by Duncan Clark
Jack takes pride in being “one hundred percent Made in China.” Yet, starting with Joe Tsai, a number of “Born in Taiwan” individuals would make major contributions to Alibaba’s success, just as they have to many technology companies in Silicon Valley.
I first met Joe at the beginning of Alibaba’s journey in 1999, shortly after he’d joined. In the spring of 2015, I traveled back to Hangzhou to understand what prompted Joe to take such a gamble on Jack. Although the two men were born in the same year, they could hardly be more different. Joe came from a prestigious family17 and he had a top-tier academic and professional background.
At the age of thirteen, speaking hardly any English, Joe was sent off from Taiwan to the Lawrenceville School, an elite18 boarding school in New Jersey. There Joe excelled at his studies as well as at lacrosse, which he credits with helping him assimilate into American culture and learn the importance of working in a team: “The sport taught me life lessons about teamwork and perseverance. While I never got past playing on the third midfield line, being part of the team was the best experience of my life.”
Joe won entrance to Yale College, where he studied economics and East Asian studies, and proceeded on to Yale Law School. After graduating he began his career in New York with the storied law firm Sullivan & Cromwell and a short stint at a management buyout firm. But Joe wanted to gain investment experience in Asia. He moved to Hong Kong to work for Investor AB, the investment arm of Sweden’s powerful Wallenberg family. As the dot-com boom gained momentum, Joe starting looking out for opportunities to team up with an entrepreneur.
I asked Joe how he came to connect with Jack: “I wanted to be more intimately involved in technology start-ups. Because I was making investments for Investor, sitting on boards, I always felt a layer of distance between the board and the management. I said to myself, I should be involved in the operation.”
Joe first heard about Jack from family friend Jerry Wu, a Taiwanese businessman who ran a communications start-up. After Jerry came back from Hangzhou he contacted Joe, telling him, “You have to go and meet this guy Jack Ma in Hangzhou. He’s kind of crazy. He’s got a big vision.”
Wu was hoping Alibaba might take over his struggling start-up and asked Joe for his help.
Joe agreed and hopped on a plane from Hong Kong to Hangzhou to meet Jack in the Lakeside Gardens apartment. “I still can remember the first sight of the apartment. It reminded me of my grandmother’s apartment in Taipei. When you walked into the building, the stairway was old and narrow. About ten pairs of shoes were in front of the apartment. It was a smelly place. I was in a suit. It was May—hot and humid.”
Joe remembers how Jack outlined his ambitious goal for Alibaba: to help millions of Chinese factories find an outlet overseas for their goods. The factory owners lacked the skills to market their products themselves and, Jack explained, had little choice but to sell their goods through state-owned trading companies. Jack was proposing to cut out the middleman, always a compelling idea.
Joe was intrigued by Jack as he talked, “sitting backwards in a chair, clapping, like someone from a kung fu novel.” Listening intently as Jack switched effortlessly in and out of fluent English. Joe was impressed. This guy is good! he thought to himself.
When Jack spoke Mandarin he did so in an accent that reminded Joe of his own grandfather, whose ancestral home was in Huzhou, near Hangzhou.19 Speaking in Mandarin, Joe had started the conversation by apologizing to Jack that he couldn’t speak the Hangzhou dialect. Thinking that it might help establish a rapport, Joe added, “I do speak Shanghainese. My parents grew up in Shanghai.” Looking back on that first meeting, Joe laughs. “I hadn’t realized that Hangzhou people hated Shanghainese. They think they are too sly, too commercial, too money-oriented. Later on Jack told me that there are three kinds of people he doesn’t trust: Shanghainese, Taiwanese, and Hong Kong people.” But somehow Jack and Joe, a Shanghainese-speaking Taiwanese who lived in Hong Kong, hit it off. “It was fate that the two of us ended up working together.”
Joe flew back to Hong Kong and shared his excitement about Jack and Alibaba with his wife, Clara. But trading a well-paying job in Hong Kong for a start-up in Hangzhou was a big risk, especially since Clara20 was expecting their first child. So Clara suggested she travel with Joe back to Hangzhou.
