From day one, we recognized that making Taobao free was not enough. Sure, it would get people in the door. But we’d also have to keep them. Jack’s message to the team was to forget everything about eBay’s business model in the United States. It was more important, he argued, to focus on Chinese consumers and develop what they needed rather than what had worked in the United States.
The first step was recognizing that the consumer e-commerce model for China would not be an auction model, as at eBay. While eBay had gotten its start with people posting Pez dispensers and other consumer collectibles they had pulled out of their basements and put online for auction, China’s consumer culture was entirely new. The Chinese did not have a hundred years of consumer products lying around in basements. After the poverty of the Cultural Revolution, no one had anything to collect, except for a few of Mao’s little red books. What our customers really wanted, we realized, was simply a storefront for selling their products. Our goal was not to create a marketplace where multiple buyers could bid on one unique product posted online. It was to create a marketplace where multiple sellers could compete to offer the widest range of products and highest quality service to buyers who might otherwise shop for goods at the millions of small offline storefronts in China’s nascent retail economy.
Working from this key insight, Taobao was vastly different from eBay China. Afraid that buyers and sellers might circumvent its system and avoid paying eBay’s commissions, eBay went out of its way to keep buyers and sellers blind to each other and unable to communicate with one another before a purchase. This was a major inhibitor to commerce in an environment where people were accustomed to building a personal relationship before doing business.
Our approach was exactly the opposite. Because we were entirely free, it didn’t matter to us whether retailers consummated their deals with buyers through our site. In fact, we encouraged them to call each other, get to know each other, and even meet face to face for large purchases. We were confident that, just as we had found a way for Alibaba.com to make money from its users without transaction fees, we ultimately would find a way to make money from Taobao if its sellers were able to make money. But first it was important to build a platform that gave them more tools than they had offline rather than fewer.
To this end we decided to provide live chat software that would allow buyers to contact sellers directly and communicate with them in real time. China was a nation crazy for chat software, and we couldn’t imagine commerce in China without it. It would be like telling a retailer in the United States that she couldn’t have a telephone and would simply have to rely on mail to communicate with her customers. So we introduced a chat product called Wang Wang, complete with cute and flashy emoticons. Buyers and sellers quickly adopted the chat software as a part of the regular way they did business.
To eBay a service like Wang Wang would have been unthinkable. Allowing buyers and sellers to chat in real time would have torn apart eBay’s entire business model. If people could haggle and negotiate through chat, they could once again avoid paying for eBay’s product listing and transaction fees. But in a nation where chat was a core part of the way young people used the Internet, eBay was missing a major point.
Another major differentiation was the method of payment. Although the government had kept a tight rein on news and information domains on the Internet, officials had always been relatively hands-off about e-commerce. In fact the main rationale for allowing the Internet to expand in China was that it would bring economic benefits. So, as long as e-commerce companies operated responsibly, the government had been relatively encouraging. The one exception was online payments, which bled into the domain of China’s highly regulated banking sector. E-commerce payments were very much a gray area, and there were no clear rules about whether and how companies could handle online payments. Jack recognized this problem and explained to me how he intended to approach it.
“The problem for online payments up until now is that there has not been any true standard for online payment to emerge in China. The reason is because each of the state-backed banks wants to create their own standard and so they are unwilling to cooperate with one another. But I’ve come up with the solution—we are going to create something called AliPay and then go out and sign up all the banks as partners.”
He explained that what would make AliPay different from eBay’s PayPal is that it would not provide direct payments between buyer and seller. Rather, it would be an escrow-based payment system, which would overcome the major barrier to e-commerce in China—lack of trust between buyer and seller. So, for example, after placing an order, a buyer would first send his money to an AliPay escrow account held by one of the banks. Then the seller would ship the product. Only after the buyer had inspected the product and verified that it arrived as described would the money be forwarded by AliPay to the seller’s bank account.
“Actually, this wasn’t an entirely new idea,” Jack continued. “eBay once tried it in Korea but gave up on it. But we’re pretty sure it will work here. And once AliPay grows large enough, we can slip in direct payments. And as our AliPay becomes more popular, someday it has the possibility to become China’s largest bank.”
As always, Jack was dreaming big.
The Google Guys
It looked to be just another average rainy day in Hangzhou in fall 2004, so when the unexpected email hit my in-box, I instantly perked up. The Google Guys were coming to China, and they wanted to meet us.
Fresh off their record-shattering IPO the month before, the Google Guys—Larry Page and Sergey Brin—were the new billionaire heroes of the Internet industry. It was almost impossible to find a magazine that didn’t feature them on the cover. Being called to meet them felt a bit like going to meet the Wizard of Oz, as a mysterious aura preceded them.
