Alibaba: The House That Jack Ma Built by Duncan Clark

Overview

Rating: 7/10
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High-Level Thoughts

Alibaba has always been a company that I did not understand. Their website design and user experience are pitiful. Although their site has improved, I’ve wondered how they became such a powerhouse. Reading this book gave me a better understanding of the company’s innovations. It also instilled in me a deep respect for Jack Ma, an internet pioneer.

Key Takeaways

1. Think big. You’re dreaming too small.
2. Build companies your way.
3. Be a trend leader, not a follower.
4. You don’t need to know tech to build tech.

Summary Notes

Jack Ma’s Beginnings

Jack loved learning the English language from a young age. As a boy, he would read English literature and would talk to tourists at a popular resort to practice. Apart from English lessons, he gained lifelong friends from these tours. He grew close with a family from Australia, the Morleys, that he still stays in touch with today.

English helps me a lot. It makes me understand the world better, helps me to meet the best CEOs and leaders in the world, and makes me understand the distance between China and the world. - Jack Ma

With English as a strong suit, Jack fought through his math classes. He was not the smartest student, but he worked hard to squeeze into Hangzhou Teachers College.

At home, his parents practiced pingtan, a traditional art form containing comedic routines. This explains why Jack has wowed crowds in both Chinese and English for the past 20 years with humor. But his charisma is not the only thing that has helped his career progress.

Jack Ma’s Career Trajectory

Company #1 - Hope

Early in his career, Jack realized that he wanted to do much more than teaching. He determined to start a company by the time he was 30, which he then did. He worked part-time after class on the company he named “Hope”. Hope’s mission was to connect local companies with customers overseas. Jack figured that retired teachers could do translation work for those companies. Unfortunately, he was never able to find commercial success with that business model.

Company #2 - China Pages

While visiting a client in the United States, Jack came across his first computer. He immediately saw the value it offered, and he returned with one to Hangzhou. It was at that point that he decided to build China’s first online yellow pages. This ambitious mission was enough for Jack to finally leave teaching to pursue his dreams.

Within three years, China Pages had made roughly $800,000. It had progressed enough for China Telecom to approach them to do a joint venture. The offer on the table was an investment of $185,000 along with five board seats. Because Jack accepted the deal, he only had two board seats left. This permitted China Telecom to shut down all his ideas. He didn’t like that, so he left to work on a government e-commerce project in Beijing. The project was short-lived because Jack wanted to start an e-commerce company of his own.

Company #3 - Alibaba

Jack began his next company by hosting a gathering at his home. They spent two hours discussing the grand vision of what he wanted to create. Jack and his wife, Cathy, became the lead shareholders. But Jack was not greedy. There were a total of eighteen co-founders, six of whom were women.

Jack gained a firm belief with China Pages that no one should hold the controlling stake of a company and make those they control suffer.

I have never once had a controlling stake at Alibaba. I am proud of this. I am the CEO of the company because I lead it with [my] wisdom, courage, and resourcefulness, not capital. - Jack Ma

In less than a year, Jack and his co-founder, Joe, raised $25 million from Goldman Sachs and Softbank. But the journey did not end there. Alibaba went through some difficult challenges. You can read more about those specifics when reading the book.

What Is Alibaba?

Alibaba is one of the most powerful companies in China. Its main product is a two-sided marketplace to sell goods and services. Merchants sign up on the site to create online stores. Consumers sign up to find products that the merchants provide. Alibaba has grown so large that they offer many other services, but that’s where they began.

Why Is the Company Named Alibaba?

Jack is a fan of the name Alibaba for three reasons.

1. The name is at the beginning of the alphabet, so it shows up on top.
2. The name is easy to pronounce in many languages.
3. Jack loves the “open sesame” imagery that the name produces.

Alibaba’s Competitive Edge

Alibaba is famous for its “Iron Triangle”: e-commerce, logistics, and finance. These three core functions are what set the company apart from its competitors.

Finance

Alipay, the Paypal of China, is a great asset to Alibaba. Alipay makes up one-third of Alibaba’s revenues. The service generates almost $5 billion per year in revenue. Jack controls a separate company that owns Alipay. The transfer of Alipay to another entity is widely scrutinized; Jack attributes the move to governmental issues.

E-commerce & Logistics

Alibaba doesn’t follow a model like Amazon where they offer these services in-house. Instead, a wide network of partners fills gaps to produce one incredible service. Delivery companies like SF Express play a major role in Alibaba’s growth and fast development.

Another one of Alibaba’s advantages is that it grew the company locally. Over the years, several large US companies tried to enter the market but didn’t succeed. The companies didn’t understand Chinese culture and government well enough.

Alibaba’s success is partly due to forgoing a retail model. Alibaba doesn’t worry about maintaining storefronts or inventory. And they avoid rent hikes that brick-and-mortar retailers suffer from.

Alibaba’s other competitive advantages come from its culture.

