 years ago, describing himself as “a blind man riding on the back of a blind tiger.” It’s a metaphor he has used many times to describe his path to success, which began how many success stories begin: with failure.
In the interview, Ma said he flunked his entrance exam twice before getting into what was considered the worst university in his city, Hangzhou Teachers University. When he graduated, he applied for a lot of jobs, but nobody wanted him. Even his application to be secretary to the general manager of a Kentucky Fried Chicken was turned down. Ma came to the United States as an interpreter for a trade delegation visiting Seattle in 1995 and saw the Internet for the very first time. When his online search for Chinese beer turned up nothing, Ma saw an opportunity. Barely acquainted with the Internet, he launched the Web site China Pages with $2,000 of borrowed cash. In 1999, Ma launched Alibaba with $60,000.
Fifteen years later it is the world’s largest online marketplace with a projected market capitalization of somewhere between $150 billion and $250 billion. Ma has since figured out e-mail, but said he still doesn’t know much else about computers.
The lesson? Don’t be intimidated by what you don’t know. And don’t let failure stop you.
“If there are nine rabbits on the ground, if you want to catch one, just focus on one.”
When he started Alibaba, Jack Ma’s goal was to connect Chinese manufacturers and wholesalers to each other through the Internet. Ma knew that cost and trust would be two obstacles to convincing potential clients to do business online, but he knew his customer.
Ma had two key insights early on, the Economist explains:
The first was that many Chinese are tight-fisted. So Alibaba made all the basic services it offers free to both buyers and sellers. It earns money through online advertisements and extra services it offers clients, such as website design …. The second is that many Chinese are reluctant to trust strangers. So Alibaba has provided tools to build trust. One is an independent verification service through which third parties vet the claims made by sellers; the sellers pay for the process. Another is the Alipay payments system. Unlike PayPal, used by many Western internet companies, Alipay takes money up front and puts it in an escrow account. Vendors can be sure that payments made through it will be honoured.
“Change your tactics if you need to, but don’t change the rabbit,” Ma said in a 2006 interview with the Hong Kong Chamber of Commerce’s Bulletin. “There are so many opportunities in that you cannot catch all of them. Get one first, put it in your pocket and then catch the others.” That is exactly what Ma did, first getting businesses online to buy and sell from each other, then creating a payment platform for them to use and expanding into business-to-consumer and consumer-to-consumer sales. Today the Alibaba Group includes a ride-sharing business (Kuaide), a mobile-messaging service (Laiwang), cloud storage (Kanbox) and money-market funds (Yu’e Bao).
When Ma decided to take on eBay, the American online auction company dominated the market in China. People told Ma he couldn’t do it. When Ma started Taobao, Alibaba Group’s equivalent of eBay in 2003, he “quickly eroded eBay’s lead by relying on a simple, powerful advantage: Ma gave Taobao features that tapped into the nuances of the Chinese market,” as the New York Times’ Farhad Manjoo put it.
Ma knew Chinese consumers better than eBay did and he used his knowledge to win on his own turf. When your own turf is China, focusing on winning at home is a smart move. Today, Taobao, Alibaba’s platform has 90 percent of the nation’s market share.
Ma’s focus when he started Alibaba was attracting small and midsize private-sector businesses, not large corporate clients, because he saw potential for growth. “… [W]e created value first, then we thought about making money from them,” he told the Hong Kong Chamber of Commerce’s Bulletin. “First you have to make your business good, useful and valuable. Then, if members believe it is good, more people will join, so bigger is a natural result. A lot of dotcom sites try to make their sites bigger and bigger, but in the end, they do not create the real value.”
Ma’s shrimp-catching days had long since passed when plans for Alibaba’s U.S. initial public offering were filed with the Securities and Exchange Commission.
But with analysts predicting a second tech bubble, some may still wonder if Alibaba is being oversold as a stock. But only time will tell if it is, indeed, a dog.