by Duncan Clark
With his activism, and the symbolism of the lake he built on the Wetlands headquarter campus, Jack is demonstrating that “[s]omebody has to do something. . . . Our job is to wake people up.”
Jack isn’t shy about criticizing the old industrial model: “Chinese people used to feel a sense of pride for being the world’s factory. Now everyone realizes what it costs to be that factory. Our water has become undrinkable, our food inedible, our milk poisonous, and worst of all, the air in our cities is so polluted that we often cannot see the sun.” In his article, Jack also took aim at the government’s inaction toward the environmental crisis: “Before, no matter how hard we appealed to the privileged and the powerful for attention on water, air, and food security issues, nobody wanted to listen. The privileged still got their privileged water and privileged food.67 But everyone breathes the same air. It doesn’t matter how wealthy or powerful you are, if you can’t enjoy the sunshine, you can’t be truly happy.” Like many of the other superrich in China, Jack bought himself a pristine patch of paradise abroad. In 2015, with the help of the Nature Conservancy, an environmental foundation founded by a former Goldman Sachs banker, Jack purchased the $23 million Brandon Park estate in New York State’s Adirondack Mountains; the estate is part of a holding that once belonged to the Rockefeller family. In his interview with Jack at APEC in Manila in November 2015, President Obama hailed Jack for taking an interest in the environment: “I know that in addition to the work that you have been doing with nonprofits recently, you have also been in conversations with Bill Gates about the potential of really turbo-charging investment in research and development around clean energy.” Shortly afterward, on the eve of COP21, the UN conference on climate change in Paris, Jack announced his support for the “Breakthrough Energy Coalition.” Led by Bill Gates, Jack was joined by his investor Masayoshi Son and former sparring partner Meg Whitman, along with Mark Zuckerberg and Jeff Bezos, among the twenty-eight investors pledging to help fund research into new technologies to reduce carbon emissions.
Health and Happiness
Jack’s focus on the environment and people’s health goes beyond a sense of corporate responsibility: Alibaba has business aspirations, too. In 2014 the company invested in CITIC 21CN, a Hong Kong–listed, pharmaceutical data business. As it has since been renamed, Alibaba Health seeks to profit from the inefficiencies of state-owned providers in the sector, including making appointment bookings easier for patients, as well as making it easier for doctors, clinics, and consumers to access information about and to order pharmaceuticals. The focus on health care is one of two long-term investment areas that Jack summarizes as the “2 H’s”: health and happiness.68
In addition to making people healthier, he aims to make “young people enjoy their lives, to be optimistic in the future. All the heroes in Chinese movies die. In American movies, all the heroes survive. I ask people, ‘If all the heroes die, who wants to be a hero?’” Why the interest, for an e-commerce company, in entertainment?
True to his roots as a teacher, Jack often talks about taking care of the needs of the younger generation. In an interview with Charlie Rose he shared his view that, in China, “lots of young people lose hope, lose vision, and start to complain.” Alibaba is increasingly active in areas that Jack hopes could provide the answer: sports and entertainment.
In November 2015, Alibaba sponsored the first regular-season U.S. college Pac-12 Conference basketball game in Shanghai, between the University of Washington Huskies and the University of Texas Longhorns, and announced it would host a game between Stanford and Harvard universities a year later. Alibaba has also started to buy sports teams. In June 2014, he made a $200 million investment in the Guangzhou Evergrande soccer team, a deal negotiated, the team’s owner69 later revealed, while Jack was drunk. Jack justified the investment: “I think not understanding soccer doesn’t matter. . . . I also didn’t understand retail, e-commerce, or the Internet, but that didn’t stop me from doing it anyway.” He said he was not investing in soccer, he was “investing in entertainment.”
