Alibaba's World (16 page)

But I didn’t dwell on this thought for long, as I could see the benefits that the Internet was bringing to China every day. Compared to my student days in
Beijing in 1994, when government minders opened my mail and even a fax machine had to be registered with the government, China had become a much more open society. Sure, it was not a Western-style
representative democracy. But individual liberties were expanding every day. It was just a matter of time, I thought, before the Internet, a Trojan horse, forced China to open to an even greater
extent. Besides, I figured, widespread adoption of e-commerce in China meant one thing—the government could never simply pull the plug on the Internet in China. If the government censored
blogs or media content, the local population would be irritated. But if the government pulled the plug on millions of shop owners who depended on the Internet for their livelihoods, people would
take to the streets.

Of course, executives of American companies faced the same moral choice when deciding whether to operate within China. A year earlier, at our meeting with the Google executives, I had admired
Sergey Brin’s efforts to find a way to operate in China without compromising the company’s values. At that time, Google decided that the benefit to the Chinese of a more open Internet
was in keeping with its famous corporate principle, “Don’t be evil.” But Google’s leaders had also promised that if the compromises grew to be too much, they would pull out
of the China market (ultimately this is precisely what they did). Yahoo! had offered no such assurance. Its message was simply that it wanted to profit from the China market.

In a way I was relieved that this news had broken before we closed the deal. My biggest fear was that Alibaba would
somehow be dragged into the morass with Yahoo! and,
as a Chinese company, be seen as the enemy. I had seen a young idealistic team survive and thrive
despite
government restrictions on the Internet, not
because
of them. If the same
thing happened after the deal was done, Alibaba would be an easy target. But as it turned out, Yahoo!’s fumbling of the communication left it alone in the crosshairs. Not long after the Shi
Tao revelation, Yahoo! would be called to Congress to testify about its actions in China.

By the end of the West Lake Summit, the Alibaba-Yahoo! coming out party had been far overshadowed by the Shi Tao case, at least in the Western media. However, China’s censorship regime
prevented local media from covering the controversy, so the Chinese public never heard about it. But while the issue was not on the radar of the general public, and our customers in China, we could
only assume that it was on the radar of Chinese government officials. So we still had to tread carefully to ensure that the government would approve the deal.

To this end I went with Jack to meet with Wang Guoping, the local Communist Party secretary. I’d met Wang a few times before, and he always surprised me by defying the stereotype of a
boring Communist bureaucrat who spoke only in party platitudes. Chubby and bespectacled, Wang Guoping was outspoken, funny, and even brash. He was a giant version of our COO Liqi and more closely
resembled Hangzhou’s results-oriented local entrepreneurs than Beijing’s bureaucrats. He was regarded as holding the real power in Hangzhou, more so than the feeble mayor, Mao Linsheng,
despite the difference in their titles. Secretary Wang was as much a capitalist as any Communist Party
secretary could be, and it was a good thing for Hangzhou, as it was
for Alibaba.

The meeting took place in a quiet cluster of teahouses on the lush grounds around the West Lake. When I arrived, Jack and Wang Guoping were already sitting together, chatting over tea, as is
typical protocol for such an event. Lining Jack’s side of the room, in order of rank, was Alibaba’s senior management team. Lining Wang Guoping’s side, in order of rank, were
local government officials. With every word Wang spoke, the officials went through the customary motions of taking notes.

Our main goal for the meeting was to impress upon the local leaders the significance and global impact of the deal. There were many ways businesses sought to please the local government in
China—some clean and some not—and we had always done the right thing in the belief that the best way to gain government support was to show that you were attracting business, attention,
and investment to the city. To this end, before meeting with Wang Guoping, Jack had called me and asked me to print out the full set of articles the West Lake Summit had generated in the Western
media about the event. The result was a printout of Alibaba news clippings that ran for several hundred pages. While many of the reports discussed the Shi Tao controversy, I’d made sure they
were at the bottom of the stack and hoped Wang wouldn’t read that far.

After exchanging small talk with Wang Guoping, Jack motioned for me to hand over the media clippings and said, “Porter, tell Secretary Wang about the international media
coverage.”

