Alibaba's World (14 page)

“We have a lot of work to do before we announce the deal, and it’s still not finalized,” Jack went on. “The HR team is going to have a lot to prepare for, bringing in
Yahoo! China to the Alibaba family. And PR is going to be extra busy. Porter, we’re going to need you to come out to Yahoo!’s headquarters as we finalize the deal, to help draft the
announcement.”

A few weeks later I was walking down University Avenue in Palo Alto, California, just down a palm-lined street from the Spanish arches of my alma mater. I’d graduated in the Stanford class
of 1992, into a recession. I had never used the Internet (few people had; commercial use of the Internet was only about a year old) and was unsure where my career might take me. The class just
behind me generated the first batch of Internet millionaires, who stumbled into jobs at Yahoo! and Excite in their earliest days. But by the time the Internet really began to take off in the US, I
was already in China. Now it had brought me
back to Palo Alto, ten years after Jerry Yang and David Filo had first registered the domain Yahoo.com for their search
engine. It was a homecoming made even sweeter by the thought that Alibaba would be joining forces with Yahoo!—the granddaddy of them all.

I met with Jack, Joe, and the rest of the deal team for dinner. They’d been working around the clock on the negotiations, and I quickly learned that although they’d agreed on broad
strokes (in principle), the actual details were an entirely different matter. Joe and the lawyers had already gone several complicated rounds with Yahoo!, and a few sticking points remained. One
was the sensitive question of how to announce the deal to best ensure its acceptance by the Chinese government.

Yahoo!’s goal was to create the perception that it was acquiring Alibaba. With a market value of roughly $40 billion, Yahoo! wanted to be seen by investors as aggressively expanding into
China, rather than giving up on the China market and handing over its operations to a local company. Yahoo! executives seemed to think that the latter would make them look weak.

This goal was entirely at odds with our own. In our view positioning the deal as Yahoo!’s acquiring Alibaba was not only inaccurate. It put the future of Alibaba at risk in China by
creating the perception that Alibaba was now under full control of Yahoo!, an American company. This would put us at a disadvantage with local government and partners on every issue, from gaining
licenses to setting up new offices and research and development centers. It also would make Jack, already a recognized business leader in his own right, appear to be simply a puppet of Yahoo! in
China. To maintain Jack’s credibility as a homegrown business leader, we had to make clear that we were still in charge.

“Porter, the way we announce this is critical. Tomorrow, when we go in there to discuss the announcement, we need you to be tough!” Jack instructed me.

The negotiations took on greater urgency on August 7, when the headline from Forbes.com hit everyone’s in-box: “Yahoo! in Talks on Record China Investment.” Someone had leaked
the story, and the full details of the deal were in plain view. I immediately received a call from Mylene Mangalindan, a Bay Area–based correspondent for the
Wall Street Journal
who
had been covering Alibaba’s battle with eBay.

“Hi, Porter, I read the rumors. So where are you now?”

“Oh, I’m back here in the US for a personal trip,” I replied. I could tell she didn’t believe me.

“So is there any truth to this, Porter?”

I had never been formally trained as a PR man, let alone involved in a deal this size, and I hesitated. I finally gave her the company line that Yahoo!’s communications chief, Christine
Castro, had provided me: “We don’t comment on rumors and speculation.”

“Oh, come on, Porter, everyone does it. Just let me know if there’s any truth to this.”

I clammed up and repeated my corporate line. “I’m sorry, we don’t comment on rumors and speculation.”

Frustrated, Mylene got off the phone, saying, “Okay, let me know if you change your mind.”

I didn’t know where the leak had come from, but I suspected the source was one of our investors, since the public revelation of our negotiations put additional pressure on Yahoo!. We soon
heard that the report had thrown the Yahoo! China team into
upheaval. The idea that Yahoo! China might be sold to Alibaba would be a huge loss of face for Zhou
Hongyi.

The rumors also spurred eBay into action. eBay had likely assumed it was Alibaba’s only suitor and its executives could take their time. Joe Tsai immediately received a call from
eBay’s head of corporate development, who was hoping to reignite partnership discussions. And we were told by Softbank’s team that Meg Whitman was desperately trying to reach Masayoshi
Son, Softbank’s CEO, but he was ignoring her calls.

