by Duncan Clark
15.Originally from Shanghai, Wu had studied computer science in the United States and joined Yahoo early, in 1996.
Chapter Eight: Burst and Back to China
1.One of them was Edward Zeng (Zeng Qiang), the founder of a chain of Internet cafés. PR savvy, attracting a visit from First Lady Hillary Clinton, Zeng claimed to have built the “leading e-commerce enabling service in China.”
2.Nobel Peace Prize recipient Liu Xiaobo has also described the Internet as “God’s present to China. It is the best tool for the Chinese people in their project to cast off slavery and strive for freedom.”
3.The “CCF” (China-China-Foreign) structure was set up to allow foreign investment into the new SOE telecom operator China Unicom. But Wu considered it a threat to his authority and declared the $1.4 billion of foreign investment illegal.
4.Joseph Tong (Tong Jiawei).
5.Appropriately enough its former CEO now runs a travel-related business in the region.
6.It had conducted a scaled-down “backdoor” listing on the Nasdaq in April 2000.
7.Kwan had worked for fifteen years at GE Medical Systems.
Chapter Nine: Born Again: Taobao and the Humiliation of eBay
1.The event would be the first in a series of annual conferences Alibaba still holds to this day, which they refer to as the “AliFest.” Jin Yong was the first of a parade of VIPs that has since included President Bill Clinton, Kobe Bryant, Arnold Schwarzenegger, numerous CEOs, celebrities, and a parade of Nobel and Pulitzer prize winners.
2.A move that for a few days appeared to imperil the VIE structure: Wang lost his job in Sina’s offshore-listed company but retained key licenses in China, then agreed to relinquish control of those, too.
3.Dangdang, run by Peggy Yu and her husband, Li Guoqing, was backed by VC investors including SoftBank. Joyo’s CEO was Diane Wang, but the company was a spin-off from the software maker Kingsoft, which was engineered by Lei Jun, famous today as the founder and CEO of the high-profile Chinese smartphone manufacturer Xiaomi.
4.Neither Dangdang nor Joyo would become the Amazon of China, but Joyo would at least become Amazon in China. In 2004, Joyo was acquired by Amazon for $75 million.
5.Known in Chinese as yìqùwang, whose meanings include “interesting exchanges network.”
6.Since 1949.
7.Four hundred thousand dollars in angel backing from investment bankers George Boutros, Bill Brady, and Ethan Topper, who had all worked at Morgan Stanley with legendary deal maker Frank Quattrone.
8.All her possessions were in New York, but she didn’t go back to pick them up—they would stay in storage for more than a year until EachNet could afford to ship them to China.
9.From Whitney, AsiaTech, and Orchid.
10.There were more than a dozen, including ClubCiti and Yabuy, founded by veterans from Federal Software who had backed 8848.
11.Whitman later attributed the delay to eBay’s costly site outage in the United States the summer before.
12.With the purchase of a controlling stake in Internet Auction Company.
13.eBay paid $9.5 million for Taiwan auction site operator NeoCom Technology.
14.Behind the United States, Japan, Germany, and the United Kingdom.
15.eBay took two seats on EachNet’s board. Bo held one of the other three.
16.The contrast between eBay’s travails in China, where it had made an outright acquisition, and its triumph in Latin America, where it had made a minority investment in 2001 in local player Mercado Libre, would speak for itself. Today Mercado Libre is the most successful commerce player in Latin America, worth more than $6 billion, and eBay owns over 18 percent.
17.Initially through a joint venture with Alibaba in which SoftBank invested $50 million, with the additional investment in the form of $30 million in convertible notes that they could later convert into ordinary shares.
18.Shou Yuan.
19.“Taobao” was not the first choice of name for the new business. The original name was “Alimama,” subsequently used for the company’s online marketing technology platform.
20.Toto Sun was known as “the God of Wealth” (or “Cai Shen” in Chinese). His staff liked to call him “Uncle of Wealth.” Sun hoped that the nickname would bring good luck to this new addition to the Alibaba family. Zhang Yu, a vice president in charge of operations, was known as Yu Yan, one of the leading female roles in Jin Yong’s novel Demi-Gods and Semi-Devils.