Alibaba’s Company Culture

Philosophy

• Customers first, employees second, and shareholders third

Values: The Six Veins of Alibaba’s “Spirit Sword”

1. Customer-first
2. Teamwork
3. Embrace change
4. Integrity
5. Passion
6. Commitment

Practices

• Employees take full responsibility for their work. They delegate or act rather than waiting for orders from a superior. Jack does not allow complaining because that is a personal pet peeve of his.
• Each year on May 10, the company holds Aliday. Aliday is an anniversary celebration where the company honors teamwork. Jack also presides over a ceremony to celebrate recent weddings of employees.
• The Xiaoer, Alibaba’s client service managers, handle disputes between customers and merchants. Xiaoers have complete autonomy within Alibaba. They can shut down merchants or even offer marketing campaign help. These employees work long hours, work late nights, and are an average of twenty-seven years old.
• Jack runs the company with a philosophy that he doesn’t need to get money from customers first. He’s always trying to understand how to get money back from them later.
• Because Alibaba grew locally in China, they were able to acquire talent for a fraction of the cost of a Silicon Valley engineer. Jack talks about how he could hire ten engineers when in Silicon Valley they could only hire one.

How Does Alibaba Make Money?

Alibaba collects money from advertisements on their site. Merchants can advertise on Alibaba in two ways. One option is a pay-per-click method, like Google Adwords. The other method follows a more traditional advertising model. Merchants pay for the number of times their ads show up on the site. Alibaba also collects money from other services and products they offer such as:

• Alipay (like Apple Pay)
• Alibaba Cloud (like Amazon Web Services)
• Taobao (free trade marketplace—monetized through ads)
• Tmall (C2C marketplace—monetized with commissions, service fees, & marketing services)
• Alimama (monetized through advertisers and affiliate partners)
• Aliexpress (online store—monetized with commissions on goods sold)
• 1688 (membership plan fees and premium services)

Alibaba’s Accomplishments

• Alibaba sold 12 percent of its company and raised $25 billion, the largest IPO in history.
• Following Google, Alibaba became the most valuable Internet company in the world. Its shares were worth more than Amazon and eBay combined.

Legitimizing Entrepreneurship in China

“Fall in love with the government, don’t marry them—respect them.” - Jack when talking about his relationship with the Chinese government.

When Jack started Alibaba, China was on the verge of massive expansion. He and a train of other entrepreneurs built the startup ecosystem that we see today.

What Challenges Is Alibaba Facing Today?

Alibaba is facing competition on many fronts. From clothing to cosmetics, the company is being given a run for their money.

Alibaba recently invested in a new trend called “omnichannel” or “online to offline.” It bought shares in Suning, an electronics retailer like Best Buy. The strategic investment was to counter JD.com (one of their largest competitors). It’s too soon to tell whether it was a good investment.

WeChat’s fast adoption highlighted a lack of messaging in Alibaba’s product offerings. The company is working to improve its mobile social app, Laiwang.

Alibaba plans to overtake Amazon. The company struggles to move into the US market because of increased competition in the US. It has succeeded in countries such as Brazil and Russia though.

Jack Ma’s Thoughts on Competition

“If you can’t tolerate your opponents, you will be definitely beaten by your opponent… . If you treat your opponents as enemies, you have already lost at the beginning of the game. If you hang your opponent as a target and practice throwing darts at him every day, you are only able to fight this one enemy, not others… . Competition is the greatest joy. When you compete with others and find that it brings you more and more agony, there must be something wrong with your competition strategy.”

Jack Ma’s Thoughts on MBAs

“It is not necessary to study an MBA. Most MBA graduates are not useful… . Unless they come back from their MBA studies and forget what they’ve learned at school, then they will be useful. Because schools teach knowledge while starting businesses requires wisdom. Wisdom is acquired through experience. Knowledge can be acquired through hard work.”

Jack Ma’s Thoughts on Work Ethic

Jack believes that working hard is necessary to find success. It surprised him when he came to the United States and found that people here take Sundays off. To survive at Alibaba, employees must learn the hard-working spirit of Silicon Valley.

If we go to work at 8 A.M. and get off work at 5 P.M., this is not a high-tech company, and Alibaba will never be successful. - Jack Ma

What Would I Change About the Book?

1. I’d make the timeline more distinguished and hierarchical. At times it was difficult to follow the story because it jumped around a lot.
2. Most of Alibaba’s technology is ignored or rarely discussed. I’d love to know about the technological struggles Alibaba ran into over the years.
3. Markets move quickly, and a lot has happened since this book came out. An updated version with recent events would be great.

Meaningful Quotes

“China changed because of us in the past fifteen years. We hope in the next fifteen years, the world changes because of us.” - Jack Ma

“Raise money when we don’t need it. When you need it don’t go out to raise money, it’s too late.” - Jack Ma

“Nobody knows the future. You can only create the future.” - Jack Ma

“Be the last man standing.” - Jack Ma

“Today is brutal, tomorrow is more brutal, but the day after tomorrow is beautiful. However, the majority of people will die tomorrow night. They won’t be able to see the sunshine the day after tomorrow. Aliren [Alibaba’s employees] must see the sunshine the day after tomorrow.” - Jack Ma

“Masters of negotiation always listen, don’t talk. Those who talk a lot only have second-rate negotiation skills. A true master listens, and as soon as he moves his sword, you pretty much collapse.” - Jack Ma

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