Jack Ma Aims to Unlock the Middle Kingdom
Alibaba is set to be China's answer to eBay - but CEO Jack Ma's ambitions hardly end there.
By John Heilemann, Business 2.0 Magazine

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He is probably the only Chinese Internet entrepreneur that you've ever heard of. Jack Ma, founder and CEO of the sprawling e-commerce conglomerate Alibaba.com, is the biggest player in the hottest market in the global tech business.

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Jack Ma, founder and CEO of Alibaba.com.
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His fans include such cosmopolitan capitalists as Yahoo (Charts) co-founder Jerry Yang and Japanese tycoon Masayoshi Son. His international profile is enhanced by his fluency in English, an impishness that recalls Jeff Bezos circa 1998, and a tendency to spout management bromides ("Embrace the change," "If you don't have enemies in your heart, nobody is an enemy in your eyes") that sound like an unholy mashup of Tom Peters and Deepak Chopra.

A blend of East and West

All of which makes Ma seem reassuringly familiar: an East Asian incarnation of countless tyros of the Web 1.0 generation. Yet Ma, in fact, represents something new: the emergence of China as a source of Web-based innovation.

It's a trend that promises to transform not merely the Internet but the entire world economy. As Ma puts it to me, "We may be fighting for the Chinese market, but what we're doing here is truly global."

At 42, Ma stands barely 5 feet tall, is stick-figure skinny, and wears oversize suits that make him look like David Byrne in "Stop Making Sense."

The story of his rise to wealth and power is utterly improbable. Growing up in Hangzhou, an industrial city two hours south of Shanghai, Ma taught himself English by giving tours to American visitors. In 1995, on a trip to the United States, he touched a computer keyboard for the first time.

When some friends in Seattle showed him the Internet, he typed "China" and "beer" into Yahoo - yielding no results. Ma decided to start a company to help Chinese firms get on the Net. Returning home, he launched China Pages, widely believed to be the country's first commercial website, and four years later, he took his quest to another level by founding Alibaba.

Not long ago, I visited Hangzhou to see what all the fuss was about. Housed in three buildings teeming with insanely energetic employees, Ma's empire there consists of four businesses, all growing like gangbusters. When I mention that Wal-Mart (Charts) executives often contend that being in Bentonville, Ark., has worked to their firm's advantage, forcing it to be faster and smarter, Ma embraces the parallel.

"Being in Hangzhou gives us a big advantage in keeping us close to customers and making us think different," he says. "If we were in Beijing or Shanghai, we'd be just another company."

When Ma says this, however, we're sitting in Beijing, where he's actually been spending a ton of time since late last year. That was when Alibaba took over running Yahoo China, the result of a ballyhooed deal in which Yahoo ponied up $1 billion and all of its Chinese operations for a 40 percent stake in Ma's outfit.

By all accounts, Yahoo was struggling in China against the market leader in search, Baidu, and against the advances of Google (Charts). And Ma realized that search was essential to his e-commerce strategy - though he admits that managing the acquisition has been a pain. "For the first six months, I wanted to give the money back!" he laughs. "But a good dish takes time to cook."

In the wake of the Yahoo deal, there has been no shortage of critics ready to pour ice-cold water on Ma and Alibaba. In particular, they cast doubt on its profitability, arguing that if Alibaba were as fiscally sound as Ma and his lieutenants like to claim, it would have gone public long ago.

Ma tells me he's in no hurry to launch an IPO, especially in light of the Yahoo deal and the challenges it entails. But he and his CFO, Joe Tsai, are adamant about the solidity of Alibaba's financial position.

At Yahoo's analyst day in May, they forecast the company's 2006 revenue at about $200 million, almost double the figure for 2005. Most of that money has been generated by Alibaba's business-to-business ventures because, in a bid to steal market share from eBay (Charts), Ma has refused to charge for Taobao's services.

And, at least on its own terms, the gambit is working: With more than 20 million registered users, Taobao is the most popular e-commerce site in China. "The competition with eBay is over," Ma says. "It's time to claim the battlefield."

Yet the more significant victory that Alibaba has scored against eBay is in the sphere of innovation. Long before eBay bought Skype, Taobao had allowed buyers to send instant messages to sellers.

Indeed, among Alibaba execs, it's an article of faith that eBay CEO Meg Whitman's inspiration for acquiring the Internet telephony startup was a trip to China during which she was introduced to Taobao.

Ma believes, too, that the contours of the Chinese market will pave the way to a new kind of progress in the search market. "If you follow Google's way, you will always be a follower," he explains. "We have to make the Yahoo search engine more human, more interactive ... something for the 1.3 billion people in China who aren't technology-oriented, who don't know how to ask the right questions to a search engine - for people who are like me."

It would be easier to scoff at talk like this if Alibaba didn't have a record of innovation, not only in terms of technology but also in business models. (An eBay to let mom-and-pop Chinese businesses jack into the global supply chain? Tell me that's not an innovation.) And Alibaba is only the crest of a vast and building swell. "Jack Ma isn't the only guy in China doing this," Ma says. "There are hundreds of thousands of young entrepreneurs and engineers coming behind me in the next wave."

When I ask Ma about his long-term goal for Alibaba, he replies, "I believe that in the next 10 years, of the top three Internet companies in the world, one will be from China - and we want to be that company." I can't tell you whether Ma's desire will wind up fulfilled.

But after spending a week immersed in China's Internet culture, I can tell you that his one-in-three prediction strikes me as perhaps a bit of lowballing.

John Heilemann wrote "Pride Before the Fall." His next book is "The Valley." He lives in Brooklyn.

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.