Having followed Google’s development closely, we were in awe of them. But our awe was tempered by a healthy dose of fear. The Google Guys’ visiting China could mean only one thing: Google was turning its attention to the China market. And in our worst nightmares we imagined a room of technicians in lab coats back at Google headquarters flipping an “Alibaba Killer” switch and—poof! Still, it was clear that when the Google Guys knock on your door, you’d better answer it. If there was any chance to have them on our side, rather than against us, we’d take it, so we agreed that Jack, Joe Tsai, and I would travel to Shanghai to meet the Google team in a private meeting room at the Grand Hyatt.
As I had ramped up our search advertising on Google, my admiration had only grown. Since my long week in quarantine I’d become obsessed with monitoring and growing our ad campaign. I found myself glued to the computer day and night, constantly checking Google ad reports to see how many new people we’d brought to the site each day, each hour, each minute. It was pretty amazing how, from a small apartment in the middle of China, we could coordinate a global marketing campaign. I was addicted to Google, stunned that something so simple could be so powerful.
Within a year our initial $600 budget had grown to $1 million, making us Google’s largest advertiser in China. As our advertising budget grew, so did our relationship with the company, and in the spring of 2004 a colleague and I were flown to the Googleplex in Silicon Valley to speak to Google’s employees about our experience with advertising on the site.
Traveling from Hangzhou to the Googleplex felt like going on a hajj to Mecca, and we knew it was a once-in-a-lifetime opportunity to see the epicenter of the Internet industry. As we walked through the sprawling modern campus of glass-and-steel buildings, Googlers played volleyball, Rollerbladed from building to building, and sat outside in shorts and sunglasses while sipping lattes and brainstorming the next great innovation. This other universe felt both parallel to and distant from China’s rough-and-tumble Internet industry. If Alibaba’s drab Hangzhou offices were like a broken-down Chevette, the shiny Googleplex was more like a glossy new Porsche. Both were
technically cars, but beyond that there wasn’t much similarity. I couldn’t help but be impressed by the power contained in one office complex.
And so it was that five months later I found myself waiting in a Shanghai hotel lobby for Sergey and Larry. Joe and Jack were on their way, and, because I’d arrived much too early, I killed the time by pacing around the hotel lobby, staring out the windows at the Huangpu River, and trying to make out the colonial buildings along the Bund through the dense Shanghai smog. As I hadn’t met the Google Guys on my trip to the Google headquarters, I was looking forward to finally meeting them and seeing what they were really like.
When Joe and Jack finally arrived, the three of us sat down to hammer out a strategy. The Google people had been vague about the purpose of the meeting, so we could only guess their intentions. We were privately wondering, perhaps even hoping, that Google was there to propose a major partnership or acquire us for a hefty sum. But we decided to play it safe. “Google called the meeting, so let’s just go in and listen,” Joe said. “No need to show all our cards.”
We arrived at the meeting room, where we were greeted by some Google staffers and told to have a seat while the rest of the team returned from a break. As we looked around the room, it was clear that we were not the only people the Google honchos were meeting that day. Chairs were scattered around, and the large table was piled with loose documents and half-eaten snacks. I had envisioned a formal meeting to discuss potential partnerships, but it felt more like we were walking into an internal Google brainstorming session.
While we waited, we chatted with the staff, a mix of senior executives from international sales and operations. With the IPO behind them, they told us, they were turning their attention to international markets. Somewhat unnecessarily they also mentioned the private jet they’d chartered for this round-the-world trip.
Suddenly Larry Page entered the room, shook hands with us, and settled at one end of the table. I had read so much about him that I was expecting a charming, charismatic Internet pioneer, but my first impression was that he was more the classic tech geek. Hunched in his seat, he tended to look at the Google staffers, rather than us, as he spoke in his high-pitched monotone. His head and shoulders seemed to move as one fixed unit, making his mannerisms slightly robotic. Even his own colleagues seemed embarrassed by his style, which had an abrasive edge. Although an easy person to respect, he was a difficult one to warm up to.
Dispelling once and for all the hope that Google was in town to make an acquisition offer, Larry asked, “So what’s Alibaba?”
It was clear that Larry had little idea of what we did, but Jack didn’t seem to mind. He took a few minutes to walk the Google team through Alibaba’s business and history. As always, Jack beamed with excitement, but the Google team—perhaps having heard the same type of story many times over the years—seemed indifferent.
We were still unclear about Google’s intentions, so we asked for a bit more information about the purpose of the meeting. In response the Googlers embarked on a round of questions about our operations and revenue model.
“So where are most of your advertisers located? Only in the big cities or are they all around the country?”
“How do you sell to these customers? Do you use agents or sell directly?”
“How many people are on your sales team? How much do you pay them per month? What kind of commission do you provide them?”
