Alibaba's World (11 page)

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.”

The Google team appeared sullen. Self-censoring content was clearly a tough idea for them to accept. Google’s stated mission was “to organize the world’s information and make
it universally accessible and useful.” Inherent in this mission was the idea that making information universally accessible would bring economic, social, and even political power to people at
a grassroots level.

For a few moments the room was silent as the Google team mulled the options. The silence was broken when a Google staffer let us know the time was up. As we shook
hands, I realized that it would probably take a while before Google worked through the ethical issues involved in doing business in China. But I also knew they’d find a way eventually, and
when they did, we’d better be ready.

M
ILITARY HELICOPTERS BUZZED
overhead as a row of tanks clinked across the battlefield, destroying everything in sight. A team of elite soldiers weaved and dodged past
explosions and enemy fire while advancing toward the enemy stronghold.

“The enemy is within our sights,” came a voice over the loudspeaker. “Fire when ready!”

With a flash a helicopter missile streamed through the air, leaving a smoky plume behind it as it headed toward the enemy compound.

Boom! Crash! Rat-a-tat-tat. The enemy compound burst into flames.

“Enemy destroyed! The Taobao militia has seized a strategic new beachhead,” bellowed the narrator. “Taobao’s advance is unstoppable!”

THE VIDEO ENDED
and triumphant military music filled the auditorium as the lights came on. The audience clapped and
cheered, filled with the sense that, as Alibaba entered 2005, we had the winds of victory at our backs. It was our annual all-hands kickoff meeting, and we had plenty of reason to
cheer for the Year of the Rooster.

Taobao had had a phenomenal year in 2004, and we’d made significant headway against eBay in China. Our strategy to engage eBay in a war of words had created a lot of media buzz within
China. Positioning ourselves as a local David fighting the US Goliath, we intended to educate the market about e-commerce and attract people to Taobao to give consumer e-commerce a chance.

We’d overcome some major challenges from eBay’s superior firepower and resources. Hoping to lock Taobao out of the market, eBay had negotiated exclusive advertising deals with all of
the major Internet portals in China. But to do this, they’d paid a premium to have Taobao excluded from advertising on the portals. To overcome this direct attack, we’d taken the
guerilla approach of negotiating tiny advertising deals with hundreds of small websites throughout China who were more than happy to provide a price discount to the prevailing online advertising
rates in China. They were simply grateful to have any advertiser at all. This, along with some aerial assaults in the form of television advertising and outdoor display ad campaigns, had been
showing great results at only a fraction of the amount that eBay was spending.

Taobao was growing quickly on all metrics. While eBay charged for product listings, Taobao had kept its website free. The result: Taobao surpassed eBay’s product listing numbers. With more
products on the site for customers to browse, Taobao’s website traffic had increased beyond eBay’s. And as
Taobao’s traffic increased, eBay PowerSellers
(high-volume sellers with top reputations), who had initially resisted moving to Taobao, had no choice but to open a second shop on Taobao. On nearly all metrics, Taobao was surpassing eBay, giving
us the right to boast that Taobao was “China’s largest online consumer marketplace” and build even greater momentum with customers.

Admittedly this marketing-speak hid one important fact. By the end of 2004 we were still trailing eBay on the key metric by which media and analysts measured marketplaces: gross merchandise
volume (GMV), or the total sales carried out on the site. But even here the numbers looked promising. Although we had begun 2004 with a 9 percent market share of GMV versus eBay’s 90 percent,
we ended 2004 with a 41 percent market share versus eBay’s 53 percent. While media and analysts outside China were still favoring eBay to prevail, we had gained enough confidence internally
to feel we were on the right track.

With the kickoff meeting audience at full tilt, Jack took the stage.

“2004 was a great year for us all, and we should be really proud of what we achieved so far. There are only two companies in the world who truly understand how to build an e-commerce
marketplace—Alibaba and eBay. And last year we showed the market that we understand China much better than eBay does. But as we say at Alibaba, last year’s result is next year’s
minimum level of achievement. And don’t forget: we don’t want Taobao to be just the largest consumer marketplace in China. We want it to be the largest in the world!”

The crowd applauded wildly as Jack stepped off the stage and handed the microphone to Toto Sun, the head of Taobao.

“Thanks, Jack, for giving us all your support. And Jack’s right, because we are going to beat eBay. Because I know one thing: when the foreign devils come
to China, they will definitely be killed!”

I stood at the back of the auditorium and smiled as the crowd laughed and clapped. I recognized the old Red Army rallying cry, and I knew it was meant as a harmless joke. But moments like that
did make me wonder whether this kind of ironic distance could become harmful in the long term. So I was relieved when Jack immediately jumped on stage and took the microphone back from Toto.

“There’s one thing I want to be clear about here,” Jack said. “Our war is just a fun competition with eBay, and this is nothing about nationality. Alibaba is a global
company, and we have international staff here from America, Europe, and other places. So I don’t want to hear any kind of nationalistic talk. This is a game. It’s a sport. We are lucky
to have a big competitor like eBay. It’s like we have the chance to play basketball against Michael Jordan.”

Having made his point, Jack handed the microphone back to Toto. Humbled, Toto resumed his speech. I was pleased that Jack had stepped in to rein in the rhetoric before it got out of hand, even
at the expense of a senior manager’s pride (no small thing in Chinese culture). Toto was a great colleague and friend, but his words could easily have taken on a life of their own. And
I’d always been proud that Alibaba’s success was based on innovation and merit rather than nationalistic rhetoric.

We in China knew the incredible progress Taobao was making, but halfway around the world eBay had the media and its investors convinced that it was still the leading marketplace
in China. Small wonder—the notion that the world’s largest e-commerce company could be successfully challenged by a local Chinese upstart would have sounded ludicrous to
the media and analysts covering eBay at the time. eBay kicked off 2005 with a day of wooing analysts; Meg Whitman used the annual Analyst Day to put a positive spin on eBay’s growth in China
while explaining the additional investment of $100 million they had recently made in the market:

“Today eBay Eachnet is by far the number one e-commerce site in China. We’re helping China to define its e-commerce future, and it gives me tremendous satisfaction to see eBay
Eachnet helping so many young Chinese taste entrepreneurship for the first time.

“Now, like in the early days of the Net in the United States and other countries, there are a bunch of small competitors in China nipping at our heels, and I don’t blame them. They
see the opportunity too, but guess what? We love competition. Absolutely love it. We have from the earliest days. It motivates us. It makes us hungry. It makes us stronger, and it makes us very,
very determined. We are on a tear to be the undisputed winner in China, and the additional $100 million investment we announced last month should be a sign of an unmistakable commitment and an
unstoppable determination to win that market. . . . Just as we pulled ahead of able competitors in the US and Germany in 1999 and 2000, we’re pulling farther ahead in China today . . . The
share of e-commerce in China is likely to be the defining measure of business success on the net.”
¹

Despite her positive spin on eBay’s position in China, behind the scenes we heard that eBay truly was becoming concerned about Eachnet’s performance. Someone who had attended one
of eBay’s board meetings told us that eBay’s market research was showing that, on a head-to-head comparison, eBay was falling behind Taobao on nearly every
metric. When it came to customer service, user satisfaction, renewal rates, and other important metrics, eBay ranked higher only on its number of registered users. And Taobao was quickly gaining
ground. eBay’s growth story in China was central to its investor presentations, and the company must have been concerned that Eachnet would be revealed as a paper tiger if eBay didn’t
move quickly to shore up its market position in China. By committing an additional $100 million to the China market, mostly earmarked for advertising, eBay was doubling down in an attempt to both
demonstrate its commitment to China and intimidate us.