Alibaba is one of China’s leading investors in film, television, and online video. The company’s biggest outlay in traditional media so far is its $800 million investment in a Hong Kong–based film and TV studio70 that it rebranded Alibaba Pictures. In 2014 Alibaba tapped Zhang Qiang, then vice president of the powerful, state-owned distributor China Film Group, to head up its entertainment business in China. Alibaba is also jointly invested71 with Tencent in Huayi Brothers, a Beijing-based film and TV studio and acquired cinema ticketing company Yulekei. But Alibaba has made its biggest splash in Internet-based media, including investing in and then72 acquiring Youku Tudou, a company founded by former Sohu executive Victor Koo.73 More than 430 million people in China regularly watch videos online, mostly on their mobile devices, with some shows reaching larger audiences than the country’s state-owned terrestrial broadcasters. The market used to be rife with pirated content, but today major online video platforms like Youku are pushing hard to become the local equivalent of Netflix, featuring programs such as popular Korean dramas or hit shows from the United States like 2 Broke Girls. The $4 billion online video market—generated mostly by advertising, but also some subscription revenue—is still a challenging place to make money given the cost of licensing content. Youku Tudou never made a profit. Some investors questioned the impact of the acquisition on Alibaba’s cost structure, but Alibaba justifies it to compete with rival platforms from Tencent, Baidu, and others. Also Alibaba had already announced plans to launch its own streaming service, “Tmall Box Office,” or “TBO,” in conjunction with cable TV player Wasu Media, in which Jack had already invested personally. The idea behind TBO is to be as disruptive a player on TV production in China as Netflix is in the United States. Already close to half a billion people74 watch videos online on sites controlled by Alibaba, Baidu, Tencent, and others. Yet in another sign of the limits imposed on entrepreneurs when they encroach on its turf, in November 2015, the government imposed new restrictions on the amount of imported content—previously capped at 30 percent—they can offer on their platforms. In an effort to promote more homegrown content, Alibaba is also looking to explore new ways to finance shows, including harnessing crowdfunding through a company it acquired called Yulebao.
With its newly established U.S. base in Pasadena, California, Alibaba Pictures has big ambitions. Jack has said that he wants nothing less than to make Alibaba “the biggest entertainment company in the world.” Leading the charge for Alibaba’s overseas investments in entertainment is Zhang Wei, appointed in 2015 as president of Alibaba Pictures. An alumna of Harvard Business School, Zhang once hosted a business show on China Central Television (CCTV) and worked as a media executive with CNBC and Star Television before joining Alibaba in 2008. Alibaba Pictures has yet to release its own film but it has already financed movies like Mission: Impossible—Rogue Nation. In an interview with The Hollywood Reporter, Zhang revealed the initial resistance from studios to working with Alibaba: “The first thing everyone wonders is what an e-commerce company can actually do for them. One of the biggest disconnects the studios face is that they never really know, in a detailed, comprehensive way, who is coming to see their movies. Even the filmmakers would probably like to know this. How old are they? Where are they from? Do they have kids? What are their other interests? What’s their living situation? What type of people are they? We talk about demand-driven entertainment. Bringing the Internet deeper into the entertainment business is the best way to solve that puzzle.” Zhang added that Alibaba can utilize Alipay, used by many people to buy cinema tickets online, to gain a greater understanding of moviegoers: “The movie audience is much younger in China, as going to the movies is a lifestyle change. The generation before went to karaoke. Now they go to the movies as a primary source of entertainment.”
More tangibly, merchandising is an area that ties together e-commerce and entertainment. Zhang explains, “In the U.S., theatrical makes up mayb
e 30 to 40 percent of revenue. In China, theatrical is the majority by far. There’s so much value that has not been developed yet in the merchandising space.” Zhang points to the Mission: Impossible tie-ins as an example, selecting qualified merchants to manufacture licensed goods: “We came up with about thirty products with Paramount’s merchandising team, sending them designs and samples throughout the whole process. We showed many directly to Tom Cruise as well, to make sure he was OK with how they represented the Mission: Impossible brand. This is our value: connecting both parties. In the past, how does a backpack maker in Zhejiang Province connect with Paramount and Tom Cruise in such an efficient and reliable way? It was just impossible.”
