Alibaba's World

by Porter Erisman

  This was good news, but the lack of trust in the anonymous Wild West of the Internet still posed a difficult challenge for buyers and sellers, especially when compared to trade shows, which offered the chance to meet business partners face to face. That customers were willing to pay Alibaba for a premium listing offered a bit of confidence in their solidity to prospective buyers overseas. But it still didn’t answer two key questions: Is the seller I’m communicating with a legally registered business, and does the person I’m communicating with actually work for the company?

  We soon realized that it wasn’t enough for sellers to have a paid listing on Alibaba. Buyers needed to have some assurance that the person they were dealing with was legitimate. So we launched a service called TrustPass. The only way to be certified with TrustPass was for a company to go through a third-party authentication-and-verification process that demonstrated that in fact it was a legal business and the person was authorized to represent the company in trade dealings.

  The launch of TrustPass marked a key breakthrough for Alibaba. With it we had finally recognized that the main inhibitor of online transactions was the issue of trust. With a critical mass of buyers and sellers around the world, we had plenty of members. If we could solve the trust issue, we could crack the code of e-commerce. So we required each China Supplier to also have TrustPass verification. And this combination gave us a perfect excuse to begin to charge our customers. It made China Supplier customers, who paid for that status, appear more trustworthy. It made those members still clinging to their free accounts seem less trustworthy. After all, if they had such a good business, why weren’t they willing to pay up a little to prove it?

  With China Supplier we finally had a product that seemed feasible. But we quickly realized that selling the product on a mass scale to our members couldn’t be done over the phone or the Internet. We needed to move our customers from simply testing the e-commerce waters to diving in. And to do that we’d need to meet with our customers in person.

  Like a team of Pied Pipers playing the intoxicating tune of e-commerce, we spent the second half of 2001 on a national road show, inviting our customers to member gatherings up and down China’s east coast, where the majority of the country’s manufacturers, exporters, and trading companies were located. In city after city we opened new offices and organized launch events for our members under the theme of “Give e-commerce back to the business people.” The message was one of empowerment—that the magic of the Internet allowed small businesses to compete with the largest multinationals. The message had strong appeal in a country where entrepreneurs valued their independence and believed that “it is better to be the head of a chicken than the tail of a phoenix.”

  The formula for each of our member events was simple. Jack’s growing celebrity status helped us draw attendees. Jack would first give a talk about the future of e-commerce and how he thought small businesses could benefit from it. I was rolled out next to talk about Alibaba’s overseas activities, somewhat like a talking monkey for local business people curious to see a foreigner speaking Chinese. Although the freak show got their attention, having a foreigner rather than a local present Alibaba’s growing overseas reputation carried more weight to an audience that might otherwise have been skeptical of Alibaba’s claims to have a strong reputation with buyers overseas. After Jack and I spoke, members of the newly hired local sales teams would take the stage to introduce the specific products and services that our new China Supplier status offered.

  One by one the sales started to roll in as we traveled from city to city. With each stop I began to learn more about the unique characteristics of each city. Yongkang was known for its many electric scooter manufacturers. Ningbo, for its disposable lighters. Jinhua, for its prosciutto-like ham. Each city had its cluster of manufacturers with distinct specialties.

  No trip was complete without a local team dinner at a small roadside restaurant to celebrate the establishment of each new office. My tour turned out to be a chance to try all the local delicacies. Turtle shell soup, raw crab soaked in alcohol, bamboo shoots, fruits I’d never heard of before.

  What struck me most was the energy and enthusiasm of the young sales team recruits, even though they were tasked with selling Internet services at a time when most people in China had given up on e-commerce. We were in the depths of the Internet winter, so our team was not made up of recent graduates from top universities such as Beijing University or Fudan—they had far too many other well-paid options at multinationals. Instead Alibaba was attracting sales team members who’d grown up in small townships and rural areas, the sons and daughters of farmers and laborers. The pay was low and conditions harsh, but Alibaba was a small step up for them and their families—a source of hope.

  We’d often visit the new offices after our customer events. The budget for each office was so low that they were often located in drab apartments in dreary, run-down buildings. The staff often slept and worked out of the tiny apartments, furnished with little more than metal frame beds on concrete floors, with fluorescent lightbulbs creating an eerie glow that bounced off the stark white walls. But no one complained about the conditions, because we all had a shared sense of ownership of the company and its potential rewards. Nearly everyone in the company had stock options; there was a spirit of shared sacrifice for the greater good of the company. Every penny saved would help Alibaba survive and grow to the benefit of all employees.

