In the seven years since Jack Ma co-founded Alibaba.com, the Alibaba websites have grown to include 30 million registered members from more than 200 countries and territories. In his Web 2.0 Summit conversation with John Heileman, Ma explains some of the reasons for the sites' success. He values what he doesn't know as much as what he does know. One thing that Alibaba CEO Ma knows is the Chinese market. He talks to Heileman about what does and does not work in China.
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This transcript created by Casting Words.
ANCCR: The Web 2.0 Summit invited Jack Ma to share the secrets of Alibaba.com and their other websites, which currently include 30 million registered members from more than 200 countries and territories. Here's John Heileman with Alibaba's Jack Ma.
Jack: Jack Ma [laughs] for those of you who don't know is the CEO of Alibaba. Alibaba is China's most well-known and extremely successful Internet company. One of the things I wanted to do with Web 2.0 this year is to try to bring in a lot of voices from outside of the United States. You probably noticed that in the launchpad and you'll be noticing from the stage over the next two and a half days. Without any further delay, I'll bring out my friend John Heileman and Jack Ma.
Jack: Hey Jack. Good to see you.
John Heileman: Thank you very much Jack for being here. You've come a long way -
Jack Ma: Thank you, John.
John: - to be in front of this crowd. We had the pleasure this summer of meeting in Beijing and then I went down and saw Alibaba's headquarters in Hangzhou. It was an incredibly impressive visit. I think the thing that I was struck with most from the very beginning was the incredible ambition and the incredible breadth of what you're doing. I think there are a lot of people in the audience who are very familiar with you as being one of the, if not the, major players in the Chinese Internet market. But I'm not sure that everybody here knows exactly what all of the components of Alibaba's businesses are. So maybe you could give us a little bit of an overview to start with about what exactly you guys do in the Chinese market.
Jack: OK. Currently we have four companies. One is Alibaba B2B. We are supporting three million businesses around the world, small to medium size, to import export online. We have Alibaba China B2B is helping 14 million small to medium size companies do domestic trading. The second company we have is the C2C auction site called TaoBao.com, which today has more than 70% market share in China. And then the third company we have is called AliPay, like a PayPal. And the fourth is the Yahoo! China we acquired last year. Pretty soon we are going to have a number five. And in the next five years probably going to have another two or three.
John: So pretty soon there's going to be a fifth. What is that fifth company?
Jack: That's called Ali Software. We have more than 14 million registered small to medium sized companies using our services. These small to medium sized companies have big problems getting the software. We want to give them the cheap, very easy to use software like CRM, HR, and the finance software for them.
John: I think I remember reading earlier in the year that you were forecasting revenues this year of about 200 million dollars. Is that basically right?
Jack: Yes, higher than that.
John: And profits, any?
Jack: We cannot guess the profit. But Alibaba B2B is very profitable. The cash profit we got from Alibaba B2B covered the whole group: TaoPao, the C2C, AliPays. Yahoo! Is not profitable. Even that, the Alibaba money can cover. The whole group is profitable.
John: When I was in China I was, of course, struck by the incredible amount of entrepreneurial activity that is going on there. It's an incredible scene. The energy there is fantastic. There's also a lot of investment that has been coming there over the last couple of years. I wondered, though, after I left, is anybody actually making any money in China, and if so how?
Jack: Making money from...?
John: Making money in China, in the Chinese Internet market.
Jack: Of course. I think a lot of companies are making money. The ten cents are making money. Net users are making money. Alibaba is making money.
John: So China is not quite as bad, as much of a bubble, as we're sometimes led to believe?
Jack: No. We are making money and we are making money very happily, but not the US dollars we make with R & B.
John: In terms of Web 2.0, we were talking backstage about whether in China there's an understanding of Web 2.0 that's the same kind of understanding as there is here. First of all, is the understanding of what Web 2.0 means the same in China? And secondly, to the extent that China is still behind the US in terms of its market development, how far behind is it and how rapidly is it catching up?
Jack: OK. I don't know what's the exact meaning here about Web 2.0. Early this year it was very hot about Web 2.0. I was curious, what is Web 2.0? People say Web 2.0 is interactive and user-generated content. I think Alibaba and TaoBao, the two sites, the first day when we set up this company in 1999, I sat and talked to my team. If your website, the content is generated by yourself, by your editors, it's going to die. If 80% of the content is generated by your users, that is a good site. So for TaoBao, for our C2C auction sites, for B2B, everything we generate ourselves. I call that a Web 2.0.