Inevitably, given Jack’s big plans in entertainment, Jack has been asked whether Alibaba intends to buy a Hollywood studio. Viacom’s Paramount Pictures is one rumored target, which as the studio behind Forrest Gump might give Jack just the perch—or bench—that he craves in Hollywood. So far Alibaba has denied its intentions to buy a studio outright: “Well, I don’t think they want to sell. It’s better we partner. You can never buy everything in the world.”
Yet barely a day goes by when Alibaba, or Jack himself, is not listed as a potential buyer of a company, somewhere in the world. In December 2015, Alibaba confirmed it was purchasing the South China Morning Post (SCMP), the main English daily newspaper in Hong Kong. Some saw the purchase of the 112-year-old publication as a means for Jack to burnish his credentials as a mogul. After all, Amazon founder Jeff Bezos had personally acquired the Washington Post two years earlier. Was Jack simply following suit?
Others saw signs of something deeper: that Jack was buying the paper to curry favor with Beijing. Almost two decades after the United Kingdom handed back the territory in 1997, the Chinese government is grappling with a yawning political and social divide75 in Hong Kong. In 2014 the territory was brought to a standstill by the Occupy Central movement (also known as the Umbrella Revolution), a student-led movement protesting a lack of democracy and other freedoms. Although the crisis ended peacefully, the underlying tensions that fueled it remain ever present. The SCMP had reported extensively on the protests. Critics speculated that Jack had offered his services to bring the paper to heel—or even that he had no choice but to comply with a directive from Beijing to do so.
Jack dismissed the conspiracy theories: “I have always encountered speculation from other people. If I had to bother about what other people speculated about, how would I get anything done?” He vowed to respect the editorial independence of the newspaper: “They have an independent platform and they can have their own beliefs.”
For the newspaper, the backing of a well-funded and influential business group on the mainland has obvious attractions. Like many print publications, the subscription-based business model of the SCMP, although still profitable, has suffered in the face of free online content. In line with Alibaba’s longtime commitment to offer services for free, Alibaba will remove the newspaper’s subscription paywall, allowing wider distribution and unlocking new business opportunities. In a Q&A with the newspaper, executive vice chairman Joe Tsai explained, “Our vision for SCMP is to build a global readership. . . . Even though some say the newspaper industry is a sunset industry, we don’t see it that way. We see it as an opportunity to use our technological expertise, and use our digital assets and know-how to distribute news in a way that has never been done before.” In business terms, the downside for the purchase is relatively limited, and a turnaround could win Jack plaudits.
For Alibaba, the deal is not large in terms of money: They paid just over $200 million for the business. Yet given the intense scrutiny that it invites, the transaction is not without risks. In his Q&A Joe explained that if the SCMP can help the world understand China better, this will also be good for Alibaba—a company based in China but listed in the United States: “China is important; China is a rising economy. It is the second-largest economy in the world. People should learn more about China.” Yet in comments that both revealed his frustration and emboldened those critical of the deal, he added, “The coverage about China should be balanced and fair. Today when I see mainstream Western news organizations cover China, they cover it through a very particular lens. It is through the lens that China is a communist state and everything kind of follows from that. A lot of journalists working with these Western media organizations may not agree with the system of governance in China and that taints their view of coverage. We see things differently; we believe things should be presented as they are. Present facts, tell the truth, and that is the principle that we are going to operate on.”
Whatever Jack’s motivations for the acquisition are, by becoming a newspaper proprietor in Hong Kong he is wading into deeper waters. Yet he has never shied away from challenges before. Jack’s fame stems from the story of how a Chinese company somehow got the better of Silicon Valley, an East beats West tale worthy of a Jin Yong novel. His continued success, though, is becoming a story of South versus North—of a company with roots in the entrepreneurial heartland of southern China testing the limits imposed by the country’s political masters in Beijing.
