Season 3, Episode 5 Alibaba

Summary Notes


In this engaging episode of Acquired, hosts Ben Gilbert and David Rosenthal delve into the remarkable story of Alibaba and its founder, Jack Ma. From its inception as a B2B marketplace to becoming China's ecommerce behemoth, Alibaba's journey is a tale of strategic vision and seizing opportunities in the rapidly growing Chinese economy. Despite Jack Ma's unconventional background and initial struggles, his relentless focus on empowering entrepreneurs and customers led to Alibaba's dominance in online retail, outmaneuvering eBay in China. The discussion also touches on the complexities of Alibaba's IPO, the intricate corporate structures involving Yahoo and SoftBank, and the spin-off of Alipay into Ant Financial. As Jack Ma announces his retirement to focus on philanthropy, Alibaba stands as a testament to marketplace innovation, growth, and the transformative power of technology in China's evolving commercial landscape.

Summary Notes

Introduction to Acquired Season Three, Episode Five

  • Ben Gilbert and David Rosenthal introduce the episode focused on Alibaba and China tech.
  • They highlight Alibaba's achievements, including the largest US-based IPO at the time, being China's biggest tech company, and having a rapidly growing market cap.
  • Alibaba is recognized as the number one retailer worldwide, surpassing Amazon and Walmart.
  • Jack Ma, Alibaba's founder, emphasizes that the company enables e-commerce for others rather than being a direct e-commerce company.

"Welcome to season three, episode five of acquired, the show about technology acquisitions and ipos. I'm Ben Gilbert." "I'm David Rosenthal and we are your hosts."

The quote introduces the hosts of the podcast and the focus of the episode on Alibaba, setting the stage for a deep dive into the company's background and impact.

"Today we are continuing our quest to more deeply understand China tech with Alibaba. So before we dive in, a few fun facts about Alibaba. They had the largest us based ipo of all time. Alibaba is China's biggest tech company. Alibaba's market cap, even at their current scale, doubled in the last year, and they were valued at over half a trillion dollars earlier this year."

This quote provides an overview of Alibaba's significant financial achievements and its position in the tech industry, highlighting its rapid growth and high valuation.

The Enigma of Alibaba and Jack Ma's Perspective

  • Alibaba is considered an enigmatic company despite its size and influence.
  • Jack Ma's statement about Alibaba not being an e-commerce company but rather an enabler for others reflects a unique business philosophy.
  • The hosts express their excitement to explore and understand Alibaba's history and operations.

"Founder Jack Ma says that we are not an e commerce company. We enable others to become e commerce, but they themselves don't feel that it's fair to have a direct comparison between them and Amazon."

The quote captures Jack Ma's view of Alibaba's business model, which focuses on empowering other businesses to engage in e-commerce rather than being an e-commerce entity itself.

The Story of Jack Ma

  • Jack Ma's early life in Hangzhou, China, is discussed, including his obsession with learning English and his interactions with tourists.
  • Jack Ma's struggles with math and his repeated failures in college entrance exams are highlighted.
  • His entrepreneurial spirit is evident as he starts a translation agency and later ventures into the internet business.
  • Jack Ma's experience with the internet in the US and the creation of China Pages are key moments in his journey.

"We are actually going to start in 1964, when a young boy named Ma Yun is born in Hangzhou, China, which is a city about a two hour drive from Shanghai."

This quote marks the beginning of Jack Ma's story, setting the scene in Hangzhou, China, and providing context for his early life and the environment in which he grew up.

"Jack also very creative, as we've seen here, unfortunately, not very good at math. So the college entrance exams, the nationalized college entrance exams in China place a large priority, a high priority on math. Jack is not good at math."

The quote highlights Jack Ma's creative abilities and his challenges with math, which impacted his academic progression and set the stage for his later success despite these early setbacks.

The Impact of the Internet on Jack Ma

  • Jack Ma's first encounter with the internet in Seattle, USA, leads to a pivotal moment in his career.
  • His realization of the internet's potential for business following the creation of a simple webpage for his translation agency.
  • The experience inspires Jack Ma to pursue the idea of internet-based business listings for Chinese companies.

"Jack's never seen the Internet before. And he's like, oh, my God. It is a life changing moment."

This quote captures the transformative impact the internet had on Jack Ma, sparking the idea that would eventually lead to the creation of Alibaba.

The Formation of Alibaba

  • Jack Ma gathers a group of co-founders and starts Alibaba in an apartment in Hangzhou.
  • The company's mission is to reduce friction for businesses to list online, in contrast to government-led initiatives.
  • Alibaba's beginnings are marked by the collective effort of its 18 co-founders.

"Jack and his wife rent an apartment, very famous apartment that we will see at building 16, one lakeside gardens in Hangzhou. They start the company there with all these people. There are 18 co founders of this company."

