The Transpacific Experiment. Matt Sheehan
Looking back with fifteen years of hindsight, it’s hard to mentally reconstruct the David-versus-Goliath nature of this showdown. In the intervening years Alibaba has become the glitzy golden boy of China’s internet economy, while eBay has lost most of its shine and fallen far behind Amazon. But at the time, this outcome seemed like the longest of long shots. eBay was one of the most valuable internet companies in the world and a darling of U.S. media. Alibaba was instead a local curiosity—a company with a catchy name and a goofy founder.
Jack Ma gained fluency in English as a kid by standing outside a local hotel and offering to lead foreigners around his hometown of Hangzhou’s famed West Lake district. He went on to become an English teacher at a local college and discovered the internet on a failed business trip to the U.S. in 1995. He spent the next few years stumbling through a couple early internet start-ups, including creating the “China Yellow Pages” for international sourcing of Chinese goods. In 1997, a temporary job at a government ministry gave Ma the chance of a lifetime: to take Yahoo founder Jerry Yang on a tour of the Great Wall. At the time Yang was the golden boy of Silicon Valley, and his company stood alongside eBay as one of the giants of the early internet. But Silicon Valley’s colossal stature in China didn’t intimidate Ma—it inspired him. He and Yang hit it off, chatting about the growth and future of the web. That momentous trip was captured by a single photograph, of Yang and Ma sitting on the brown stone steps, smiling at the camera. Within two years, Jack Ma had launched his next start-up: Alibaba.
Alibaba began as a platform for international purchasers of Chinese goods, but when eBay decided to enter the Chinese market in 2002 with its auction-style sales, Ma created the Taobao platform to compete head-on for customers in the auction market. At the outset, it looked like the mighty eBay would steamroll Jack Ma’s little start-up. But the former English teacher from Hangzhou turned that power imbalance into an advantage, waging a multiyear guerrilla war against the American company.
eBay began its China venture by buying up the top Chinese e-commerce company at the time, EachNet. EachNet had been founded by Shao Yibo, a Chinese national math champion with two degrees from Harvard and funding from Silicon Valley. But instead of leveraging EachNet’s local know-how, eBay gutted it. The Silicon Valley giant remade EachNet’s original (and successful) user interface in the parent company’s image. It sent in foreign managers to run its China operations and insisted on routing all China traffic through one global platform, slowing down the site as traffic bounced back and forth across transpacific cables.
By contrast, Ma sought every opportunity to localize. His team created a home page that was packed with links and text—irritatingly crowded to Western eyes, but somehow appealing to Chinese users. He built new payment methods that held money in escrow until the receipt of purchased goods, a move designed to assuage the fears of Chinese users who were still new to both credit cards and e-commerce. He tacked on messaging functions that allowed buyers and sellers to communicate in real time.
But Ma’s real coup came from business model innovation. As a company listed on the New York Stock Exchange, eBay was under pressure from bankers to show returns, and so it charged multiple types of fees on every transaction in China. Knowing that his company lived and died with growth of the Chinese market, in 2005 Jack Ma pledged to keep his platform free of fees for three years. It was a big gamble, a pledge to forsake short-term gains in hopes that he could expand the market, win user loyalty, and find a way to cash in later. eBay’s China operations mocked Ma with a condescending statement, chiding that “free is not a business model,” but Jack would get the last laugh.
Alibaba was gaining momentum with Chinese users and funding from allies abroad. Ma scored a major coup that same year when Jerry Yang handed over Yahoo’s China business and $1 billion in exchange for 40 percent of Alibaba.3 That deal had its origins in another walk that Yang and Ma took, this time in Pebble Beach, California. It would turn into the single best financial decision by an American internet company in China.
After four years of losing money and market share to the scrappy start-up, eBay CEO Meg Whitman invited Jack Ma to Silicon Valley to try to broker a deal. But with the American giant on the ropes, Ma refused to negotiate. In 2006, eBay retreated from the China market. It was the first time a Chinese internet company had gone head-to-head with its American rival and won.
“Nobody was betting on the little guys,” said Kaiser Kuo, host of the Sinica Podcast and former head of international public relations for Baidu. “It seemed like having a big American brand behind you was magic. It really never seemed like the local Davids were going to beat the foreign Goliaths—it just never seemed possible. But then it started to happen left and right.”
WWW.GOOGLE.CN
eBay’s challenge in conquering China was that of a powerful colonial army facing a ragtag guerrilla insurgence. Google’s conundrum was even more complicated—like a game of multidimensional chess played against three wildly different but equally intransigent foes: local competitor Baidu, the Chinese government, and its own much-hyped ethical code. Any move that Google made against one of these foes compromised it along another dimension, leaving the company tangled in a web of moral, political, and business tradeoffs.
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