Jack remembers their visit. Clara told him she wanted to see Alibaba because her husband was crazy about it: “If I agree with him, then I am crazy. But if I don’t agree, he will hate me his whole life.”
Joe too was thinking carefully before taking the plunge. “I went back a second time because I saw something in Jack. Not just the vision, the sparks in his eyes. But a team of people, his loyal followers. They believed in the vision. I said to myself, If I am going to join a group of people, this is the one. There is a clear leader, the glue to the whole thing. I just felt a real affinity to Jack. I mean who wouldn’t?”
Jack struck Joe as being very different from other entrepreneurs he’d met or read about, telling Joe that “[t]o him, friends are as important as family. His definition of friends includes colleagues. When you try to compare [Jack] with, say, Steve Jobs, they are different people, different to the core.”
Joe liked the fact that Jack was open about his own shortcomings. “I think me coming into the scene was very novel. I’m the guy who knew finance. I was a lawyer before. I could help incorporate a company and I could help raise capital. So immediately from day one, I think we built a bond.”
When I first met Joe, I found him very calm and reserved, in many ways the polar opposite of Jack’s exuberance and unpredictability. As I spent more time working with them, I came to appreciate how Joe’s professionalism in, say, carefully drafting a contract created the structure for Alibaba to harness Jack’s energy and enthusiasm. Another China Internet founder I spoke to agreed, “In the early days, especially, Joe kept Jack in check.”
Joe is self-effacing about his role at the company. When I asked him whether he considered himself Jack’s “consigliere,” he told me he prefers to think of himself as Jack’s interpreter: “Jack is very smart. But Jack sometimes says things that people misinterpret, so I am there to explain things.”
Jack is effusive in his praise of Joe, often saluting him for the risk he took on joining Alibaba back in 1999. To an audience a few years ago in Taipei, Jack said, “How many would give up a well-paying job like him?” He added, “This is courage. This is action. This is the real dream.”
Joe did take a gamble back in 1999, but it wasn’t a blind bet. Joe was able to increase his chances of backing a winner by first getting the company ready to raise capital, then taking the lead in finding its first investor.
Joe told his boss at Investor AB, where he would keep his job for now,21 that he would spend his personal time helping an entrepreneur he had met in China.
Joe got to work sorting out the paperwork at Alibaba. As with many start-ups, it was a bit of a mess. “When I got to Hangzhou Jack didn’t even have a company. He hadn’t incorporated anything yet. It was just a website.”
Joe’s first task was to document Alibaba’s shareholders: “I called him up and said, ‘Jack, I’m incorporating the company. Who are the shareholders?’ He faxed me a list of the names. My jaw dropped, because every single one of those kids in the apartment was on the list, as a shareholder. So from day one, he gave away quite a lot [of equity].” But as Joe looked through the eighteen names22 he realized that “everybody was a crucial part of the team, whether an engineer or in customer service.” He laughed as he recalled the nickname Potato for cofounder Lucy Peng, which she used when answering emails sent from Alibaba’s Western customers.
Next he wanted to get an understanding of Alibaba’s customers. He asked the team how many there were. When told there were twenty-eight thousand, Joe replied, “Wow, that’s a big number!” Yet all of the customer information was being stored manually, each one on a piece of paper stuffed into a book with all the others.
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sp; Alibaba wasn’t generating any revenue and urgently need to raise capital. “Of course at that time no capital was available in China. It was all American.” Looking at how Sina, Sohu, and NetEase had done it, Joe registered an offshore company,23 writing out a personal check for $20,000 to a law firm, Fenwick & West, to ready Alibaba’s corporate structure to receive venture capital investment. All they needed now was to find the investors. He set out with Jack for San Francisco.24
On arrival, they checked into a cheap hotel off Union Square, then headed down the next morning to Palo Alto to meet some VCs. The meetings did not go well. Joe recalls being peppered with questions: “What are you trying to do? What’s your business model?” But they didn’t even have a pitch book. “I had tried to prepare something, like a business plan.” But Jack said he didn’t do business plans, telling Joe, “I just want to go and meet people, and talk to them about it.”