The quote details the humble beginnings of Alibaba, started in an apartment with a large group of co-founders, emphasizing the collaborative nature of the company's inception.

Organizational Acceleration Through Cohesive Teams

  • Having a large, cohesive team from the start can be a significant accelerant to a business.
  • A pre-formed team with prior experience working together can reduce early-stage friction in a startup.
  • Alibaba's founding team had previously worked together within the government, providing a strong foundation.

"What an accelerant to a business if you have that many people from day one, instead of biting and scratching for every person you're going to bring on, especially if you've all worked together before."

The quote emphasizes the advantage of starting a business with a large, cohesive team, as it can speed up organizational growth and reduce early recruitment challenges.

The Strategic Naming of Alibaba

  • Jack Ma wanted a name that was internationally recognizable, easy to pronounce, and starting with 'A'.
  • Alibaba was chosen for its association with "open sesame," symbolizing the unlocking of business opportunities.
  • The name was tested with various people to ensure it resonated with the concept of opening doors to business.

"He doesn't want this to be just a Chinese company, because, remember, this is all about international trade."

This quote highlights Jack Ma's intention to create a globally accessible platform, not limited to the Chinese market.

The Significance of "Open Sesame"

  • The phrase "open sesame" from Arabian Nights was a metaphor for Alibaba's mission to open up trade opportunities.
  • Jack Ma validated the name Alibaba by the positive association people had with "open sesame."

"Everybody's like, yeah, open sesame. And he wants Alibaba to be the magic word to opening business opportunities."

The quote captures the essence of what Alibaba was intended to represent—a gateway to new business opportunities.

Domain Name Acquisition

  • was initially owned by a Canadian businessman.
  • It took about a year to negotiate the purchase of the domain name for around $4,000.
  • Domain name acquisitions are a common hurdle for many companies.

"It takes them about a year to negotiate buying the domain name from them. But they do buy for something like $4,000 or something from a Canadian businessman."

This quote details the effort and time it took to acquire the domain, underscoring the importance of a relevant web presence for startups.

Alibaba's Business Model Evolution

  • Alibaba started as a bulletin board for businesses to find demand for their products and services.
  • The company did not initially take a cut from transactions, resulting in no revenue.
  • Jack Ma was inspired by the film "Forrest Gump," specifically the Bubba Gump Shrimp Company's focus on small businesses.

"It's exactly what, as we've said, what they were doing with China market. It's a bulletin board for businesses, that businesses are going to be able to find demand for their products or services and then be able to chat with potential customers and facilitate transactions."

This quote describes the initial business model of Alibaba, which was to facilitate business connections without directly monetizing transactions.

Joe Tsai's Involvement with Alibaba

  • Joe Tsai, a private equity investor from Hong Kong, joined Alibaba after being impressed with Jack Ma and the team.
  • Despite having a different background and high salary, Tsai took a significant pay cut to join Alibaba as COO and CFO.
  • Tsai's involvement was pivotal in raising funds and shaping Alibaba's future.

"If one person has this crazy idea, like, he's probably crazy, but if you've got 18 people, it's probably a movement."

The quote conveys the notion that a single person with an unconventional idea might be dismissed, but a group sharing the same vision suggests a significant trend or movement.

Fundraising Challenges and Successes

  • Alibaba faced initial fundraising challenges in the U.S., with VCs skeptical about investing in a Chinese internet company.
  •'s IPO, despite its unclear business model, sparked interest in Chinese internet investments.
  • Goldman Sachs and later Softbank invested in Alibaba, with Masayoshi Son quickly deciding to invest after meeting Jack Ma.

"So they come over, everybody at Sand Hill's like, who are you guys? You're in China. Like, you're doing what? Yeah, send me your pitch deck. Anyway, it doesn't work."

This quote reflects the initial skepticism and challenges Alibaba faced when trying to raise funds from U.S. investors.

The Launch of Taobao and Competition with eBay

  • Jack Ma created Taobao, a secret B2C marketplace project, to compete with eBay's expansion into China.
  • Taobao was launched without a transaction fee, gaining a competitive edge over eBay.
  • eBay attempted to buy Alibaba and aggressively competed, but Taobao continued to gain market share.

"Taobao says, we're not doing any of that, at least for now."

The quote indicates Taobao's strategic decision not to charge fees initially, which was key to its growth and ability to compete with eBay.

Alibaba's Business Model Maturation

  • Alibaba developed an advertising-based model where businesses could pay for prominent placement in the marketplace.
  • This model was more suitable for China, where businesses were more willing to pay for increased visibility rather than share transaction revenue.
  • Alibaba's approach was akin to combining Amazon and Google, serving as both the search and transaction platform.

"Alibaba essentially becomes like, if you imagine Amazon and Google all in one, like, imagine Amazon without Google, where everybody is searching."

