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Alibaba's Jack Ma

Turning China Upside Down


Turning China Upside Down


For the past 20 years, Alibaba Group founder Jack Ma has forged new rules of the game in China that have left their mark. Now he's launching a brand new O2O era that is stirring up the pot again.



Turning China Upside Down

By Elaine Huang
From CommonWealth Magazine (vol. 548 )

"Charlatan." "Madman." "Egomaniac." Just some of the descriptions that have stuck to Alibaba Group Holding Ltd. chairman Jack Ma as he created the Alibaba legend over the past two decades.

He speaks assertively, in lofty tones and often comes across as crude and arrogant. Responding to critics who knocked him for being as "ugly as an alien," he replied, "A man's intelligence is inversely proportional to his looks."

Ma, whobegan his career as an English teacher, lacks a computer background and is a self-described technology flunky, setting himself apart from the new global high-tech bourgeoisie consisting of Facebook's Mark Zuckerberg, Baidu's Robin Li, Tencent's Pony Ma, and others. Yet in a newspaper article in June 2013, he declared: "Innovation in many industries is driven by outsiders."

Proving his point, this particular outsider has built the world's biggest e-commerce business.

In 2013, Alibaba's three main e-commerce platforms – Taobao Marketplace, and Juhuasuan – had combined gross merchandise volume of US$248 billion (or about NT$7.44 trillion), more than double that of American Internet retailing giant Inc. and comparable in value to Finland's GDP.

On May 6, Ma filed an application for an initial public offering (IPO) in the United States. Analysts estimate that Alibaba's market value could reach US$160 billion (about NT$4.8 trillion) or more, which would exceed the capitalization of Taiwan's highest market value stock, Taiwan Semiconductor Manufacturing Co., and potentially surpass the market capitalization of Facebook and Google.

Alibaba's IPO represents a critical juncture for independent innovation in China, and is "seen as a crucial inflection point for homegrown innovation in China and could presage a wave of new attention on China's other technology companies," the New York Timesassertedin January.

That's because Ma represents "Chinese-style innovation" that stood up to Silicon Valley giants Google and Facebook and paved a new path for growth in China, creating a new image for China as something other than a manufacturer of small components and assembler of electronic consumer products.

By listing in the U.S., Ma is returning to the land where he first gained inspiration to build his Internet empire – it was during a trip to Seattle in 1995 that he was first exposed to the Internet – and he has described it as an important milestone.

This "outsider," who avoids conventional approaches,basically plays the role of instigator, akin to the "catfish effect" found in management theory that describes the galvanizing effect the addition of a strong competitor can have on a particular industry. Much like a catfish, Ma wanders from sector to sector, bringing increased competition, stirring up new industry orders and rewriting the rules of the game for China's Internet and physical retail world. He has upended China's business world through three main initiatives.

Revolution No. 1:

One-stop E-commerce Services

The first major change he initiated was Alibaba's e-commerce platform that created a new e-commerce ecosystem in China. Ma played the role of a new entrant staging a counteroffensive against entrenched players.

In 2003 when Ma prepared to launch Taobao, China's top e-commerce site was Eachnet, which had a 90 percent share of the market and was owned by eBay. Ma, however, accurately identified the Chinese consumer's love for bargaining, and he developed software allowing buyers and sellers to communicate in real time. That feature, along with free perks and other benefits, enabled Taobao to drive Eachnet out of the market and emerge as the industry leader within three years.

Ma's innovation was to go beyond a simple digitization of the physical store experience. If Apple Inc. founder Steve Jobs created the smartphone ecosystem, then Alibaba's disruptive innovation generated a complete e-commerce ecosystem that has proved the ideal partner for small and medium-sized enterprises, delivering one-stop marketing, logistics and information solutions.

At present, 60 percent of all packages delivered in China are sent from the Taobao and Tmall platforms, and Ma's businesses have even penetrated his country's huge rural hinterland. Many young people who left the countryside looking for work have returned and used Taobao to launch new businesses, turning third-, fourth- and fifth-tier cities into Taobao villages. (See China's Rural Revolution)

Revolution No. 2:

Disrupting, Taking Control

The second major change initiated by Ma was to reshape the living habits of the Chinese people. What he developed was more than an "e-commerce platform"; it was a "lifestyle application platform."

Taking advantage of the rise of mobile networks, Ma launched new "disruptions" of the financial, mobile and department store sectors, using his "outsider's" imagination to create new markets. In an editorial in the People's Daily, he wrote, "the financial sector needs an instigator" to subvert this highly conservative sector.

Ma brandished his trump card when he launched Alipay in 2004, and it has since become the world's biggest third-party online payment provider with nearly 600 million users.