Since Xi Jinping became president of China in 2012, high-profile entrepreneurs have found themselves increasingly subject to scrutiny and sanction from the Chinese government. One high-profile real estate entrepreneur, Vantone Holdings’s Feng Lun, even blogged—then later deleted—the following message: “A private tycoon once said, ‘In the eyes of a government official, we are nothing but cockroaches. If he wants to kill you, he kills you. If he wants to let you live, he lets you live.’” The temporary and still unexplained disappearance in December 2015 of Fosun chairman Guo Guangchang—once feted as a “Warren Buffet of China”—further illustrates those risks.
Jack is already the standard-bearer for China’s consumer and entrepreneurial revolution. Now he is advancing on new fronts, such as finance and the media, that have long been dominated by the state.
Forged in the entrepreneurial crucible of Zhejiang and fueled by his faith in the transformative power of the Internet, Jack is the ultimate pragmatist. By demonstrating the power of technology to assist a government confronted with the rising expectations of its people for a better life—from the environment, education, and health care to continued access to economic opportunity—Jack aims to create the space for him to fulfill even greater ambitions.
One leading Chinese Internet entrepreneur put it to me like this: “Most people think of Alibaba as a story. It’s not just a story, it’s a strategy.”
Acknowledgments
For my father, David Clark, and my partner, Robin Wang.
I am deeply grateful for the inspiration, encouragement, and friendship of Amy Tan, Lou DeMattei, and the whole team at Tandema.
I would like especially to thank Mei Yan, for her friendship and for working so tirelessly on this project throughout, and my former collaborators at Stanford University: Marguerite Gong Hancock, for encouraging me to write this book, and Professor Bill Miller, for his insights into what makes Silicon Valley tick.
Many thanks to our research assistant Chang Yu at Peking University, now completing her Ph.D. in Hong Kong for which I wish her the best of luck.
At BDA, Meiqin Fang was very generous with her time and guidance, along with Dawson Zhang. Thanks also to Van Liu and Shi Lei. I’m very grateful to Wilbur Zou, for his leadership at BDA, enabling me to devote myself to this project. My assistant Joyce Zhao has always helped me keep on track, no matter where in the world I was writing.
The maps were designed by the Beijing-based artist Xiaowei Cui.
My sincere thanks to those who provided invaluable assistance but who preferred to remain anonymous. I’m very grateful to David Morley, for giving his time so generously to share the Morley-Ma family story and photos; Heather Killen, for her recollections and the photos from Yahoo China’s early days; Alan Tien for his insights into the eBay/PayPal story in China; and my friend and fellow monkey Roger Nyhus, for his
warm introduction to the Seattle community.
I’m grateful for the support of all the Alibaba pioneers and veterans who helped me along the way, for the support of Jennifer Kuperman and team in San Francisco, and for the generous time afforded by Joe Tsai and colleagues in Hangzhou.
Thanks to my sisters, Terri, Alison, and Katie, for their support; to my editor, Gabriella Doob, at HarperCollins; and to the team at Sandy Dijkstra Literary Agency.
In memory of my mother, Pamela Mary Clark; my mentor, Professor Henry S. Rowen, from Stanford University, who was cycling on campus until the day he passed away in November 2015 at age ninety; and Miles Frost, a young and talented entrepreneur I had only recently befriended before his own story was cut so tragically short, at age thirty-one.
Notes
Introduction
1.The firm “BDA” originated as BD Associates, the name derives from the first initials of my Chinese partner in the venture, Dr. Bohai Zhang, and my first name, Duncan. The chairman of Morgan Stanley Asia, Jack Wadsworth, and Theodore S. Liu, former head of the China investment banking team, were instrumental in the launch of my venture, by giving me a one-year retainer to set up shop in Beijing.
2.A disclosure, although I’m no longer a shareholder, under the “friends and family” program, Alibaba did allow me to purchase some shares in the Alibaba.com IPO in Hong Kong in 2007 and in the Alibaba Group IPO in New York in 2014.