#32 Alibaba The House That Jack Ma Built

In the episode, the hosts discuss the remarkable journey of Jack Ma, the founder of Alibaba, as detailed in Duncan Clark's book "Alibaba: The House That Jack Ma Built." Starting from a modest apartment in Hangzhou, Jack, along with his wife Kathy and 16 others, bet everything on Alibaba with the ambition to build an Internet company that would span three centuries. Despite his lack of technical knowledge, Jack's unconventional strategies and understanding of the Chinese market led to Alibaba's success against giants like eBay in China. The episode also explores Jack's early life struggles, his unique business philosophies, and the controversial transfer of Alipay out of Alibaba Group to a company under his control. The narrative highlights Jack's focus on people over profits, and his belief in the power of small businesses and communities, which ultimately shaped Alibaba's strategy and growth.

• The speaker met Jack Ma in the summer of 1999, shortly after Alibaba was founded.
• Jack Ma's ambition was to create an internet company that would last 80 years, later revised to 102 years to span three centuries.
• Despite the modest setting of a small apartment, Jack Ma's vision included challenging Silicon Valley giants.
• Jack Ma's lack of technology expertise is worn as a badge of honor, earning him the nickname "Crazy Jack."
• The book "Alibaba: The House that Jack Ma Built" by Duncan Clark is used as a guide to understand Jack Ma's past and approach.

"I first met Jack in the summer of 1999, a few months after he founded Alibaba, in a small apartment in Hangzhou, some hundred miles southwest of Shanghai." This quote sets the scene for the speaker's first encounter with Jack Ma and the early days of Alibaba, highlighting the company's humble beginnings and Jack's ambitious vision.

• Alibaba's business model is detailed, showing how it differs from Amazon by not carrying inventory but instead serving as a platform for merchants.
• Taobao, one of Alibaba's sites, makes money through advertising and paid listings, similar to Google's AdWords.
• Tmall, another Alibaba site, generates revenue by taking a percentage of sales from larger companies.
• The speaker discusses the scale of Alibaba's operations, with $14 billion in sales during a 24-hour shopping event.

"In the first eight minutes of 1111, shoppers made more than $1 billion in purchases on Alibaba sites, and they kept on shopping." This quote highlights the massive scale of Alibaba's success during its annual Singles Day shopping event, emphasizing the company's significant impact on e-commerce.

• Alibaba's success is attributed to its competitive edge in e-commerce, logistics, and finance.
• The "Iron Triangle" refers to Alibaba's strengths in these three areas.
• Jack Ma's claim that Alibaba's success was accidental is contrasted with the strategic advantages that have underpinned the company's growth.

"We didn't have any money, we didn't have any technology, and we didn't have a plan." This quote from Jack Ma downplays the strategic factors that led to Alibaba's success, framing the company's early struggles as a narrative of overcoming adversity.

• The speaker discusses the low penetration of traditional retail in China and how the internet has filled the gap left by state planning.
• Online shopping in China is described as more than just a convenience; it's a lifestyle, with a significant portion of the population buying groceries online.

"In China, the Internet is filling the voids created by a legacy of state ownership and state planning." This quote explains how the internet has become a critical retail avenue in China, stepping in where traditional retail has been insufficient.

• The speaker draws parallels between Alibaba's logistics strategy and Amazon's approach to logistics and vertical integration.
• The asset-light strategy of Alibaba is contrasted with the asset-heavy approach of JD.com, a competitor.
• The speaker speculates on the future of delivery and logistics, questioning the long-term viability of Alibaba's asset-light model.

"Your margin is my opportunity." This quote, attributed to Jeff Bezos, is used to illustrate Amazon's aggressive strategy in dominating various market segments, similar to Alibaba's approach.

• Alipay, Alibaba's payment system, is compared to PayPal but with a broader range of financial services.
• The speaker notes that Alipay is no longer owned by Alibaba and is personally controlled by Jack Ma, hinting at a complex story to be explored later.

"Alipay handles more than three quarters of a trillion dollars a year in online transactions." This quote emphasizes the vast scale of Alipay's operations and its significance in the global online payments market.

• Jack Ma's personality is described as unconventional, with a penchant for showmanship and defying stereotypes.
• His approach to business is portrayed as being simple yet effective, with a focus on being underestimated.
• Jack Ma's mantras and philosophies, such as "customers first, employees second, shareholders third," are highlighted.

