Viewpoint: Jack Ma and the Discovery of Billions
Can you think of a visionary founder who grew his company from virtually nothing to a multibillion dollar business, changing forever how people live and work, and then went on to create entirely new industries–in one of the largest economies of the world?
Hint: His name starts with J.
Answer: Jack (no, not Jobs).
Jack Ma, onetime English teacher, who also did a stint as a civil servant, founded Alibaba in 1999. Today the Alibaba Group runs a panoply of highly successful and innovative businesses with 24,000 employees and combined revenue of $7.5 billion. It dominates online commerce in China. Ma himself is worth billions and is getting ready to become even richer as the group prepares for the biggest technology IPO in history at an estimated of value upwards of $130 billion.
Ma’s first few Internet ventures didn’t go well, including an online business directory–a sort of Yellow Pages business–he started in China soon after returning from the U.S. in 1995. But, that didn’t shake his almost messianic faith in the power of the Internet.
He saw his opportunity.
Opening Doors to China
China’s manufacturing base was rising exponentially and Western businesses that wanted to source low-priced but high-quality finished goods were looking to China as it emerged as the workshop of the world. He set up Alibaba.com, an English language Website that connected buyers to Chinese manufacturers to source and select products at the most competitive prices. It is now the global leader in business-to-business exchanges. (The group also has a highly successful domestic business-to-business “portal” called 1688.com.)
Alibaba is investing in the U.S. market by going after smaller, more niche markets first.
Alibaba Group also owns Taobao, China’s largest consumer-to-consumer shopping platform, founded in 2003. A spin-off business, called Tmall.com, was established in 2008. These boast sales of $170 billion–more than eBay and Amazon combined. There are other substantial Alibaba businesses, including Alipay, the group’s payment service, which, some say, has been a key driver of the success of Taobao. Alipay holds the buyer’s money in escrow and releases it to the seller only when the buyer has received the goods satisfactorily. It is tailor-made for a “low trust” society without reliable dispute resolution procedures. Another key contributor to success is its pricing policy. Taobao is free. It makes its money from advertising and setting up online stores for the hundreds of thousands of merchants that sell on its platform online.
Alibaba is the undisputed champion of online commerce in China and a formidable competitor. Ma’s attention to detail and obsessive focus on customer needs aren’t too far from the mindset of Steve Jobs. Jobs also wasn’t a technology geek but relied on gut instinct about what consumers want. Just as Jobs’ name became synonymous with Apple, Ma and Alibaba have become interchangeable. Although, Ma is now executive chairman and resigned his position as the group’s CEO, he is still very much in control. This isn’t to take anything away from the thousands of brilliant people who have made Alibaba what it is today, but Alibaba is Jack Ma.
The U.S Market: Starting Small
The U.S. is the world’s most vibrant, most advanced online commerce market. But it is also the most difficult to break into for foreign players. New billion dollar ideas seem to flow out of the U.S. every day. It fosters innovation. It has developed scientific data-driven methods of marketing, distribution and lending. It is the home of Apple, Google, Microsoft, Facebook, Twitter, Airbnb (the list is endless).
But Ma is fascinated by the U.S., particularly Silicon Valley, for its imagination, work ethic and indomitable spirit of invention. China may be bigger, but Ma wants the ultimate prize, the birthplace of the Internet—the U.S. He wants in, not just as an oddity but as a major player.Many think Alibaba should give wide berth to the U.S. market and focus on markets where conditions exist that are similar to China 15 years ago: markets where Internet connectivity is rapidly on the rise but where entrepreneurs face lack of infrastructure and trust in the system as a whole, and where, like China, online buyers and sellers prefer not to pay fees but would willingly part with cash to enhance their ability to sell online. Alibaba is well aware of that and now hosts suppliers and consumers from all across the globe. It’s planning to enter markets that are expected to see significant growth in online commerce and payments, such as Latin America.
He is also aware of the difficulties and does not want to take the established players head on but find opportunities where his group can win by offering something better and where it can build on its existing strengths to gain a foothold. He famously said, “eBay is a shark in the ocean. We are a crocodile in the Yangtze River. If we fight in the ocean, we will lose. But if we fight in the river, we will win.” And as if to prove his point, Taobao comprehensively outmaneuvered eBay’s costly Chinese venture Eachnet a few years ago–not, as its critics claim by offering its services for free, but by developing services and features that particularly appealed to Chinese customers.
Alibaba is investing in the U.S. market by going after smaller, more niche markets first. In 2013, it invested in 1stdibs, a niche marketplace that links more than 1,500 international dealers in luxury antiques and vintage furniture. It put in $75 million in ShopRunner, which offers swift delivery services, much like Amazon Prime. It also led a $170 million fundraising round for Fanatic’s, an online sports stuff company. Recently, it set up 11 Main, its online merchandising marketplace targeted at retailers that sell unique sophisticated ware, such as American-made apparel worn by celebrities and hand prints crafted in California. You can’t get any more American than that.
Alibaba has no plans–yet–to swim in the open ocean with lurking sharks, like eBay and Amazon, nor with the older formidable creatures like Walmart. For Alibaba, it’s all about selecting its battleground–rivers–where the Yangtze crocodile can watch and learn and, ultimately, dominate.
The Yangtze crocodile–alligator to be precise–is one of the few species of the large reptiles that doesn’t have a soft underbelly. Unlike the American alligator, the Chinese alligator is fully armored. It is a formidable predator but only in its own chosen waters.
Samee Zafar is a director in Edgar, Dunn & Company’s London office. He has advised some of the largest financial services organizations in Europe and North America on competitive strategy, operations and technology. His expertise covers retail banking, card issuing and acquiring, as well as online and mobile payments. He can be reached at [email protected].