The next day I headed to Yahoo!’s Silicon Valley offices to join the partnership discussions and coordinate the announcement with Yahoo!’s PR team. Yahoo!’s COO, Dan
Rosensweig, led the talks that day. Tall and boisterous, he was a dominant figure. “We’d be in the lead in China already if it wasn’t for your government blocking us all these
years!” he joked with Jack.

As we worked on the press release, Jack pulled me out of the meeting room to discuss the negotiating strategy.

“In a few minutes Jerry Yang is going to call to discuss how we position this. I want you to be very strong about how we need to phrase this as ‘Alibaba Acquiring Yahoo! China’
and not the other way around,” he said. “Don’t worry about me—I’m going to sit back and listen in. I’ll jump in if I feel I need to.”

With our good cop–bad cop strategy lined up, I jumped on the conference call. Ultimately we decided to describe the deal as a partnership and a combination of Yahoo! China and Alibaba. We
left the press release vague enough that each side could call the deal whatever it wanted to when talking to its own investors. But we knew that same ambiguity also ensured
there would be a race between Alibaba and Yahoo! to tell their version of events.

With the press release finished, one of the last remaining stumbling blocks to a deal was removed. Over lunch the next day Joe pulled out the contract’s signature pages for Jack to sign so
they could be attached to the body of the contract once the final details were hammered out. Jack signed the pages, and we started to talk about how to manage the announcement back in China.
“You should fly directly to Beijing,” Jack said. “We’re going to have the announcement there. This is going to be big news.”

Later that night I got a call from Joe as I packed my bags. “Porter, I’m sorry to say, but it looks like the deal is off. Yahoo! has added a last-minute demand to the contract. They
are now insisting on calling the new combined business ‘Alibaba-Yahoo!’ That would create real problems for us in China. And not only that, I don’t think we can do business with a
partner who tries to sneak in such a big condition at the last minute.”

The Yahoo! people apparently assumed we’d cave at the last minute.

“I was planning to fly back tomorrow to China,” I said. “Should I just go ahead and do that, and tell Yahoo!’s PR team that you sent me back because the deal is
off?”

“Yeah, good idea,” Joe replied. “I’ll see you back in China.”

Later that night I got a call from Chris Castro, Yahoo!’s head of corporate communications. Chris asked: “Porter, when should we meet tomorrow to go over the new draft of the press
release?”

“Oh, Jack and Joe told me that the deal is off. You hadn’t heard that?” I asked. “So I’m flying out tomorrow morning.”

Chris seemed surprised and concerned. “No, actually, I hadn’t heard anything like that. Are you sure?”

“Yeah, I’m flying back tomorrow. It’s too bad the deal didn’t work out, as I would have liked to work with you.”

The next day, I got on the plane and settled in for the long flight to Shanghai. I admired Jack and Joe for standing up to Yahoo! on principle. I probably wouldn’t have had the conviction
to turn down a $1 billion cash offer. But I also felt a twinge of regret. The Yahoo! deal would have put us in the global spotlight and ensured that Alibaba had enough in the coffers to sustain
eBay’s $100 million assault on us.

Upon touching down in Shanghai, I picked up my bags and got in a taxi. The familiar gray skies hovering over the countryside told me I was back to life as usual.

I turned on my phone and it began to ring almost immediately. It was Jack.

“Hey, Jack, what’s up? I just touched down in Shanghai.”

Jack’s voice had an excited and urgent tone. “Get on the next flight you can to Beijing. Yahoo!’s given in on the final point—the deal is back on! We’re announcing
it the day after tomorrow.”

J
OURNALISTS PACED AROUND
the lobby of Beijing’s China World Hotel, hoping to grab a stray Alibaba or Yahoo! executive to mine for advance information. The deal was not
yet officially public, but that hadn’t stopped a flood of leaks that set Chinese and foreign journalists alike into a frenzy. Behind closed doors, in an unmarked meeting room, we gathered a
team of about 12 Alibaba and Yahoo! executives to work out the logistics of our announcement. With the commotion outside, all pretense of the meeting’s being secret was dropped—which at
least lightened the mood in the room.

