How to Understand Alibaba, ‘The House That Jack Ma Built’
During the years my wife Deb and I lived in China, we became friends with Duncan Clark, an investment banker, consultant, and writer based in Beijing. For the past few years I’ve known that he was at work on a biography of Jack Ma, this era’s most renowned Chinese entrepreneur.
That book, Alibaba and the House that Jack Ma Built, comes out this week. I’ve read it; I recommend it; and I think it tells a lot not just about Ma and his sprawling, remarkable Alibaba firm but also about the potential, the limits, and the character of modern China.
I sent Duncan Clark a list of three questions that his portrait of Jack Ma provoked for me. Below you’ll see those questions, and his (very interesting) answers. In a few days I’ll send him a round of follow-ups — and Duncan has offered to answer (within reason!) questions from readers as well. Please send them to firstname.lastname@example.org; we’ll pass them to Duncan Clark and extend the conversation here.
Let’s go to the questions:
Q 1. Duncan, let's start with the basics -- of what exactly Alibaba is, and why it matters, and what is significant about what Jack Ma has done there.
You and I both know that the curse of Western descriptions of China is to put everything in "Oh, it's the Chinese version of XXX" terms. Thus "Baidu is the Chinese version of Google"—except it's not really. And "Weibo is the Chinese version of Twitter," except... Or the variation, "Xiaomi is the Chinese answer to the iPhone" etc. And in your book you even single out the familiar "Alibaba is the Chinese version of Amazon" to say that it both clarifies and misleads.
So stipulating that things in China need to be described in their own terms, how can you most clearly explain Alibaba's concept and importance to those who haven't seen it in operation in China? Why should they care about, or be impressed by, what it has done?
And, since we both know that the joy of China is that contradictory realities are simultaneously true, I'll ask you to do what I just warned about, and draw a comparison between Jack Ma's own achievement and non-Chinese figures that readers may be familiar with. If you were drawing from a range of Western technology and industrial leaders -- Steve Jobs with his obsessive insistence on design, Elon Musk with his multi-front innovation, Bill Gates with his competitive ferocity, Jeff Bezos with whatever trait you'd choose — who would you choose to describe Jack Ma? What matters about him and what he has done?
A: You’re right. The “X is the Y of China” approach is a common formulation - whether we are talking about a Chinese firm or a Chinese entrepreneur – yet one that comes with serious drawbacks. In comparing an Alibaba to an Amazon, or a Jack Ma to a Jeff Bezos or a Steve Jobs, we are of course implying that the China story is somehow a knock-off of an American original. In other words, that “X < Y”.
But what if we are wrong?
In trying to make sense of the rise of China, it is understandable that we look for simple and comforting explanations. But in recounting the legends of the 21st century’s most impactful businesses we can no longer restrict our casting call to Silicon Valley. We must now include companies like Hangzhou-based Alibaba, along with its peers known – like Shenzhen-based Tencent, or those now growing fast or yet even to appear in China.
In a number of important ways, Alibaba is not the Amazon of China. Alibaba is designed as a platform for small entrepreneurs and, more recently, large brands to reach millions of consumers online. Alibaba does not hold inventory, allowing it to scale at a pace greater than Amazon. As one interviewer put it to Jack Ma in 2014, “You’ve made more money in Alibaba in the last 90 days than Amazon has made in the last 20 years".
Jack Ma is not the Jeff Bezos of China. Jack Ma came from a very modest background. He struggled in math, only just squeaking in to a local college in his hometown. He started his career as an English teacher. Jeff Bezos was the son of an oil executive. He excelled in his studies, won entrance to Princeton and worked on Wall Street.