21.For the impact of her regular publication The Internet Report, first released in 1995 in the run-up to the groundbreaking Morgan Stanley IPO of Netscape Communications.
22.In trying to imagine what an itinerant merchant of the Yiwu variety would look like in the United States, I thought of a movie from my childhood, the 1987 film Planes, Trains and Automobiles, starring John Candy and Steve Martin. Candy plays Del Griffith who is trying, and failing, to make a living traveling the country selling plastic shower-curtain rings.
23.Individual buyers—and sellers—who dominated the platform were less likely to pay taxes such as VAT, putting business-to-consumer websites at a disadvantage.
24.In 2004.
25.MIT, Sloan Management Review, 2012, Puneet Manchanda (University of Michigan) and Junhong Chu (National University of Singapore Business School).
26.“In the introduction phase, the platform’s growth is primarily seller-driven: seller growth induces buyers to register, which in turn leads to more sellers to register, which further encourages more buyers to register, etc.”
27.Meaning “Ali prosper.”
28.Senior Vice President Bill Cobb, Chief Financial Officer Rajiv Dutta, and deal specialist Bill Barmier.
29.At the firm’s annual analyst day on January 20, 2005.
30.Like eBay’s acquisition of EachNet, this too ended in failure, resulting in its sale at a $600 million loss in 2009 to investors that included Silver Lake Partners, Index Ventures, and Andreessen Horowitz. Embarrassingly for eBay, just eighteen months later this team sold Skype to Microsoft for $8.5 billion.
31.Along with Tom Online itself, which was taken private shortly after.
Chapter Ten: Yahoo’s Billion-Dollar Bet
1.With David Filo.
2.In the first nine months of the year.
3.Launching gbchinese.yahoo.com (“GB” standing for guo biao, or national standard) and another chinese.yahoo.com in the complex characters used by Chinese speakers outside the mainland.
4.For a period of fifty years under the Basic Law, part of Deng Xiaoping’s “One Country, Two Systems” formula.
5.Qu Weizhi.
6.Later CEO of the Chinese online video company Youku.
7.Acquired in 1998 by AOL for $407 million.
8.A market that would dramatically reverse the fortunes of NetEase and propel the rise of another online games specialist based in Shanghai, called Shanda (Shengda in Chinese), which was listed on the Nasdaq in 2004.
9.Today they represent $18 billion in online revenues, bigger than China’s $5 billion movie box office, and accounting for 13 percent of all Internet revenues in the country.
10.Including major portals like Sina, Sohu, and Tom.
11.By the end of 2009, Baidu had captured 63 percent of the Chinese search market, almost double Google’s 33 percent share. In March 2010, when Google decided to quit the Chinese market amid bitter accusations of hacking and the pressures of censorship, Baidu would reign supreme with over 75 percent of the market by the end of the year.
12.Zhou had accused the CNNIC of lacking a legal foundation.
13.Called Yisou.
14.To improve its advertising business by matching it more closely with its users’ search queries, Yahoo made a $1.3 billion purchase of Overture in 2003.
15.Qihoo 360, which went public on the Nasdaq in March 2011, would become best known for its free antivirus software, which would bring Zhou once again into conflict with Baidu and others, including Yahoo. In China, and among some former Yahoo colleagues in the Uni
ted States, Zhou Hongyi developed a reputation as “the father of malware in China,” a label he vigorously disputed. In December 2015, Zhou led a consortium of investors to take Qihoo back into private hands for $9.3 billion, with plans to delist the company from the New York Stock Exchange in the first half of 2016.
16.In May 2015, Yahoo injected its 384 million shares in Alibaba, worth more than $33 billion, just shy of Yahoo’s total valuation, into a new entity, “SpinCo,” in an effort to avoid paying over $10 billion in U.S. taxes.
17.The gathering was an off-site summit hosted by the Hua Yuan Science and Technology Association (HYSTA), a group of Silicon Valley–based entrepreneurs and engineers mostly hailing from China, ahead of their annual conference at the Santa Clara Convention Center.
18.The Yahoo-Alibaba transaction has proved so successful that many have claimed responsibility for teeing up the Jack-Jerry meeting at Pebble Beach. Jack has credited, among others, Wu Ying from UTStarcom, Liu Erfei of Merrill Lynch, and Deng Zhonghan of Vimicro Corporation. Joe Tsai says, “Of course eighteen different people took credit for putting together that meeting. It was the Hua Yuan event [that] took credit. Everybody did.” He added, “If you knew each other . . . you were at the same conference.”