“This is insanity,” Dan Rosensweig, Yahoo!’s COO, joked. “It’s a circus out there. There is nothing left to announce!”

This was the first time we had met our Yahoo! counterparts in Asia, so we took a few moments to introduce the two teams. Rose Tsou was a sharp managing director of Yahoo! Taiwan with a dry sense
of humor and a no-nonsense approach to getting things done. Allan Kwan was the smart and friendly Hong Kong–based regional head of Yahoo!’s operations. And
Lu
Qi, the head of Yahoo!’s global search technology, would be our main partner for developing and improving Yahoo! China’s search engine. We seemed to have a good common language, and it
seemed the basis for a good partnership.

Noticeably absent from the meeting was Zhou Hongyi, the head of Yahoo! China. Even though Jack and Zhou had once been friends, some people were concerned about Zhou’s reaction to the deal.
“Our relationship with the Yahoo! China team has gotten so bad that Zhou Hongyi has stopped hiring managers who speak English,” a member of Yahoo!’s California PR team told me.
“He’s hardly willing to talk to us anymore.”

But integrating Yahoo! China into our own operations was going to be the key to a successful partnership. To help ease the process Yahoo! US had flown a human relations specialist out to
Beijing, and he seemed especially concerned about the challenge of bringing the two teams together. We agreed that Jack’s first step, immediately after the press conference, would be to
address the Yahoo! China managers.

Finally it was time. On August 11, we arrived at the large conference hall to find a room packed with media from around the world. Journalists filled the chairs and stood along the walls to
record this historic milestone for China’s Internet. It was clear that this was more than just an announcement. It was Alibaba’s coming out party.

Dan Rosensweig sat on stage with Jack and several Alibaba executives. “This is Yahoo! getting much bigger in China. We look at this as an opportunity to get much bigger, much faster,
working with a great management team,” Dan said. When Jack took the stage and laid out the vision for the new partnership, he couldn’t resist a small jab at eBay, saying, “Thank
you,
Meg Whitman. Thank you for making all of this possible.” To mark the moment a loud
pop
sounded, and confetti streamed through the air, drifting onto
the shoulders of Dan and Jack, who beamed as cameras flashed, capturing the moment for newspapers around the world.

After the press conference I was swarmed by foreign media. I had courted them for years; now they were finally chasing us. With microphones and tape recorders stuck into my face, I could sense
that Alibaba was on an entirely new level. Aware my comments would be read back in Silicon Valley, I took my own opportunity for a mischievous swipe at my friends back at eBay: “This is
really probably the knockout blow for eBay in China. This is going to make it hard for eBay to win in Asia. It totally reshapes the landscape for auctions in Asia.” eBay’s response was
instantaneous: “It’s business as usual for us,” the eBay representative Hani Durzy told the Associated Press. “We will maintain our leading position in China,” Liu
Wei, eBay China’s representative, told the
New York Times.
But despite the facade of confidence, we knew that eBay must have been concerned.

Later in the afternoon it was time for Jack to address Yahoo! China’s senior management team. From our perspective it was an exciting moment, like welcoming new members to a family. To be
sure, there would be moments of awkwardness. But one of Jack’s finest assets was his ability to bring people together. So I was surprised when Brian Wong, who’d attended the meeting,
reported to me that it hadn’t gone well.

“It was really strange,” Brian said. “Zhou Hongyi was there and had a really distraught look on his face. Just to be polite, Jack invited him on stage to talk to the team.
Zhou’s message to
them was, ‘I’m going to be leaving to start my own new venture. And if any of you are interested, you are welcome to join me.’
He seems really bitter about this deal.” Zhou Hongyi’s call for Yahoo! China employees to abandon ship was the first real sign that we might have been sold a lemon. Even with
Jack’s strong leadership skills, integrating Yahoo! China’s disgruntled team was clearly going to be harder than we’d thought.

During the next few weeks it became clear that the Yahoo! deal marked not only Alibaba’s global coming out party but also its loss of innocence. For six years we’d been the scrappy
underdog, a favorite of media and industry watchers who liked the idea that a company led by an English teacher was taking on the giants. But with a billion dollars flowing in and a major global
partner, real money was now at stake. We were playing on a new level, and consequently the scale of attacks on us was growing too.