Jack: China is getting so hot about Web 2.0. I think China some of the things China grows much faster than the USA. Like the IM, like the on-line games, like B2B. But the other counts like MySpace, and YouTube, we're still a little bit left behind. But the funny thing is since we heard about MySpace, the word on the streets is over 500 companies are telling me that they are going to be the MySpace in China.
John: That doesn't sound that different than the United States. One of the things that's really fascinating is a lot of the large US Internet companies have tried to go to China and have spent a fair amount of energy and money trying to break into that market and have not had a lot of success. AOL went to China and then withdrew. They had great difficulty there. EBay has struggled to get a foothold there. Google has struggled, to some extent, to get a foothold there. Yahoo! As you know well sort of gave up on China and threw it all onto your lap. I wonder whether there are common mistakes that these large US Internet companies are making when they come to China. Is there something they don't understand about the Chinese market?
Jack: I think everywhere in the world the market is the same. When I go to China I find one thing that is a lot of people come to China and say I have money, I have tech knowledge, I have the brand. So my model is good and proved in the USA. It definitely could be proven in China. I don't buy their story. Most important is you have got to find the people with entrepreneurship, the people really crazy for these ideas in China. I believe the China market cannot be bought. So the competition between TaoBao and the EBay one of the things that EBay probably EBay is a great company, I respect them. They are so successful in the US; their model is perfect. But when they come to China, the thing they think is the model there in the US is so successful it should be successful in China. But unfortunately, my example is you have a forty-seven foot L plane. But the airport is like a five hundred square meters playground. You cannot land. So you've got to go there, find the right people, do from little by little. It's not that money can solve the problem, it's about the people and they believe you. You spend a lot of time to cultivate the market.
John: So it's primarily, you think, a cultural misunderstanding more than an infrastructure difference?
Jack: You need patience. I find many multinational companies send people to China that are professional managers. One of the very famous USA multinational company came to China. They came to me and said Jack, can you help us to do something? I said, "Why do you think you can be successful in China?" They said, "Well, we have a brand." I said, "No, you do not have a brand in China; you have a brand in the States." And we have money! We have a lot of people here that have money in China. The thing is, you have to find crazy people, like Jack.
Believe the dreams, find the good people, and little by little change it to anything to make sure the customer is happy. I find a lot of people say I need professional managers. They are making their boss in the U.S. happy, not the Chinese customer happy, that's the difference.
John: One of the companies that I mentioned a second ago was Yahoo. Which it's now, almost exactly a year ago, that Yahoo decided that it was having so much trouble in China, that it would buy 40% of your company, give you a check for a billion dollars and also give you all of Yahoo China to run. When I saw you this summer I asked you how that integration was going, and you said that you at times wished you hadn't made that deal, it was such a headache. I wonder if now if things are any better?
Jack: Last year was my toughest year since I started business. For Alibaba, Alibaba was like a baby I had myself. This one, I adopted a nine-year-old baby. I tried to educate him, I tried to teach him, and then suddenly I got it confused.
[laugher and applause]
But Yahoo has a strong brand in China, is a great technology. When we move inside we understand, not just Yahoo, a lot of companies move to China they all perceive problems. So we set a three-year plan. First year, make it stabilized, survive. Second year we should make it healthier. Third year lets make this thing back to the first years. So the first years when we're moving inside, like Terry said several ago when he moved to Yahoo China, "I find the second time we had a product meeting, there were 1,012 projects going on." I said "How can you do that?" So we cleaned out a lot of products. We said, "What is the most important and urgent? Important not urgent? Urgent not important? Not urgent and not important?" Throw all the rubbish in the rubbish and just urgent and important. And from urgent and important we only choose number one, number two, number three. The rest of it, that goes in the rubbish. So we cleaned away a lot of products. We find good people. We only had 40 engineers, now we have 270 engineers. And third we build up the culture and embrace the change. So it's getting better, Yahoo, I think for the first year we tried our best and it stabilized. We changed new management last week. So, I'm back to myself again.
John: Apart from a billion dollars, which is a good reason to have done that deal, you also though that search was important to Alibaba's e-commerce strategy. Can you explain why search was so important to a broader e-commerce strategy of the company?