This quote explains how Alibaba's business model evolved to become a comprehensive platform for both discovering and transacting business, similar to a combination of Amazon's marketplace and Google's advertising model.

Alibaba's Fundraising and Valuation Journey

  • Alibaba's fundraising history is marked by selling large stakes of the company at significant valuations.
  • Yahoo, led by Jerry Yang, invested $1 billion for a 40% stake in Alibaba.
  • Alibaba's business model, combining aspects of Amazon and Google, was more suitable for China than a traditional portal search engine.
  • Softbank, a major shareholder in Yahoo through Yahoo Japan, was involved in the deal, showing Jerry Yang's high conviction in Alibaba.

Jerry offers a billion dollars for a 40% stake in Alibaba.

This quote signifies the massive investment Yahoo was willing to make in Alibaba, highlighting the company's potential in the eyes of investors.

Alibaba's Strategic Decisions and IPO of B2B Division

  • Alibaba strategically chose to IPO its legacy B2B marketplace business while keeping the newer B2C business, Taobao, private.
  • The decision to IPO only the legacy business is unusual compared to other companies that typically take their new growth businesses public.
  • The cap table for Alibaba at this point was complex, with founders and employees owning significant equity.

What if we list just the legacy, the B2B Alibaba business?

This quote reflects Alibaba's unconventional approach to going public by only listing its older B2B division, not the rapidly growing B2C platform, Taobao.

Goldman Sachs' Exit and Missed Opportunity

  • Goldman Sachs exited their investment in Alibaba in 2004, selling their stake for $22 million, which was later viewed as a financial misstep given Alibaba's growth.
  • The decision to sell was influenced by competition from eBay and the departure of Goldman's internal champion for Alibaba.
  • GGV became a shareholder in Alibaba as part of the investor group that purchased Goldman's stake.

Goldman managed to turn their $3.3 million on a $10 million valuation of Alibaba into a magnanimous $22 million in 2004 when they exited the business.

This quote illustrates Goldman Sachs' early exit from Alibaba and the significant profit they missed out on by not holding their investment longer.

Alipay's Emergence and Ownership Challenges

  • Alipay was created as Alibaba's version of PayPal to facilitate online transactions for Chinese consumers who lacked credit cards or banking facilities.
  • Alipay grew rapidly, becoming a major financial institution in China.
  • Alibaba's ownership structure involved a Variable Interest Entity (VIE) in the Cayman Islands due to restrictions on foreign ownership of Chinese companies.

Alipay is like the largest financial institution in China.

The quote emphasizes the significance of Alipay in China's financial landscape and its importance to Alibaba's ecosystem.

Yahoo's Struggles and Alibaba's Ownership Dynamics

  • Microsoft's offer to buy Yahoo in 2008 caused concern for Alibaba's leadership about potential ownership changes.
  • Carol Bartz's tenure as Yahoo's CEO led to tensions with Alibaba's management.
  • Alibaba's response to Chinese government concerns over foreign ownership of financial entities was to transfer Alipay to a Chinese-controlled entity.

Jack transfers Alipay outside of Alibaba group into a new entity that he and Joe and other Chinese nationals control.

This quote highlights the strategic move made by Alibaba to comply with Chinese regulations and maintain control over Alipay.

Alibaba's Public Offerings and Market Impact

  • Alibaba IPO'd its legacy B2B business on the Hong Kong Stock Exchange in 2007, valued at $26 billion after the first day of trading.
  • Alibaba Group went public on the New York Stock Exchange in 2014 with a record-breaking $25 billion IPO.
  • Yahoo sold part of its stake in Alibaba during the IPO, generating $9.4 billion in cash.

$25 billion IPO in 2014, still the largest IPO in history.

This quote underscores the magnitude of Alibaba Group's IPO and its significance in the financial markets.

Altaba and the Evolution of Yahoo's Alibaba Stake

  • After Yahoo's acquisition by Verizon, its remaining assets, including the Alibaba stake, were transferred to Altaba.
  • Altaba is a publicly traded company with significant holdings in Alibaba, operating with a small team focused on finance and operations.

Altaba is a publicly traded company based out of New York that owns two things, actually.

This quote describes the unique nature of Altaba as a holding company primarily for the Alibaba stake post-Yahoo acquisition.

Jack Ma's Retirement and Philanthropy

  • Jack Ma announced his retirement from Alibaba in 2019 to focus on philanthropy.
  • Daniel Zhang, Alibaba Group's CEO, took over as chairman following Ma's retirement.
  • Jack Ma's legacy is recognized for his influence and the transformative impact of Alibaba in China and the global tech industry.

Jack Ma announced that he is going to fully retire one year from September 10.

This quote marks the announcement of Jack Ma's departure from an active role in Alibaba, signaling the end of an era for the company.