"I am a very simple guy. I am not smart. Everyone thinks that Jack Ma is a very smart guy. I might have a smart face, but have got very stupid brains." This self-deprecating quote from Jack Ma underscores his tendency to play down his intelligence, a contrast to his actual achievements.

• Jack Ma's background and early life are explored, showing his discipline and curiosity from a young age.
• The speaker describes Jack Ma's love for the English language and how he took advantage of China's open-door policy to practice with tourists.
• Jack Ma's story is presented as one of seizing opportunities and being lucky enough to capitalize on them.

"As a boy, Jack fell in love with the English language and literature, particularly reading Mark Twain's the Adventure of Tom Sawyer." This quote reveals the early influences on Jack Ma's life, hinting at the development of his global perspective and entrepreneurial spirit.

• Jack was 14 years old when he began interacting with foreign tourists to practice English.
• He offered free tours of Westlake to improve his English.
• Jack attributes his English skills to his success in life, allowing him to understand the world and meet influential people.

"English helps me a lot. It makes me understand the world better, helps me to meet the best CEOs and leaders in the world, and makes me understand the distance between China and the world."

This quote emphasizes the significance of English in Jack's personal and professional development, highlighting its role in bridging cultural gaps and creating opportunities.

• The Morleys, an Australian family, played a pivotal role in Jack's life.
• David Morley and his father Ken Morley were particularly influential.
• The Morleys maintained a pen pal relationship with Jack, aiding his English studies.
• Ken Morley corrected Jack's letters, fostering his language skills.

"What followed that meeting was a pen pal relationship that I kept up for a few years until my father started to take an interest in helping this young man."

This quote illustrates the beginning of a lasting relationship that provided Jack with both emotional support and practical help in improving his English.

• Jack failed the national higher education entrance exam (gaokao) multiple times.
• He faced numerous job rejections and took on menial labor.
• Inspired by a book, Jack was determined to improve his life and continued to retake the gaokao.
• Despite low scores, he eventually secured a place at Hangzhou Teachers College.

"Jack took the high test, but failed badly, scoring one out of 120 in math."

The quote highlights Jack's initial academic failure, setting the stage for his story of resilience and determination to succeed against the odds.

• The Morleys invited Jack to Australia, which profoundly impacted his worldview.
• They provided financial support for Jack's education and helped him purchase his first home.
• Ken Morley's obituary mentions his friendship with Jack, indicating the depth of their relationship.

"Jack later said that words could not express what Ken and Judy Morley had done for him."

This quote reflects the profound gratitude Jack felt for the Morleys' generosity, which had a significant impact on his life.

• Jack started teaching English at the Hangzhou YMCA while contemplating entrepreneurship.
• He founded his first company, Hope Translation Agency, at age 29.
• The company struggled initially but laid the groundwork for Jack's future ventures.

"Jack recalled the lesson he drew from Deng's southern tour. You can be rich. You can help other people be rich."

This quote captures the entrepreneurial spirit encouraged by Deng Xiaoping's policies, which inspired Jack to pursue business opportunities.

• Jack's introduction to the Internet led to the creation of China Pages.
• The business aimed to help local companies reach international markets.
• Despite challenges, China Pages was one of China's first Internet companies.

"We launched at 9:40 in the morning, 12:30 I got a phone call from my friend Jack. You've got five emails."

The quote conveys the immediate and surprising response to Jack's first online venture, signaling the potential of the Internet for business.

• Jack lost control of China Pages to a state-owned enterprise.
• The experience taught him valuable lessons about company structure and competition.
• Jack vowed never to hold a controlling stake in his future companies.

"Don't be nervous if you face huge competition in the future."

This quote reflects Jack's strategic mindset and his belief in resilience and adaptability in the face of business challenges.

• Jack admired the entrepreneurial spirit of his home province, Zhejiang.
• He believed that lack of resources in Zhejiang bred hard work and the ability to seize opportunities.
• Several successful entrepreneurs from Zhejiang are mentioned, illustrating the potential for success despite humble beginnings.

"We entrepreneurs have markets. As long as we are in places where there are people, we will always be able to find opportunities."

Jack's quote underscores his belief in the inherent opportunities present in markets and the entrepreneurial ability to capitalize on them, regardless of one's starting point.

• Jack Ma faced difficulties with early internet ventures and an uncomfortable government job in Beijing.
• He founded Alibaba in 1999 after leaving his government position.
• His government job provided the opportunity to meet Jerry Yang, co-founder of Yahoo, which became pivotal for Alibaba's future.