Jack: I think early last year when we competed with Ebay, I'm looking at now, "What's the problem Ebay is going to face in the future?" I think Google and search engines are going to give Ebay a lot of challenge. Because in e-commerce, one is e-marketplace the other is search engine. So we thought, "Well we got to have a search engine." So we find Yahoo, were married and then we got the search, because if we don't have it we'd be in trouble. So we got Yahoo, the purpose is not that we want to use search engine to defeat Google, to defeat Baidu, we think a search engine is a very, very important engine and tool for Alibaba e-commerce work.
If we see this year Ebay partnered with Yahoo, Ebay partnered with Google, that is what will happen. If we don't have that, all the power sellers are going to sell on Google not Yahoo. We see that they are using the site very few times. So we are fixing that thing, we hope in three years. People will be using Yahoo search engine instead of going to the others.
John: The Chinese search market is hot, as you mentioned a second ago. There are three players, primarily you, Yahoo, Google and the leader in the market, which is Baidu. I'm curious how you see that competition playing out over the next couple of years, and in particular I want you to speak to a point that you made to me this summer, about how China needs a different kind of search engine.
Jack: OK. The competition has not started yet, because we have not started competing yet. Last year we were fixing a lot of holes, we are surviving. This year is the time to compete. Competition is really fun; it's a game on the business, its part of the business. So we think that this year is the year to start a real search engine competition. That's after my birthday; I said, "I don't want to fight until after my birthday." The search will mainly go from today, the engineer way, you know search engine, a lot of terms I don't understand of what they use. I think search should be more customer oriented. It's more vertical, more social search, because at least on the third changing I'm using today, using Yahoo, Google, Baidu, I do not feel comfortable, I do not know why. I just think something should be more human-like, and it's not a human yet.
John: And you think that that perception that you have is one that is shared in the Chinese market? That consumers broadly share that sense of unease of the way a search works currently in the market?
Jack: Yeah, I think so. Because I'm not a... I want to tell people here, I'm 100% made-in-China, I learned my English from myself, and I know nothing about technology. One of the reasons why Alibaba survives is because Jack Ma knows nothing about computers.
I think technology isn't for people like me, the dumb, we know nothing about technology. So I'm quality control for my company. Any products that we design, I will use it. I don't want to read the manual; I don't want people to tell me how to use it. If I can't use it, sweep to the rubbish, because 80% of people like me won't use it. So search engines, I do the same thing, because I represent those 80% or 90% of people that know nothing about technology, we hate technology, we are scared of technology. We just want to go on it and find it. I think we got some chance there, making those "non-technologed" people happy.
John: One of the first things you told me when we talked, you mention an important book written about Google, called, "The Search" by John Battelle. I think one of the first tings you said to me when we met is that you had not read that book and you would not read that book.
John: I'm curious why.
I'm just idly curious.
Jack: When we competed with Ebay, people gave me three books. "The Perfect Marketplace," there's a book. I said I don't want to read it, if I read it I will follow them. If I read, "The Search" of Google, I will follow the Google way. I will be influenced by them. "Oh, that's the way to do it!" I don't think so. You got to change the game. Do it your own way, do it like our own people. I believe this is the way and just follow it. So I'm scared if I read the book I will be influenced. I want to influence the others, not let the others influence me.
John: So in a way you are paying complement to John Battelle by not reading his book?
Jack: I think that must be a good book.
Someday people will read the "Alibaba." Write that book.
John: So, one of the things that we have heard a lot about the last couple years, particularly with respect to searching China, is there's great controversy over the extent to which the search companies that do business in the Chinese market do or do not cooperate with the Chinese government in terms of censoring what sites that they point to in their search results. You I think have a very ironclad rule about this, which is you are perfectly happy to cooperate with the Chinese government, you see no other way. That is a controversial view in a lot of places, can you explain why you think there is no ethical or political issue there to be addressed?
Jack Ma: I think first, I am a businesspeople, I have to take care of my customers, I have to take care of my employees, I have to take care of my shareholders. I'm doing business everywhere in the world following the laws. I listen to them, I communicate with them. I started my Internet business in 1995. I set up the first Internet company in China, chinapages.com. A lot of people say China's government don't like the Internet. For eleven years, I call myself like a blind man riding on the back of blind tiger. Jumping around, but I never get in trouble with Chinese government because I know Internet is so new to any government, I go explain to them why I do this, what's the good thing about it, but if something they really don't like it, I don't do it. There are so many things you can do, why do you want to do something that will not happen? So, we focus on e-commerce, we create the jobs, improve the economy, but we are not interested in produce. And then we got a Yahoo search engine. I tell the people that we don't want to compete on the news politically. We want the entertainment, and finance, and sports. Internet is changing China, more so the last few years. There are so many good things that we can improve the people's life by using Internet. Why do you want to do something that really make people upset? If people upset, you're upset, and why do you want to do that? Do something you can do better. Do something that will really help the people. So, I don't think if you want to do something, because no matter what you believe, China government is smart, China government still know what they are doing, and they're still popular and powerful, so if you want to forget about doing your own things, and make them unhappy, you cannot do nothing. So, if you go slowly, you can improve the world.