“The deal has been in the headlines all around the world,” I said. “All of the leading media have been reporting on it. I
think a lot of people are
seeing Hangzhou as the center for e-commerce in China.”

Wang Guoping nodded in approval. Our West Lake Summit had propelled his city into the global spotlight. Then Wang had a question:

“But Manager Ma, one thing I’m still a little confused about is, for once and for all, can you tell me: Did Alibaba acquire Yahoo! or did Yahoo! acquire Alibaba?”

Wang Guoping wasn’t the only one with this question in China. Following our announcement, the headlines had repeatedly asked, “Who acquired whom?,” sending our local PR team
into crisis mode to argue our case to the local media. The confusion made clear to me why Jack had been so insistent upon rejecting Yahoo!’s request to rename our company
“Alibaba-Yahoo!.” Doing so would have only confused the market and put our efforts in China at risk.

Jack answered confidently, “Alibaba is buying Yahoo! China, and we have full management control of the company. And there are a few important things I need to share with you. Number one,
Alibaba’s headquarters will stay here in Hangzhou. Number two, we have a provision in the contract that, no matter what, a member of Alibaba’s board will have to be from China. And
finally Yahoo! is putting $1 billion into the company. It’s going to really create a great number of jobs here in Hangzhou and help with the mission of making sure Hangzhou becomes
China’s Silicon Valley.”

Wang Guoping nodded and smiled as he mulled it over. “Good. Good.” Jack and Wang chatted a little more, and then Secretary Wang concluded the meeting with the words we’d hoped
to hear as his assistants transcribed his comments: “I
want to say that the Hangzhou government totally supports this special ‘Alibaba merger model.’
Congratulations to Jack Ma and Alibaba!”

With the local government providing its support, we had cleared an important hurdle. But we knew that greater challenges lay ahead.

O
N OCTOBER 25, 2005
, ten Rocky weeks after announcing our deal with Yahoo!, we became the legal guardian of our new baby—Yahoo! China. Two weeks later we were back in
Beijing at a press conference to announce the reintroduction of Yahoo! China to the national Chinese media. In typical Alibaba form our marketing machine had packed the room with journalists
curious to see what we had to unveil.

Before the press conference Jack laid out his strategy—and it was straight out of the playbook from our battle with eBay. “I want to position this as a battle between Yahoo! China
and Baidu,” Jack told me. If we could engage Baidu, the local search engine leader, in a war of words, we could drive traffic to Yahoo! China’s search engine.

Although Baidu had a stronger understanding of the local market than eBay did, Baidu in many ways seemed an easier opponent to defeat. Founded by Robin Li, a soft-spoken entrepreneur who’d
studied and worked in the US in the 1990s, Baidu had simply followed the Google script in China. Each time Google introduced a new function, Baidu quickly followed suit, offering
a similar feature on its own website. Its home page was practically identical to Google’s; Baidu had become the market leader in China by simply pursuing a
“fast-follower” strategy: mimicking the Google US model and providing it locally before Google had a chance to bring each feature to the local market. As a competitor Robin Li seemed
better at imitation than innovation, and we thought he’d be no match for our more creative team. In the race for the China market Baidu was only a couple strides ahead, with a 37 percent
market share of searches, compared to a 32 percent market share for Yahoo! China, and a 19 percent share for Google. Surely we could catch up to Baidu in a few short months.

We had plenty of reasons to be confident. Against all odds we’d survived a war with America’s B2B giants and Alibaba had emerged as the world’s largest B2B marketplace. And
despite all the skepticism from outside (and sometimes within) Taobao had pulled ahead in our battle with eBay in China. I’d learned to suspend all doubts and accept that, if Jack said it was
possible, it must be possible. He’d never failed us before. So, as Jack stood on the stage of the press conference for the grand unveiling of Yahoo! China, I was feeling good about our
prospects.