After his struggles with hope translation and China pages and an uncomfortable period working for the government in Beijing, Jack went on to found Alibaba at the beginning of 1999.

The quote explains Jack Ma's transition from struggling with previous internet projects and a government job to founding Alibaba, setting the stage for his future success.

• Jerry Yang, co-founder of Yahoo, was seen as a hero in China.
• Jack Ma was assigned to be Jerry Yang's tour guide, which led to a significant relationship.
• This connection later contributed to Yahoo's billion-dollar investment in Alibaba.

But his government perch ended up giving Jack another lucky break, his first encounter with Jerry Yang, the co-founder of Yahoo.

The quote highlights the serendipitous meeting between Jack Ma and Jerry Yang, which was facilitated by Jack's government position.

• Jack Ma convened a meeting in 1999 to discuss Alibaba's future, emphasizing its competition with Silicon Valley, not China.
• He focused on small businesses rather than large companies, comparing his strategy to the shrimp tactic from the movie "Forrest Gump."
• Alibaba was co-founded by a diverse group of 18 "regular people" with no prestigious background, united by Jack's energy and methods.

American b to b businesses are whales, but 85% of the fish in the sea are shrimp-sized. I don't know anyone who makes money from whales, but I've seen many making money from shrimp.

The quote captures Jack Ma's strategy to focus on small businesses, which he metaphorically compares to shrimps in the sea, as opposed to the larger whales that represent big businesses.

• Jack Ma's biggest rival was not a tech company but an old-school trade magazine publisher, Global Sources.
• Jack Ma regretted selling a 50% stake to investors, which was the "worst deal" he ever made.
• Despite the regret, it was a necessary step for an unproven entrepreneur to secure a big-name investor.

It was the worst deal I ever made.

This quote reflects Jack Ma's reflection on giving up a significant stake in Alibaba to investors, which he later considered a poor decision despite its necessity at the time.

• Jack Ma enjoyed the attention at Harvard and was known for his "crazy Jack" moniker.
• He was critical of MBA programs, believing that starting businesses teaches wisdom, which is more valuable than the knowledge taught in schools.
• Jack Ma emphasized that experience, not formal education, is the key to acquiring wisdom in business.

Most MBA graduates are not useful unless they come back from their MBA studies and forget what they've learned at school.

The quote underlines Jack Ma's belief that real-world experience is more important than formal business education, as he considers the latter to be less useful for practical business endeavors.

• Jack Ma and the podcast host discuss the value of learning from books about successful founders.
• Reading is seen as a way to quickly gain the wisdom that others have acquired through years of experience.
• The podcast emphasizes the efficiency of learning from others' distilled experiences.

Reading is theft. It is a robbery. Someone smarter than you has spent 20 years beating their head against a wall trying to solve the problem you're dealing with.

This quote conveys the idea that reading allows individuals to rapidly absorb the hard-won knowledge of others, which is a powerful form of learning.

• Softbank's investment in Alibaba was its most successful ever, turning $20 million into $60 billion.
• Masayoshi Son, the founder of Softbank, is known for quick decision-making and invested in Alibaba after a brief meeting with Jack Ma.
• Jack Ma and Masayoshi Son shared a vision and made quick decisions, leading to Softbank's investment in Alibaba.

I listened to Mr. Ma's speech for five minutes and decided on that spot that I was ready to invest in Alibaba.

The quote illustrates Masayoshi Son's instinct-driven investment style, where a brief impression of Jack Ma was enough to commit to a significant investment in Alibaba.

• Jack Ma focused on being the "last man standing" during Alibaba's difficult period in 2001-2002.
• He believed in enduring hardships, convinced that if he was struggling, his competitors were facing even greater challenges.
• Jack Ma's resilience and perseverance were key to Alibaba's survival and eventual success.

Be the last man standing, be the last person to fall down. Even on my knees, I had to be the last man collapsing.

This quote captures Jack Ma's determination to outlast his competitors during Alibaba's challenging times, illustrating his tenacity and strategic mindset.

• Alibaba used guerrilla marketing techniques to compete against eBay in China.
• eBay's decisions, such as charging fees and centralizing its China website, alienated users and merchants.
• Tabeo, Alibaba's C2C platform, succeeded by being free, user-friendly, and tailored to Chinese consumers and merchants.

Why would they bother to wait for eBay in China, a site that charges fees when tabao was available instantly and for free?

The quote summarizes the competitive advantage Tabeo had over eBay in China, highlighting the importance of understanding local market needs and consumer behavior.