John: I imagine some of the people in the audience will take exception to some of those points, but we don't have that much time to get into that in more depth, I'm curious about the Ebay-Top Out competition. There's been a lot of rumor going about recently that Ebay is considering selling off its auction business...
Jack: I don't think it's a rumor, it's a truth, I think.
John: You told me over the summer that that competition was over, that you had won. Top Out had seventy percent of the market, Ebay was dead in China. If this rumor, which you say is not a rumor comes to pass, is that essentially your complete conquest of people in your market?
Jack: Ebay is not dead, in China it's half-dead. We can win Ebay in China, we cannot win Ebay in the US...yet. (laughter) Well, If you don't think you have a chance to do it, right? The reason we choose alibaba.com is we want to make this company a global company, and we are learning from Ebay, from yahoo, from Google, and China is a huge market. But, the competition between Top Out and Ebay, I think we are lucky, we made some mistakes, we're not supposed to make, and I think the competition in China is done. I think they will take they're using some new way which we are watching closely.
John: Let me ask you one more quick question, then we'll have questions from the audience. When I saw you over the summer and the many people at Alibaba, made another point that revolved around rumor to me, which was the notion that they all believed very strongly, which was that part of the motivation for Meg Whitman and Ebay to have bought Skype was because she had come to China and had seen the chat features that you had implemented in Tab Out, and that having seen this feature, she realized that she needed to go off and buy Skype so she could incorporate the same set of features into Ebay. I have no idea whether that is true, although a lot of people in your company seem to think it's absolutely the truth. But it points to a broader question, which is are there areas you think in which Chinese innovation in Web 2.0 is actually ahead of innovation in the United States?
Jack: Yeah, I think so. I think the IM usage, the QQ growth, and the online gamings. Plus in the Alibaba, the Ebay guys saw the way we use IM on the e-marketplace, but there are a lot of things we are using on the e-marketplace, especially the Alipay. People say Alipay is like a PayPal, but it's different. We have more escort services than that is in need of payment. But I think, at least I spend more time here studying the US companies than most of the USA companies spend studying China's companies.
John: Right. And will you be invading the US marketplace anytime soon like the US companies have tried to invade yours?
Jack: What do you mean by invading? I come to help! [laughter, applause]
John: I think I've heard that somewhere before. So if there are any questions in the audience for Jack Ma, now would be a great time to ask.
Questioner 1: [low volume audio] Jack, you talked about how Ebay made you partners. Could you talk a little bit about what will change and what will Ebay do differently?
John: That was a long question. The question was whether Ebay partnering with some local companies whether that would give them an ability to compete with Top Out. Is that right?
Jack: Yeah, for last year and this year, I'm thinking a lot about if I were Ebay, how I could win back the market share. It was difficult, I know I'm not going to tell you here, but I think they will probably do the same deal as Yahoo in China. And to win back, I think if they do a thing like us, to have one year integration, Yahoo China is such a company, everybody thinks to do that, for people like so tough guy, strict guy, like a Jack, still tough. So you need a tough guy like a Jack to make sure within one year, everything is set. But while they're doing integration, we would run like a dash. Yeah. So we tried our best to move as fast as possible. So, actually, for top reasons that we think things last year, competition is not our goal, competition is a game. We think China market is so huge... So we think competition is over, means this game is over. Another game is coming. That is the search engine gaming.
John: OK. We got another, or are we done? We're done. Jack, thank you so much.
ANNCR: Jack Ma from the Web 2.0 summit 2006.
Daniel H. Steinberg is the editor for the new series of Mac Developer titles for the Pragmatic Programmers. He writes feature articles for Apple's ADC web site and is a regular contributor to Mac Devcenter. He has presented at Apple's Worldwide Developer Conference, MacWorld, MacHack and other Mac developer conferences.
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