At first we tried to answer as politely as possible, but as time went on the purpose of the meeting was becoming clear—we were being Googled. Stripped down and mined for data points to be fed into the Google machine. As the questions continued, fast and furious, I realized that Alibaba was just one in a series of companies whose executives the Google team was meeting with to suck out information that they would ultimately use against us.
I looked over at Jack to see his reaction. His smile had turned into a frown and he was sliding deeper into his chair. Reading his face, I could see that he was disappointed, even disgusted. Joe looked equally annoyed, and the meeting grew uncomfortable as our answers became increasingly defensive.
As one particularly sensitive question came up, I tried to lighten the mood by joking, “Well, we could tell you that, but we’d need to first have the secret Google search algorithm.” Joe and Jack chuckled, but Larry and his team maintained their stone-faced expressions and continued their interrogation.
Perhaps sensing our growing discomfort, one of the junior Googlers cut in.
“Well, as you know, Alibaba is one of Google’s largest advertisers in China, so we’d like to know how we’re doing and how we can improve.”
Since I managed the Google advertising campaigns, Joe and Jack turned to me. “Well, compared to Yahoo!, we love Google’s technology and, most of all, the results we get,” I told them. “But we’ve been happier about the service we’re getting on Yahoo!. The team takes a bit more time to work with us to make sure we run smart campaigns.”
Larry cut in, joking, “Why don’t you get your service from Yahoo! but spend your money on Google?”
I looked at Jack, who was plainly astonished. Although it was ostensibly just a (lame) joke, Larry’s response revealed a fundamental difference between Google, the technology company, and Alibaba, the service company. Like Yahoo!, Alibaba was proud of using human editors from the beginning, in keeping with Jack’s declaration: “We are not an Internet company, we are a service company.” Google, on the other hand, believed that nearly everything could be automated, including customer service. Given this divide, it was not surprising that Jack seemed to hit it off much better with Jerry Yang, the Yahoo! founder, than with the Google Guys.
Just as the meeting began to stall, Sergey Brin, munching on an apple, walked into the room. He greeted us and, rather than joining us at the table, paced around the room, jumping into the conversation between bites. Dressed casually, his dark hair blown back from his pointy face, he looked as if he had just walked out of a Frisbee game on a Stanford quad. His informal, energetic style seemed to have been shaped more by Silicon Valley than his Russian homeland. At first Sergey seemed an odd match for Larry, who looked like he got more light from his computer screen than California’s sunny skies. But as Sergey spoke, it became clear that behind his casual exterior was a focused and determined mind that loved to chew on complex problems.
“So what were we all talking about before I arrived?” he asked.
Jack repeated some of the top-level information about the company as Sergey paced around the room. Sergey was clearly the people person of the duo, although the way he walked around the room—as if he was in charge of the meeting—had an air of arrogance. But despite their style differences, Jack seemed to warm up to Sergey, and the tone of the meeting became much friendlier. After a while Sergey sat down, and the discussion moved toward government regulation of the Internet in China.
We all knew that when Google looked at the Chinese market, it faced a dilemma, particularly in regard to censorship. Despite having no physical presence on the ground, Google’s services had grown quickly in China through word of mouth. But Google’s road in China had been bumpy, and the service was occasionally blocked by China’s firewall. If Google truly wanted to become a leader in China, it would have to set up local operations and build a local team, which meant following local laws.
From my previous discussions with Google employees, I knew that, within the company, no one agreed about how to approach the issue of censorship. While I respected and admired Google’s views on corporate social responsibility, which simply stated, “Don’t be evil,” I also realized that in China things are not always so black and white.
Sergey was the first to begin talking about the issue.
“We’re still working out how to set up our websites for China,” he said. “Obviously the issue of China’s firewall is an important one for us. What do you think the
government’s response would be if we simply allowed Google’s search results to appear unfiltered and then the China government’s own firewall would take down politically sensitive search results? Ideally that’s the way we’d like to have it, so that we are not actively doing the filtering.”
Jack shook his head. “I know what you’re saying, but the government will never accept that.”
“Why?”
“From the government’s point of view, that’s like if you go to a country, walk along the street, and throw litter all around and expect the police to follow you and pick up after you.”
The Google team looked disappointed. Sergey suggested a number of different scenarios that, Google executives hoped, might allow them to operate their China business without censoring content. But in Jack’s view none of those ideas would meet the basic requirement of following the local laws.
“Look,” Jack said, “the China government is very supportive of the Internet. I’ve been doing Internet businesses since 1995, and I’ve never had someone come in and say, ‘Jack, you can’t do this or you can’t do that.’ If you come to China and your business is helping create jobs for people, if you are helping society, they will support you. But if you are running a business in China, you’ll be expected to follow the local laws. That’s the same for every company in every country.”
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