19.Traveling to Beijing with Jerry were Yahoo CEO Terry Semel and CFO Sue Decker and corporate development executive Toby Coppel.
20.A twenty-four-year veteran of Warner Bros., where he rose to become chairman and co-CEO.
21.Li, a protégé of Jiang Zemin, was in charge of propaganda for the Communist Party, a post he was appointed to in 2002. He served in that capacity for a decade, overseeing the extensive system of censorship for the Internet.
22.The company had listed the year before and had a market cap of more than $2.2 billion, with revenues of $165 million.
23.Instead, he dreamed of turning his company into the Disney of China, having earlier that year taken a 19.5 percent stake in Sina as the first step in a hostile takeover (which never materialized).
24.After selling part of its 40 percent stake in Taobao to Alibaba for $360 million.
25.In a talk at the Computer History Museum in Mountain View, California, hosted by HYSTA, whose conference had helped tee-up the original deal.
26.Yahoo also bought out a SoftBank investment in Taobao for $360 million, half of which SoftBank then used to acquire more shares in Alibaba, in addition to another $30 million to exercise convertible notes it had purchased in 2003.
27.The amount was so large that, on hearing the news of the investment, one CEO of a smaller e-commerce player recounted to me, “I thought the news must be fake, many people did. One hundred million dollars would have been a big number, but one billion dollars? I had never imagined such a large number.”
28.Now CEO of Shazam.
29.Once he had established Qihoo 360, using the proceeds of Yahoo’s investment, Zhou set about building a product designed to help users uninstall the very product he himself had built at 3721, which had since been rebranded Yahoo Messenger, but which he now described as malware that should be removed.
[email protected].
31.The Beijing State Security Bureau issued a Notice of Evidence Collection and requested “email account registration information for [email protected], all login times, corresponding IP addresses, and relevant email content from February 22, 2004,” from Yahoo China’s offices in Beijing.
32.Including Human Rights Watch, the Committee to Protect Journalists, and Reporters Without Borders.
33.Who had already taken flak from Alibaba’s rival eBay for committing to the event.
34.The House Foreign Affairs Committee.
35.After fielding an enquiry from the U.S. embassy about the background of Google’s decision, I found myself being quoted later on in a cable leaked by Wikileaks. Rather disappointingly, no one took much notice.
Chapter Eleven: Growing Pains
1.A number of Alibaba veterans left the firm, including cofounder Toto Sun, CTO John Wu, and COO Li Qi, whom Jack had first worked with at China Pages.
2.Maggie Wu (Wu Wei), who still serves today as the company’s CFO.
3.Before starting his own private equity fund, Vision Knight Capital.
4.And its domestic site alibaba.com.cn.
5.And hold for two years.
6.Peter Woo’s Wharf, Robert Kuok’s Kerry Properties, and the Kwok family’s Sun Hung Kai Properties.
7.The offering priced Alibaba’s shares at more than 106 times its 2007 forecast earnings versus forty-one times for Google, or forty-five times for its old rival Global Sources.
8.A five-bedroom, 7,000-square-foot property for which he paid more than $5,400 per square foot. He purchased the penthouse apartment complete with private roof garden from developer Kerry Properties, one of the cornerstone investors in the IPO.
9.The previous year Alibaba.com generated $170 million in revenues and $28 million in net profit.
10.On its Alimama platform.
11.In September 2008, Alibaba launched the first phase of its “Big Taobao Strategy,” integrating Taobao.com and the online advertising platform Alimama to build “the world’s largest e-commerce ecosystem.”
12.After a four-and-a-half-year life span as a publicly listed company, in June 2012 Alibaba.com was absorbed back into parent Alibaba Group, with shareholders paid the same price as in the original 2007 IPO.
13.Valuing Yahoo’s shares at a 61 percent premium over the market price.
14.Estimated at over 99 percent.
15.Including Carl Icahn. But Yahoo’s efforts to strike a search deal with Microsoft’s rival Google killed any prospect for the deal.