• Recognize potential rivals early and study them to understand the threat they may pose.
• Avoid hating stronger competitors; instead, learn from them.
• Hatred towards a rival can cloud judgment and expose one's techniques.
• Treating a competitor too seriously can be detrimental and lead to shortsightedness.

"Whenever there is a rival emerging, you have to study whether it could become your rival, and if so, what to do. Whatever is stronger than you, you have to learn not to hate it." "When you treat it too seriously as a rival and intend to kill it, your techniques are completely exposed. Hatred only makes you a short sighted person."

These quotes emphasize the importance of a strategic approach to competition, suggesting that understanding and learning from rivals is more beneficial than approaching them with hatred or the intent to "kill" the competition, which can lead to vulnerability and shortsightedness.

• Yahoo initially struggled to establish a successful business in China.
• Jerry Yang, Yahoo's founder, made a bold move by investing in Alibaba.
• Yahoo exchanged $1 billion and control of its China business for a 40% stake in Alibaba.
• This investment became one of the best in history due to Alibaba's success.

"After years of frustration, Jerry Yang made a bold decision. He handed Jack a billion dollars and the key to Yahoo. China's business in exchange for a 40% stake in Alibaba."

The quote summarizes the pivotal decision made by Jerry Yang to invest in Alibaba, which later proved to be an incredibly successful financial move, highlighting the significance of strategic investments in the tech industry.

• American companies faced significant challenges when trying to enter the Chinese market.
• Jerry Yang noted the failure of American companies to succeed in China despite significant investments.
• The difficulties led Yang to place a substantial bet on Jack Ma and Alibaba, which was not his first choice but proved to be a fortunate decision.

"I don't think there's one american company that succeeded there. They spent a lot of money, but almost all of them failed."

This quote reflects the challenges faced by American companies in China and the rationale behind Jerry Yang's decision to invest in Alibaba, which was a local company with a better understanding of the Chinese market.

• Jack Ma prioritized understanding people over business and technology.
• Ma recognized the importance of rewarding Alibaba's employees and encouraged them to sell shares to build their lives.
• During the 2008 financial crisis, instead of focusing on the falling share price, Ma focused on customer loyalty and reduced subscription costs, which paid off in the long run.

"Jack understands people more than any business. He knows business well. But if you ask me, the three skills Jack has amongst people, business or it is the worst business 2nd, 1st is people."

This quote highlights Jack Ma's people-first approach, valuing the human element of business over the technical or purely business aspects, which is a key factor in his leadership style and the culture of Alibaba.

• Alipay, a critical part of Alibaba's ecosystem, was transferred out of Alibaba Group to a company controlled by Jack Ma.
• The transfer raised questions about the transparency and fairness of the transaction.
• The move was justified as necessary to comply with Chinese regulations requiring domestic control of payment platforms.
• Critics argued that the transfer was unfairly advantageous to Ma, while defenders pointed to regulatory foresight.
• The controversy led to tension between Alibaba's major shareholders and raised issues about the complexities of operating in China's regulatory environment.

"The ownership of Alibaba Group's online payment business, Alipay, was restructured so that 100% of its outstanding shares are held by a chinese domestic company, which is majority owned by Alibaba Group's chief executive officer."

This quote explains the controversial transfer of Alipay to a domestic company controlled by Jack Ma, which was a move that had significant financial implications and raised questions about corporate governance and regulatory compliance.

• Jack Ma and Masayoshi Son had differing views on employee treatment and equity ownership.
• Ma believed in sharing the future with employees and giving them opportunities, while Son had a more traditional approach to employee compensation.
• The Alipay crisis exacerbated existing tensions between Ma and Son.

"The problems between me and Yahoo are easy to solve. They are problems of interests. But the issues between me and Mayaoshi sun are not only issues of interests."

This quote reveals the deeper philosophical differences between Jack Ma and Masayoshi Son, beyond the immediate financial interests, highlighting the importance of aligning core values in business partnerships.

• Jack Ma expressed the challenges of running a public company and suggested he would keep the company private if he could choose again.
• The story of Alibaba is seen not just as a narrative but as a strategic approach to business.
• Alibaba's strategies are unique and have contributed to its dominance in the Chinese tech market.

"Most people think of Alibaba as a story. It is not just a story, it is a strategy."

The quote encapsulates the overarching theme of the book and the podcast discussion, indicating that Alibaba's success is the result of deliberate and strategic choices rather than mere happenstance or a simple success story.