The trip was a failure, although they did have one promising lead from a breakfast meeting in Palo Alto with a Singapore-based investor, Thomas Ng, of Venture TDF. The VCs weren’t really interested in business-to-business (B2B) e-commerce, which seemed dull compared to the excitement surrounding Yahoo, which Sina, Sohu, and NetEase were all able to tap into. There were a couple of B2B examples that raised venture money—Ariba.com and Commerce One—but they were U.S. based and served a much more mature market than Alibaba.
Other emerging China e-commerce players were beginning to have some success at fund-raising. One was a consumer e-commerce venture called 8848.net.25 Launched in April 1999 and modeling its business on Amazon, 8848 sold books, software, electronics, and other local items, such as IP phone calling cards that were popular at the time. It had a well-established backer in forty-six-year-old Charles Xue (Xue Biqun). Xue had studied at UC Berkeley at the same time as SoftBank founder Masayoshi Son. The chairman of 8848, Wang Juntao, enjoyed a higher profile in China media circles than Jack. NetEase too was experimenting with consumer e-commerce, holding one of China’s first online auctions in July 1999 when the site sold 100 PCs for a total of $150,000. Another new business, modeled on eBay, was also emerging: the Shanghai-based firm EachNet, led by a brilliant young Harvard-educated returnee, Shao Yibo, also known as Bo Shao.
Yet Jack was convinced that as the largest supplier of labor-intensive commodities to the world, China was ready for B2B e-commerce. But other entrepreneurs had come to the same conclusion. A California-based company had launched a B2B website called MeetChina.com and secured the backing of the venture capital firm IDG. In the coming year or so, MeetChina.com would raise more than $40 million in venture capital, significantly more than Alibaba. MeetChina would also excel at courting the support of governments on both sides of the Pacific.
In Beijing, MeetChina.com’s founders claimed a special relationship26 with the powerful Ministry of Information Industry. At its April 1999 launch, the company promoted itself as “China’s first major government-sponsored business-to-business Internet portal.” Cofounder Kenneth Leonard talked up his ties in Washington, D.C., claiming a business relationship with Neil Bush, the younger brother of George W. and Jeb Bush, and securing an invitation to the White House and publicity for the company’s Asia-wide e-commerce push by signing an agreement in Vietnam during Bill and Hillary Clinton’s groundbreaking presidential visit to the country the following year.
MeetChina was good at PR in China, too. One of its cofounders, Tom Rosenthal, told the Wall Street Journal, “We’ve got the services to make buying from China as easy as buying from a local hardware store.” In the following months, MeetChina opened nine offices and hired more than 250 staff across China, signing impressive-sounding partnerships with a raft of companies including Dun & Bradstreet and Western Union.
B2B websites backed by Chinese government agencies were stepping up their efforts, too, including chinamarket.com, which Jack had helped set up. Watching the traction Alibaba was gaining with companies in Zhejiang Province, neighboring Jiangsu Province launched its own website—Made-in-China.com—as well.
But having just escaped the clutches of government, Jack was convinced that his customer-first approach would prevail over other websites that focused foremost on wining and dining government officials.
None of these sites would end up being Alibaba’s main competitor. Instead Jack’s biggest rival was not even a “new economy” company at all. It was an old-school publisher of trade magazines.
Global Sources had been around for more than three decades. The company was run by its founder, Merle Hinrichs. A reclusive American whose base of operations was his 160-foot yacht anchored in the Philippines, Hinrichs was a native of Hastings, Nebraska, but had been a resident of Asia since 1965. He had built up his company, originally known as Asian Sources Media Group, by churning out thick trade catalogs stuffed with advertisements from manufacturers in Asia of electronics, computer products, watches, toys, and sporting goods. Sent to buyers such as Walmart, the magazine generated hundreds of millions of dollars of orders per year.
Reluctant to cannibalize its profitable offline business, Global Sources was nervous about building a presence on the Web. Hinrichs was dismissive of B2B sites: “Suppliers and buyers were happy with the fax machine as that was cheap and simple to use.”
But as Internet access spread, companies like Alibaba had an opportunity to pitch themselves as the new face of Asian business. Although Alibaba was struggling to convince investors to back it, the company started to have more success with the media, all thanks to Jack’s charisma and gift of gab.
