Alibaba: The House That Jack Ma Built pdfdrive com

SARS Attacks
The SARS (severe acute respiratory syndrome) virus outbreak started in
southern China in 2002, spreading to create clusters of infection around the
world that caused eight thousand people to fall sick as well as almost eight
hundred deaths. Seven thousand of those infected, and most of those who died,
were located in mainland China and Hong Kong.
In Hangzhou, four hundred employees in Alibaba’s head office underwent
voluntary isolation at home after one of their colleagues, Kitty Song (Song Jie),
fell ill with a suspected case of SARS. She had traveled to Guangzhou, the
epicenter of the outbreak, as part of an Alibaba team participating in the biannual
Canton Fair.
SARS bound an already close company even closer. Because its origins and
full impact were unknown, SARS was a frightening experience—as I
experienced myself in Beijing at the time. The outbreak also bound people
together.
In early May, Jack donned one of the face masks that the company had
distributed to all its employees and initiated a plan that confined all of its
employees at home for one week. Soon after they were sent home, Alibaba’s
office was sealed off to avoid any risk of infections from exposure to the
suspected case. In a letter to employees distributed that day, Jack’s ability to
inspire the troops, and to keep them focused on the company’s goals, was on full
display: “We care for each other and we support each other. We never forget the
mission and obligation of Alibaba, in face of the challenge from SARS. Tragedy
will pass, but life will continue. Fighting with catastrophe cannot prevent us
from fighting for the enterprise we love.”
Although it sickened thousands and killed almost eight hundred people, the
outbreak had a curiously beneficial impact on the Chinese Internet sector,
including Alibaba. SARS validated digital mobile telephony and the Internet,
and so came to represent the turning point when the Internet emerged as a truly
mass medium in China.
The virus gave a major boost to texting, which increased business for
cellular companies like China Mobile. However, SARS also boosted the three
Chinese Internet portals thanks to revenue-sharing agreements with the telecom
company. As the shares in Sina, Sohu, and NetEase began to climb, investor
interest in Chinese technology companies was suddenly reignited. Cell phone
usage wasn’t the only thing to benefit; broadband Internet access got a huge lift,

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too, as millions of people, confined to their homes or dormitories for days or
weeks on end, looked to the Internet for information or entertainment.
Within days of home confinement, Alibaba employees had Internet
connections installed at home. While the Hangzhou authorities supplied food
and twice-daily disinfection visits, employees continued their work, holding
virtual meetings in online chat rooms.
Reliable information about SARS was hard to come by, especially in the
early months of the outbreak, when China’s official media, including state
broadcaster China Central Television, stayed mute. Instead people looked to
their cell phones and PCs to learn about the virus and the best ways to protect
themselves. Crucially for Alibaba, SARS convinced millions of people, afraid to
go outside, to try shopping online instead.
The suspected case of SARS within the company turned out not to be
infected by the virus after all, and so for Alibaba, SARS ended up a blessing in
disguise. Because the Taobao stealth team had relocated to work in the Lakeside
apartment, they were not affected by the quarantine of the main office. Jack was
still confined at home and unable to join the Taobao team for the May 10 launch,
as he later recalled, “A few of us agreed to talk on the phone at eight 
P.M
. and
raised our glasses in the air and said ‘Wishing Taobao a safe journey.’ The day
that Taobao was launched there was a line on the website that declared,
‘Remembering those who worked hard during SARS.’”
During the SARS outbreak, Alibaba employees self-quarantined and worked from home, 2003. 
Alibaba

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Taobao
Although Taobao was launched on May 10, visitors to the website could not
discern any connection with Alibaba. Taobao made a virtue of its start-up status
by relying on word-of-mouth marketing to popularize the site, including postings
on the many free bulletin board systems and other online forums popular in
China at the time.
Taobao’s association with Alibaba was kept so well hidden that a number
of Alibaba employees even voiced concerns to management about a potential
new rival on the scene. Jack recalled, “We have a very active intranet. In late
June, someone posted a message asking the company’s senior management to
pay attention to one website, which might become our competitor in the future.”
Soon the Alibaba intranet was alive with discussions about who was behind
Taobao, and employees commenting on the disappearance of some of their
colleagues. Finally, on July 10, 2003, Alibaba announced that Taobao was part
of the company. “There was a resounding cheer within the company,” Jack
recalled.
The cat was out of the bag, and with the full resources of Alibaba at its
disposal Taobao was now free to take on eBay. Yet Jack wanted Taobao to
maintain an innovative, start-up culture, something aided by a preemptive move
by eBay to try to sew up the market. eBay signed exclusive advertising contracts
to promote its site on all the major China Internet portals, preventing them from
displaying ads promoting rival sites. This forced Alibaba to adopt a series of
guerrilla marketing techniques, including reaching out to hundreds of small but
fast-growing sites and online communities that eBay had deemed unimportant.
With the backing of SoftBank, Jack took a move from Yahoo Japan’s
playbook. In 1999, when it launched its e-commerce business, CEO Masahiro
Inoue asked his 120 employees to list items for sale on his new site to make it
look active and popular. Four years later in China, Jack did the same: “We had
all together seven, eight people [in the Taobao team]. . . . Everyone had to find
four items. I rummaged through my chests and cupboards. I barely had anything
at home. . . . We pooled about thirty items, and I bought yours and you bought
mine, that’s how it started. . . . I even listed my watch online.”
Jack also insisted that Taobao maintain a distinctively local culture,
including choosing nicknames
20
 from Jin Yong’s novels or other popular tales.
Taobao was successful at developing a whimsical culture and instilling a strong
sense of teamwork. Yet it would be years before Taobao would make any

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money. Fortunately, Alibaba could count on SoftBank’s support once again. In
February 2004, SoftBank led a new $82 million investment to replenish
Alibaba’s coffers, in preparation for Taobao’s long battle with eBay.
This transaction also was the end of the road for Goldman Sachs. Shirley
Lin had left the bank in May 2003. With no one to oversee the stake, Goldman
had written down the value of its stake to zero. The following year, just before
the new investment led by SoftBank, Goldman sold off its entire 33 percent
stake. The bank had paid $3.3 million for it in 1999 and sold it for more than
seven times that amount five years later. This seemed like a good result at the
time, although no one involved with the deal still remained at Goldman to take
any credit. The investors who bought out the stake saw an immediate
appreciation once SoftBank anted up more funds for Taobao. Worse was to
come for Goldman, though, when in 2014 the full extent of the mistake sank in.
The stake the investment bank had paid $3.3 million for in 1999 would rise in
value to more than $12.5 billion at the IPO had they held on to it. Worse still, the