Alibaba Group's Properties and Strategy

  • Alibaba Group has multiple brands and platforms that cater to different market segments.
  • is an international B2B trade site.
  • Taobao is the world's most popular C2C marketplace, with the saying that if it's not available on Taobao, it's not available anywhere in China or the world.
  • is a domestic B2B trade site in China, similar to but focused internally.
  • (B2C) is an online marketplace for quality brand name goods that competes with and is similar to with third-party sellers.
  • AliExpress (B2C) allows small businesses in China to sell internationally, with a wide range of products, often with long shipping times to the US and variable quality.
  • eTao is a shopping search engine.
  • Alipay, although spun out, is a significant financial platform likened to a combination of Goldman Sachs, Bank of America, and PayPal.
  • Alibaba Cloud Computing is a significant bet on the future, representing a growing portion of revenue and aiming for high margins similar to AWS and Microsoft.

"And when you look at their financials today, cloud computing represents 6% of revenue. The China commerce is 70%, international commerce is 8%, but 6% coming from cloud computing, 7% coming from what they call digital media, which is interesting to juxtapose against an Amazon. We keep hearing AWS. AWS, AWS. It's a super high margin business relative to the rest of their business."

This quote explains the revenue distribution within Alibaba Group, highlighting the importance of cloud computing as a future growth area with high margins, comparable to Amazon's AWS.

Jack Ma's Vision for Alibaba Group

  • Jack Ma, the founder of Alibaba, has a distinct vision for the company, focusing on supporting small businesses and entrepreneurs without owning the traditional assets such as inventory, warehouses, or delivery systems.
  • Alibaba operates an asset-light business model, contrasting with Amazon's approach of owning extensive logistics infrastructure.
  • The company facilitates over 30 million packages per day through a network of more than 2 million delivery people and has over 350 million buyers.
  • E-commerce in China is considered a lifestyle, akin to the cultural significance of Starbucks in America.
  • Jack Ma emphasizes Alibaba's role as a platform provider rather than a direct seller or buyer, empowering millions of small businesses.

"We do not buy and we do not sell, but we help small businesses to buy and sell. This is 2015 numbers, but we have 10 million small businesses on our site that buy and sell every day. We do not deliver packages ourselves, though. We have more than 2 million people who help to deliver our 30 million packages per day."

This quote from Jack Ma summarizes Alibaba's business model, where the company does not directly engage in buying or selling but provides a platform for small businesses to do so, highlighting the scale of their operations and their asset-light strategy.

Alibaba's Market Position and Growth Potential

  • Alibaba had a dominant position in China's online retail market, handling 86% of online retail sales.
  • The company's growth potential remains high due to the expanding Chinese economy and the rise of the middle class.
  • Alibaba has successfully transitioned from facilitating "Made in China" for international trade to supporting domestic consumption and entrepreneurship.
  • The company's success is attributed to timing the market well and creating strong moats around its business.
  • Alibaba's customer-centric approach prioritizes customers over employees and shareholders, reflecting in its long-term investment strategy to satisfy customer needs.

"The bull case is easy. When they were getting ready to IPO, they had 280,000,000 customers spending 300 billion a year on everything. It was the dominant way that people bought things on the Internet. In the largest emerging economy in the world, they handle 86% of online retail sales in China."

This quote outlines the bullish perspective on Alibaba's market dominance and growth prospects, emphasizing its significant customer base and share of China's online retail market.

Alibaba's IPO and Market Impact

  • Alibaba's IPO was the largest ever at the time, and the company's market cap has doubled in the four years since then.
  • The IPO allowed Alibaba to create significant market value, with implications for how large tech companies and categories can still offer substantial returns on investment.
  • The discussion suggests that Alibaba's IPO has influenced new ways of thinking about technology investing, including the creation of the Vision Fund by SoftBank.

"It took Alibaba 19 years to get to a $240,000,000,000 market cap. It took them four years to create another $240,000,000,000 of market cap."

This quote highlights the remarkable market value creation by Alibaba post-IPO, demonstrating the company's rapid growth and the substantial returns generated for investors.

Venture Capital Insights from Alibaba's Growth

  • Fund size is intrinsically linked to a venture capital firm's strategy, and successful alignment is crucial for effective investment.
  • The importance of investing in markets with anticipated rapid growth is emphasized, where future market share is more critical than current standings.
  • Alibaba's story illustrates the potential for massive value creation in rapidly growing markets, which can justify large investments even in seemingly mature companies.
  • The discussion reflects on the strategic mindset of investing in companies that will dominate future markets rather than focusing solely on present leaders.

"If you're in a market that you think is going to grow rapidly in the future, like small businesses in China, like consumers in China, like wealth in China, what matters is not who has the most market share of that market today. What matters is who is going to have the most market share."

This quote captures the strategic approach to venture capital, emphasizing the importance of positioning for future market dominance rather than current market share, using Alibaba's trajectory as an example.

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