Yet Alibaba and Amazon share some important qualities. Both companies insist on putting the customer first. This sounds trite, but these guys really mean it. Jack Ma’s mantra is: “Customer first, employees second, shareholders third”. A corollary of this is his insistence that Alibaba offers many of its services free of charge. Ten years ago, eBay had to eat its words that “free is not a business model”. Alibaba used it to force eBay out of the China market for good. At Amazon, every new initiative has to be pitched inside the company as if to a customer. A relentless, and often costly, commitment to investing in innovation too means that shareholders in Amazon for many years felt like they were at the back of the line in Jeff Bezos’ priorities.
Although the companies they founded have evolved in different ways, Jack Ma and Jeff Bezos both started out by identifying a market opportunity that would later seem obvious. Whereas Bezos used his analytical skills to conclude that the Internet could disrupt the market for books, Ma used his gut instincts realize that it could open up new markets overseas for the small traders and manufacturers he lived amongst, people he understood all too well from having previously supplemented his meager earnings as an English teacher by buying and selling plastic carpets on the streets.
As Alibaba advances on new frontiers beyond e-commerce, Jack’s unshakeable faith in the power of the Internet – amplified by recent advances such as big data – make comparisons with Elon Musk perhaps equally tempting. Just as Musk is simultaneously disrupting the auto industry, space and renewable energy, Ma is tilting at new windmills - from finance, to entertainment to healthcare.
Bill Gates was famously late to recognize the disruptive power of the Internet. So much so that in 1995 as he struggled to convince customers to sign up for his China Pages venture (a company whose failure set the scene for Alibaba) Jack Ma invented a quote by Bill Gates: “The Internet will change every aspect of human lives”. He justified this by explaining that if Jack Ma said it who would believe it, adding that “I believed that Bill Gates would definitely say it one day”. Jack Ma’s ability, like Steve Jobs, to quite simply imagine the future and the steps to take us there has been critical to his appeal. Yet unlike Jobs, Jack Ma relied on his remarkable charisma, sense of humor and love of legends and whimsy to motivate his team to get there.
Q 2. For a country changing as fast as China has been, and with as many tensions and (again) contradictions, every story of the specific also has implications for the general. The story of a company, an industry, a city, a province shows us something about that particular situation but also has bearing on the country's larger prospects.
You write early in your book that the "Old China" growth model is ending — the model that involved giant factories and low wages and a position as dirty-industry outsourcer to the world — and that something new is taking its place, or trying to. When I wrote my book China Airborne, I argued that the fate of high-end industries like aerospace or pharmaceuticals will say a lot about whether China was actually capable of making this transition, and getting out of the "middle income trap."
I probably shouldn't ask you to boil down the Alibaba story to its role as bellwether for China. But I'm going to anyway. Based on the story so far of this company and its founder, should people assessing China feel more confident of its ability to move away from the dirty, heavy industries of yesterday toward "rich country" status with brand-name industries of its own? Or less?
A: Happy to boil it down. Alibaba is certainly a bellwether of a China – the aspirational, middle class China that hundreds of millions now belong to – and Jack’s rags-to-riches story is an inspiration to the hundreds of millions of others who yearn to join their ranks. But there are of course limits to this narrative. Shaking off the legacy of rural poverty takes generations, not years. Similarly recasting the economy in the ‘new China model’ means melting down the legacy of legions of low efficiency, high polluting state-owned enterprises, while mitigating the social impact of tens of millions of lost job and the reskilling of the labor force that will be required. That’s why Alibaba is as much a symbol of a future China yet to emerge as it is a representative today of the country’s newly empowered consumer classes. Making this future possible entails a redoubling of the government’s commitment to economic reforms – something that many now question is upper most in Xi Jinping’s priorities. Getting you to your next question for you!
Q3. Now, the tricky terrain of politics, which as you know has a lot to do with the answer to the previous question. To declare my own biases: the concluding argument in China Airborne was that the contradictions between the future industries China aspires to, and the heavy-handed political controls its leaders are trying to maintain, would only grow more intense. If you want universities that rival the Harvards and Berkeleys and Oxfords, you can't keep firewalling the internet. If you want companies that compete internationally with the best rich-country firms, you need functioning capital markets and reliable contract law. If you want a government that seems even as accountable as those in today's liberal democracies (with all their flaws), you need some checks and balances, you need some kind of independent press, and (in virtually every "serious" country except China) you need national elections.