In fact, Ma never plays the expected card. Riding the popularity of mobile Internet, he has launched a series of O2O (online to offline) services on his massive online payments platform that include managing money, making deposits, paying utility bills, transferring money, and even making a restaurant reservation and paying in advance. All of these transactions can be handled on a smartphone.

With this innovation, Ma is turning the smartphone into the most important portal in Chinese consumers' lives. On May 7, the Wall Street Journal described the smartphone Alipay Wallet app as being "aimed at wresting control of investments, savings and everyday spending from China's banks." It's a threat that has drawn scrutiny from regulators and opposition from powerful state-controlled lenders, the paper said.

Ma not only rankled established banks, he also spurred his main Internet rivals, Tencent and Baidu, to follow suit, triggering an outright BAT (Baidu, Alibaba, Tencent) war.

One side effect of the pitched battle is that sectors that were either online or offline and respected each other's turf have suddenly had the lines between them blurred because of the rise of consumers' new mobile lifestyle.

Though Ma instigated the new trend, he believes he has not gone far enough. His ambition goes well beyond establishing himself as the king of e-commerce, and with Alibaba's operating scale surpassing that of Amazon, eBay and PayPal combined, he is concocting a third revolutionary change that extends to the cultural and entertainment sectors.

Revolution No. 3:

Saving Culture with a Fan-driven Economy

"The Internet economy has evolved from being a traffic economy into a fan-driven economy," the Caixin Century Weekly observed in reporting on how the e-commerce rules of the game are changing.

If Ma succeeds, he will have more than simply altered China's consumption model; he will have penetrated people's mindsets, to the point of reshaping the country's cultural landscape.

To achieve his vision, Ma established a digital entertainment business group in September 2013. Alibaba then announced in March 2014 that it was offering US$804 million for a 70 percent stake of film production company ChinaVision Media Group Ltd., and with it priority rights to films by prominent directors Peter Chan, Stephen Chow and Wong Kar-wai. It also agreed in late April to buy a US$1.22 billion stake in China's biggest video website, Youku Tudou Inc.

Mais planning to create Taobao and Tmall video channels with the pay-per-view market in mind, ready to forge a different path than other video websites, which offer content for free, by forging close bonds with the fans of directors and actors with the biggest box-office pull.

A keen observer of people, Ma is hoping to draw on the power of fans in launching an entertainment investment fund called "Yu Le Bao," literally "entertainment treasure." The platform selected a first batch of popular movies for its portfolio and then called on fans to invest at least 100 renminbi in the fund. It has forecast returns of 7 percent a year, dwarfing the 3 percent interest rate banks can offer depositors. The new model enabled ordinary citizens to invest in what had been the exclusive territory of big-money interests.

Within three days after the platform was introduced at the end of March, Yu Le Bao's 780,000 shares had sold out. This new commercial model has invigorated China's movie industry, which has struggled to finance constantly rising production costs.

The platform is backed by impregnable logic. Having fans invest guarantees a certain level of box office receipts and, even more importantly, allows producers to predict the strength of support for a project well before it hits the big screen, dramatically reducing risk.

Farewell to the Era of Fast Profits?

This new foray into the entertainment sector will inevitably be met with fierce competition from Alibaba's rivals, in a battle in which Alibaba is not the pacesetter. Tencent and Baidu both staked out positions in the entertainment field last year, before Alibaba, and on a bigger scale.

That guarantees that the competition and upheavals facingMa, Alibaba, and even China in the future will be more intense and ruthless.

Observers are worried that the Alibaba era of fast profits is coming to an end because its ability to profit from mobile users in this mobile Internet era lags behind that of Tencent's WeChat messenger service and its 350 million subscribers.

"The sense of participation involves entanglements and pain," Ma told Alibaba employees in urging them to welcome change and embrace danger, with Ma clearly leading the charge himself.

Perhaps ironically, the normally decisive Ma enjoys practicing taichi and even hopes that people will one day describe him as a "taichi master."

"If you want to live a long and good life, you have to practice taichi and move slowly," Ma once said in using a taichi analogy to discuss life and business.

The question now is how far will Ma's ambition take him? How much will it change China and how many industries will he disrupt and overturn? The only thing that's certain is that the unconventional Ma will continue to alternate between attack and defense, advancing at his own pace.

Translated from the Chinese by Luke Sabatier

What is O2O?

O2O, or "online to offline" describes a system of direct online sales and offline services. It allows offline businesses to broaden their customer based through online promotions, discounts and service bookings. Consumers can place orders and make payments online and then enjoy the service or collect the items they bought at a brick and mortar store.