16.Who was still the representative for Yahoo on Alibaba’s board.
17.Gady Epstein at Forbes.
18.The sale for about $100 million netted them a pretax paper gain of $98 million. The sale released cash Bartz badly needed to shore up investor support.
19.In 2009 and 2010.
20.Elvis Lee.
21.Alibaba said that majority ownership was transferred in 2009 to comply with regulations, then full ownership transfer completed in 2010.
22.Governing Internet payment, mobile phone payment, bank card–related services, issuance and acceptance of prepaid card payments, and currency exchange.
23.The talks had been initiated with Jerry Yang and were continued by the two companies’ CFOs before breaking down that summer.
24.In an interview on July 7, 2011, with China Entrepreneur magazine (Zhongguo Qi Ye Jia).
25.In a June 2011 interview at the Wall Street Journal’s All Things Digital conference in California.
26.By June 2015, when Alipay was valued by private investors as high as $50 billion, the $6 billion cap on a stake then worth more than $18 billion would look like a very raw deal for Alibaba investors like Yahoo.
27.Three months earlier Alibaba had announced it would take its Hong Kong–listed subsidiary Alibaba.com back into private hands, paying the same price for the shares as the company had listed in 2007 (a 60.4 percent premium on the shares). This cleaned the way for the IPO of the whole Alibaba Group in 2014.
Chapter Twelve: Icon or Icarus?
1.Losing in the process the long-standing arrangement to hosting U.S. presidents visiting New York City.
2.A year earlier Jack had become chairman of Alibaba, with Joe Tsai becoming executive vice chairman. Jonathan Lu would last barely two years in the job. Both he and his successor, Daniel Zhang, would face the unenviable task of trying to fill Jack’s shoes.
3.Including any impairment of the “trusted status of the ecosystem” or Alibaba’s “culture, mission, and values.”
4.The ranks of the Alibaba Partnership can be refreshed through the admission of new partners each year. Those appointed typically have more than five years’ service, and their election is subject to the approval of 75 percent of all partners. A Partnership Committee of five, including Jack and Joe, administers the structure.
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bsp; 5.Drawn from Alibaba’s finance and logistics affiliates.
6.Jack, Lucy Peng (Peng Lei), Trudy Dai (Dai Shan), Jane Jiang (Jiang Fang), Jin Jianhang, and Eddie Wu (Wu Yongming).
7.The new members are: Yongfu Yu, president of Alibaba’s mobile business unit and its advertising platform Alimama; Junfang Zheng, Alibaba Group’s deputy CFO; Ying Zhao, vice president of Ant Financial; and Lijun Sun, general manager of rural Taobao marketplace. This is the first time that Alibaba has added new members to its partnership since the IPO in September 2014. In its prospectus, Alibaba said that to be eligible for election, a partner candidate must have “continued service with Alibaba Group and/or our related companies or affiliates for, in most cases, not less than five years,” in which case Yongfu Yu is an exception. Yu was the chairman and CEO of UCWeb, a mobile Internet technology and service provider that was acquired by Alibaba in 2014.
8.The Securities and Futures Commission.
9.In 2007 in Hong Kong, one-quarter of the Alibaba.com IPO shares went to individual investors.
10.After New York, Alibaba’s global road show took in Boston, San Francisco, Hong Kong, Singapore, and London. Management divided up into two teams, each fronted by Jack or Joe.
11.As the company approached the one-year anniversary of the IPO, concerns grew about the expiration of the “lockup”—shares that key investors were not permitted to sell for the first year—of 1.6 billion of its 2.5 billion shares.
12.In November 2013, Zhejiang Alibaba E-Commerce Company Limited was restructured to become Alibaba Small and Micro Financial Services Group. Jack saw his shareholding reduced from 80 percent to about 8 percent in the new company, or no greater than his shareholding in Alibaba Group.
13.Variously described as a “white paper” or as merely minutes of a meeting.
14.Sina Weibo.
15.The head of the SAIC’s department of online commerce.
16.And one day after Yahoo announced it was creating a new structure—which it hoped would minimize its tax liabilities—to spin off a 15 percent stake in Alibaba.
17.Revenue rose 40 percent to $4.22 billion, but came in below the average estimate of $4.45 billion, according to Thomson Reuters.