You know all this. Here's why it raises such interesting questions about Jack Ma. In the years since Hong Kong's return to mainland control in 1997, the South China Morning Post, based in Hong Kong, has been a notably independent source of commentary and reporting about Chinese affairs. As you foreshadow in the final pages of your book, just four months ago Jack Ma and Alibaba took control of the SCMP.
This seems to put him in a very difficult position. If he maintains the paper's independence, as he's said he would, he could increasingly be at odds with the government of Alibaba's home country. And if he doesn't, won't he and his company be seen as enforcers of a press-control ethic at odds with the international technology whose esteem and acceptance he would like to have?
From the outside, it looks as if he has put himself in a no-win situation. Do you agree? Why do you think he did it, and how will he escape the trap?
A3: Yes, the limits on China’s ability to become an innovative nation can be clearly seen – in the government’s clinging on to old habits of control, of information, of people, of the national narrative. But similarly the limits on China’s ability to put off the reforms that its people will increasingly demand can already be seen – in capital flight, and more importantly in the flight of human capital. Will Chinese parents with the means to send their children overseas to escape the soul-destroying ‘gao kao’ national exam – one which Jack Ma himself only managed to squeak past on his third attempt – really push that hard for them to return after college or their first job overseas. Or will they themselves choose to follow their children overseas in seek of a more tranquil life?
Jack knows that Alibaba is a useful tool in the government’s efforts to move the fulcrum of China’s economic rebalancing. But as you point out, this increasingly will requires a social and ultimately political rebalancing too. If the Communist Party of China wants to retain its legitimacy as a “safe pair of hands” for the economy – something dented by last year’s stock market shenanigans and recent currency devaluations – it has to show its ability to usher in a more innovative future. In this regard, companies like Alibaba and peers such as Tencent whose WeChat application and eco-system make Facebook and WhatsApp seem pedestrian by comparison, are small but important symbols of, dare I say it, to Make China Great Again – not through maritime or territorial expansion (we must hope) but by restoring its status as an innovative nation. We forget all too easily how advanced China once was. In the 13th century Alibaba’s home town of Hangzhou was the most populous city in the world, and one of its most prosperous. Can China once again become a great nation of innovation with modern reincarnations for the world of the ‘four great inventions’ of papermaking, gunpowder, printing and the compass.
Creating the conditions for innovation to occur requires not more walls (or firewalls) but more windows, but a recommitment to the spirit of opening up and reform that has powered China’s rise for the past three decades, but now requiring the state to step back and let the talents of its people flourish. The mood in Hong Kong, long a symbol of China’s connection to the world, is not encouraging – and certainly Alibaba’s investment in an influential media outlet there is a sign of how Beijing is struggling on its own to cultivate the soft power is so desperately craves.
But Jack Ma thrives in the spaces between what is possible and what can be imagined. For Alibaba to continue to thrive, the company has to expand on new frontiers, including those such as the media and finance in which the government plays a dominant role. Alibaba is as much a strategy, as it is a story. Jack’s instincts for how far he can push the boundaries have served him well to date. I entitle my last chapter: “Icon or Icarus?” because there clearly are risks in his strategy, but like Jeff Bezos and Elon Musk ambition is the fuel which makes Jack Ma who he is. Try taking that away from him, or the people who he inspires, and yes it is hard to see how China can ever achieve its own potential.
That’s it for this first round, with thanks to Duncan Clark for taking these questions seriously. Stay tuned in this space later this week, and please do send in questions you’d like Duncan to address. That’s him, below, pictured on the Bund in Shanghai, with the towers of Pudong on the other side of the Huangpu.