On April 17, 1999, The Economist ran an article titled “Asia Online.” Its lead sentence consisted of the prophetic statement that “America has Jeff Bezos, China has [Jack] Ma Yun.” Joe read that article on his flight up to Hangzhou to meet Jack, further piquing his interest in Alibaba.
The article was written by Chris Anderson, then based in Hong Kong. I contacted him to ask him what prompted him to write about Jack in such glowing terms. After more than a decade as editor in chief of Wired magazine, Chris lives today in Berkeley, California, where he is the cofounder and CEO of 3D Robotics, a drone manufacturing company.27 Chris recalled his first meeting with Jack in early 1999 in Hong Kong. “Jack came to see me with what was then an idea for Alibaba. I thought it was a great business but a terrible name. Needless to say, he didn’t take my advice, but we’ve remained friends since.”
Chris explained to me that in his Economist article he had compared Jack to Jeff Bezos because “[b]oth are clever entrepreneurs who have grown rich by being among the first to exploit the Internet’s potential. But there the similarities end.” Of course, Jack wouldn’t become truly rich for many years yet, but the fact that Chris had been impressed by his infectious enthusiasm is an early example of how “Jack Magic” has played a key role in Alibaba’s rise.
Chinadotcom
But unbeknownst to Jack and Joe as they headed empty-handed from Silicon Valley back to Asia, their fortunes were about to be transformed thanks to an event that signaled the beginning of the China Internet gold rush: the Nasdaq IPO of China.com.
China.com, operated by the company Chinadotcom, part of China Internet Corporation (CIC), was led by a deal maker in Hong Kong called Peter Yip. Yip was an unlikely candidate for a China Internet entrepreneur. He wasn’t from China—born in Singapore,28 he was based in Hong Kong—and was a decade or so older than Jack and the portal founders; few people in China had ever heard of him or his website.
But just as dot-com investing began to reach a fever pitch in the United States, CIC found itself sitting on some very important assets:29 the domain names china.com, hongkong.com, and taiwan.com. Using these as leverage, Yip signed on some influential backers, including the unlikely bedfellows America Online and Xinhua, China’s state news agency. To AOL he offered his services as a gatekeeper to the China market. To Xinhua he promised to build a “walled garden” of content, filtering out undesirable content on the Internet.
Yip called his visi
on the “China Wide Web.” In a speech at Harvard University, he argued that much of the content on the Internet was “not relevant to most Chinese.” Touting the Xinhua backing, he claimed30 that the Chinese government had established an Internet strategy and “asked me to help them create a vehicle to allow people to participate.” The news area of his china.com website carried the terrifying tagline “We do the surfing for you.” But Chinese users wanted access to the full Internet, something that local entrepreneurs such as the three portal pioneers were working hard to enable. Yip’s efforts failed to gain traction with Internet users in China. His “know who” approach, based on relationships, was beaten out by the “know how” smarts of China’s new generation of tech-savvy Internet entrepreneurs.
But Peter Yip beat out his mainland Chinese rivals in one important aspect: He really knew how to raise money, scoring a $34 million investment in china.com from AOL, then in July 1999 an IPO for the company on the Nasdaq.
People working in China’s Internet sector were fiercely critical of the company and its claims. I was one of them, telling the New York Times that China.com was “out of step with what Internet users in China are about,” and that “companies that make deals with them are actually doing themselves a disservice.” In June 1999 I wrote a report warning that if China.com was to IPO before the “real” Chinese portals it would “represent the triumph of form over substance and effectively spoil the market for mainland Chinese Internet companies.” How wrong I was. Instead of extinguishing the opportunity for China tech IPOs, China.com lit the market on fire.
On July 13, 1999, China.com listed its shares on the Nasdaq. The stock ticker for the company was as catchy as its website: “CHINA.” Listing at $20, the stock closed that day at $67. What’s in a name? In the case of China.com, a company that people in China had hardly ever heard of, the answer was $84 million—the amount the company raised in the IPO, to which the company added a then-massive $400 million the following February in a secondary offering, valuing the company at $5 billion. The company raised so much money that it would be eleven years before it finally slipped into bankruptcy.