Alibaba: The House That Jack Ma Built pdfdrive com

Shao Yibo
eBay had proved an instant investor hit with its September 1998 IPO, its
valuation growing from $2 billion to $30 billion by March 2000. Numerous
entrepreneurs in China launched ventures that aspired to be the eBay of China.
Most prominent among them was a charismatic wunderkind from Shanghai
called Shao Yibo, who had founded his firm EachNet
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 after returning to China in
June 1999 from Harvard Business School. EachNet quickly pulled ahead of the
other China clones.
To launch his consumer e-commerce attack, Jack opted to go the eBay
route, setting up a contest with EachNet. But in Shao Yibo, known as Bo to his
friends, Jack could very easily have met his match.
Bo came from a modest background. His parents were teachers. His father
sparked Bo’s interest in mathematics with a deck of cards. Bo recalled, “With
fifty-two cards, and scoring a king as thirteen etc., the deck adds up to three
hundred and sixty-four. My father hid one card and asked me to add up the rest.
If I did it right, I would know what the hidden card was.”
Bo practiced relentlessly. By the age of twelve he could add up a deck in
twelve seconds. After winning more than a dozen high school mathematics
competitions across the country, Bo became one of the first students from
mainland China
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to be admitted directly to Harvard College on a full
scholarship. After graduating he worked for two years at Boston Consulting
Group before returning to Harvard and enrolling at the business school. While
Jack had already settled on business-to-business e-commerce, Bo looked at a
range of U.S. Internet businesses that might work in China and found that “The
only business model that got me excited was eBay.”
Before leaving Boston, Bo auctioned off his unwanted possessions—on
eBay—and in June 1999, then twenty-six years old, returned to Shanghai to
build the eBay of China.
Before he even landed he had raised almost half a million dollars in
funding.
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Nonetheless, “my parents thought I was nuts, to turn down very
lucrative job offers and a green card and become self-employed,” Bo recalled. “I
was very naïve and totally unprepared for business in general and the huge
challenges of bootstrapping a start-up company in particular.”
Bo rented a cheap apartment in Shanghai and hired a high school classmate
as his first employee—unemployed, his friend was the only person he could
afford. Unable to shell out on expensive engineers, he arranged for two

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employees of the Shanghai Electricity Bureau, who had some IT experience but
had never built a website, to moonlight for him. After 5 
P.M.
, when they got off
their shift at the electricity utility, they came to the EachNet apartment and
worked until 1 
A.M.
, sleeping there before they clocked in back at their day job.
Soon after, Bo convinced a fellow Shanghai-born Harvard Business School
classmate, Tan Haiyin, to come on board as cofounder. Before business school
Tan had been one of the earliest employees of McKinsey in Shanghai. After
Harvard she had taken a job at Merrill Lynch in New York. She was traveling on
a business trip in China when Bo called her up to ask her if she wanted to join
him, and stay in China. She agreed.
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Bo attracted the attention of foreign media early on. The 
Washington Post
quoted him vowing that EachNet would gain “even greater dominance in China
than eBay has achieved in the U.S.” Bo quickly commanded the attention of
investors, too. The angel investment was followed swiftly by a $6.5 million
venture round.
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I got to know Bo soon after he returned to Shanghai. We were neighbors on
Hengshan Road in the city’s former French concession district. Despite his
impeccable résumé, Bo lived modestly, moving in with his parents. This was
seized upon as a sign of his humility—although greater attention was given in
local media to the fact that this handsome, Harvard Business School returnee
was still single.
Although a relative latecomer to the China Internet scene, he made an
instant splash and moved to quickly outmaneuver his rivals.
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Bo doesn’t suffer
fools gladly. In 2000, onstage at an Internet conference in Shanghai at which we
were both speakers, Bo demolished a rival who had just given a presentation
stuffed with inflated website traffic and exaggerated transaction data. Bo calmly
but methodically exposed all of the flaws in the other presenter’s math and logic,
demolishing him so effectively that the audience almost felt sorry for the hapless
competitor, who did not ride out the dot-com bust.
EachNet, by contrast, bucked the downturn and surprised everyone by
securing a massive $20.5 million investment in October 2000. The lead financier
was Bernard Arnault, the French luxury baron of LVMH, via his dot-com
investment vehicle Europatweb. But as the market crashed the fund got cold feet
and tried to pull out entirely; it finally ponied up $5 million. Bo demonstrated his
considerable powers of persuasion by cobbling the remaining $15 million from
existing investors and others even as the public equity markets continued their
downward slide. China was entering its “Internet winter,” but EachNet had
gathered a large stack of acorns.

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Yet making a viable business of EachNet would be no picnic for Bo. Could
the eBay model really work in China? In the United States, eBay became
popular for offering goods through online auctions, with the transactions often
taking place between consumers themselves. In China, although people loved to
haggle, the trading of secondhand goods, even offline, wasn’t common.
Shoppers were just beginning to exercise their newfound freedoms. Few people
had many possessions to sell.
In the United States, eBay served an online population of more than 100
million and could count on a well-developed credit card market and reliable
nationwide courier services. In China, the much-vaunted online consumer
market of 10 million was a mirage. In 2000, it was too early to build an “iron
triangle.” Few people could pay online or access reliable delivery services. More
fundamentally there was a complete absence of trust in online shopping.
Banking regulations restricted the development of credit cards, which were only
allowed in 1999, their use restricted to customers who kept money on deposit in
their banks. Debit cards were beginning to gain popularity but each bank issued
its own card and there was no central processing network for merchants. Forget
about online payment—even buying offline with cards was a mess: Checkout
counters at the time were a tangle of cables, connecting or powering a half-dozen
individual point-of-sale (POS) machines. Online payment was years away from
becoming widely accepted. Courier networks were restricted to individual cities:
There was no “China market” to speak of, just a loose collection of local
markets. The absence of trust, though, was the biggest hurdle to greater
consumer e-commerce adoption, as Bo described: “In the U.S., if you place a
bid, it’s a contract, and by law you need to fulfill that bid if you win the auction.
That’s very clear. People would be afraid of getting sued if they did not abide by
that contract. In China people don’t care. ‘I place a bid, I don’t want it anymore,
tough luck.’”
In response, EachNet limited its initial auction offerings to the city of
Shanghai, where it had set up physical trading booths for customers to meet.
Having first connected online, they would come to meet one another in person to
evaluate the goods on sale, ever mindful of being defrauded, then pay for the
goods face-to-face. EachNet had to lease and operate multiple trading booths
across Shanghai, clearly not a sustainable strategy for a supposed Internet
venture. By early 2001 they were all shut down.
EachNet had to find new ways of making money, and so acquired a
distributor of mobile phones and launched auction platforms on NetEase and
Sina. To broaden its appeal, EachNet started selling stamps and baby clothes.
But with no new VC funding at hand, Bo had no alternative but to find a

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way to get around the roadblocks to online shopping: the problems of payment,
package delivery, product quality, and people’s confidence.
Combining payment and package delivery was one popular method. Cash
on delivery allowed consumers to see before they paid. EachNet set up a system
for courier companies to act as collecting agents. Cash was a stopgap solution
but by 2002 bank cards were finally becoming a viable payment option. China
still had very low credit card penetration but the use of debit cards was
exploding. Bank cards grew from 150 million when EachNet was launched to
almost half a billion cards by the end of 2002. The banks’ IT systems also started
to talk to one another, too, because in 2002 China’s banking regulator rolled out
a unified card processing system called China UnionPay (