“From now on in China,
Yahoo!
means
search
and
search
means
Yahoo!,
” Jack proclaimed. “In six months Yahoo! China has to be the leader in
the China market, otherwise the game will be over.” Jack; John Wu, Alibaba’s chief technology officer; and the Yahoo! China team gathered around a mock button on the stage. Pressing the
button revealed the new Yahoo! home page on the screen behind them—a stark white page with nothing but the Yahoo! China logo and a search bar in the middle. Gone were the flashing images,
links, directory, news, and information found on the previous version of Yahoo! China. The
site was no longer a general portal—it was a pure search engine. And the
race with Baidu and Google was on.

As 2005 became 2006, the Alibaba marketing machine was in overdrive, promoting Yahoo! China in a major rebranding effort. Our website may have been dry and functional. But the marketing
surrounding it was exciting and designed to capture the imagination of China’s Internet users. We sponsored flashy Chinese music awards celebrations with the latest pop stars and paid $1
million to each of three famous film directors to produce television commercials for Yahoo! China. Whereas we had once depended on our zero budget marketing efforts, which simply relied on great
user experience and word of mouth, now we were spending millions of dollars to make our big splash.

Yet for all the buzz the traffic data were a source of concern. Since we had stripped the Yahoo! China site of its features and reintroduced it as a straightforward search portal, its traffic
had dropped off a cliff, and our market share was slipping quickly. Rather than wait out the storm and see if traffic on the newly simplified home page would stabilize as the search engine
improved, Jack abruptly took the Yahoo! China home page back to its original look. But when website traffic didn’t bounce back, it became clear that our shifting strategies had killed off a
portion of our customer base. Worse, we had confused the market, appearing erratic as we veered back and forth. To China’s Internet users, the quick reversal smacked of desperation, and the
media were quick to pounce on Alibaba for appearing rudderless and abandoning Yahoo! China’s new emphasis on search.

As our strategy careened out of control, I began to wonder whether Jack’s considerable management skills would translate to running a search engine. After managing our Google campaign
and visiting the Googleplex as a customer, I had become both a student and an admirer of Google’s. I’d learned that Google’s biggest key to success was
its singular focus on first building the best search technology in the world. Google had resisted all distractions, and over time Internet users had rewarded it by migrating to Google’s
superior interface and search technology. With this in mind I handed Jack a copy of John Battelle’s in-depth book about Google,
The Search.
“Jack, this is a great book about
how Google became so successful,” I said. “Now that we’ve got Yahoo! China, you might want to take a look. It’s really good.”

Jack turned the book away. “Someone once tried to give me a book about eBay,” he said, “but I didn’t want to read it. I wanted to make sure we didn’t just copy
their approach. You should give that to somebody else. I don’t want to get too focused on what they did because it may bias me to follow Google’s approach.”

While I admired Jack’s insistence upon innovating in his own way, it also concerned me. We didn’t need to
copy
Google. But we could at least
learn
from them. Jack
was a marketing person who knew how to mobilize millions of people to join a community to trade products online. But a search engine was a totally different animal. Searching is not a community
activity. The only relationship was between the user and the search engine. People didn’t go on Baidu or Google to make friends and chat; they went to find other websites and move on.

By the time our 2006 strategy meeting arrived, tensions within Yahoo! China were beginning to bubble up. Some of the Yahoo! China managers had already left the company to join Zhou Hongyi in his
new venture. And those remaining had little reason to believe that Jack’s vision for a search engine in China would become a reality. Unlike those of us coming from
the Alibaba side, the Yahoo! China team had not weathered storms or defeated Internet giants together. They largely saw Jack as most outsiders did—fascinating but unpredictable.
And Jack’s management of the Yahoo! China strategy had done little to persuade them otherwise.

During the strategy meeting members of Yahoo! China’s technical team got up to present their ideas for moving the search engine’s strategy forward. They discussed the importance of
having the right technology in place and the best algorithms for searches. I could see Jack’s eyes glaze over. He didn’t have time or interest in these technical details. To him
technology was secondary to the user experience. And he wasn’t shy about it. “People can’t tell the difference between one search engine or another,” he argued. “From
the user perspective they’re all the same. The most important thing is our marketing strategy.” The team was quiet, obviously not comfortable contradicting their new boss. But with this
one comment I realized how fundamentally Jack misunderstood search engines. And my guess was that, unless something changed his mind soon, Yahoo! China would be doomed.