  As our road show gained momentum, our presentations became more sophisticated. In a span of a few months, our events grew from tens of customers in two-star hotel conference rooms to hundreds of customers in five-star hotels. With each road show the local media reported on the growing movement that Alibaba was creating. One by one we were convincing China’s business people to move online.

  But despite the growing sales numbers, we still were burning through cash and not generating enough revenue to cover our costs. At the beginning of 2001, a few months after Todd Daum voluntarily left Alibaba, I had been assigned to take over his role of vice president of international marketing. My first move was to cut our advertising budget to zero. One look at Alibaba’s website traffic had shown me that even without advertising support, our website had natural viral growth. So, much to the marketing team’s dismay, I told them that we had changed our strategy to “zero budget marketing” and would rely solely on word of mouth and public relations to take advantage of free media coverage. Any marketing plan would have to involve no budget.

  The good news was that cutting our marketing budget to zero seemed to have little impact on our website’s growth—we were still growing organically through word of mouth. But the bad news was that it made our marketing team a bit obsolete. With the advertising budget eliminated, we began to focus on PR to gain free publicity. But with the web industry in a deep freeze, the media lost all interest in Internet companies. Toward the end of 2001, Jack pulled me aside for a conversation.

  “Porter, I want to let you know about a decision that all of the senior managers in the company made together. Me, Joe, John, Savio—we all decided to cut our own salaries in half.”

  Jack had a smile on his face but also a serious look.

  “So I want to let you know that you are now the highest-paid employee in the company. No one has complained about it. But I just wanted to let you know that.”

  I gulped as Jack walked away. I was now being paid even more than the CEO. Many of the founders of the company were living at a level that most Americans would have viewed as poverty. Not to mention that I had just visited sales offices where my own colleagues were crammed into spartan quarters, scrimping by on instant noodles and making only a few hundred dollars a month. It just didn’t feel right to be paid so much more than my colleagues when the company was still not even profitable.

  And of course I realized that Jack’s words were a friendly hint that my salary was unsustainable. Shortly after my con
versation with Jack, at my next quarterly review with Savio, we started talking about my future role at Alibaba. “Jack told me that I was the highest-paid person in the company, but I realize there’s not so much of a role for marketing and PR right now,” I said.

  “Well, for marketing and PR, there’s not as much work as before,” Savio responded. “One idea we had was for you to move to the Hangzhou headquarters, where you could head operations of the international website. But it’s hard to think of what you could do based in Shanghai.”

  I mulled it over. Hangzhou was a beautiful city that I loved to visit. But in the previous year I had already moved from Beijing to Hong Kong and then from Hong Kong to Shanghai. I wasn’t quite ready for another move even further inland to a city with a tiny expat community. Plus, I had one unrelenting dream of my own that I had not yet fulfilled—to travel around the world for a year.

  “I’ve always had this dream to travel around the world,” I said. “It’s something I’ve been wanting to do since I was a kid. Why don’t I take time off, and once I’ve finished that, we can check back in to see if there is a greater role for me?”

  Savio seemed happy with the solution. It would save the company a large lump of money and would still give us the option of my coming back. He generously offered me the same severance options he’d offered the others who’d been laid off. When I told him I’d take the three months of salary and leave the stock options on the table, he stood up from his chair and said, “Wait here for a second—I just want to check with Jack on something,” before walking out of the office.

  He came back with a smile on his face and surprised me, saying, “I checked with Jack, and we’d like to let you keep all of your stock options, with the hope you’ll come back to the company.”

  It was a nice goodwill gesture but one I didn’t pay much attention to. I assumed that Alibaba would at most be a $10 million company, making my options worthless, well below their strike price. To be polite I smiled and thanked him, although my hopes of becoming an Alibaba millionaire had long since been dashed. “Thanks, but don’t worry about that,” I said somewhat dismissively. “I hadn’t even thought about the stock options.”

  “No, really, we’d like you to keep them. And we hope you’ll come back.”

  I rode the train back to Shanghai, staring out the window at the rice fields, waterways, and small gray factories that dotted the countryside. I was excited to finally have the chance to realize my dream of traveling around the world. But a melancholy set in as I realized I was leaving the Alibaba dream behind. And a part of me felt I was abandoning my colleagues at a time when they needed my support. I couldn’t help but wonder, after my travels were done, would Alibaba still be around?

  Lock Up

  As we entered 2003, The Year of the Sheep didn’t come in quietly. Colorful fireworks lit up the Hangzhou skies, while the constant rat-a-tat-tat of exploding firecrackers echoed throughout my apartment complex. With my round-the-world dream finally fulfilled, I was focused and determined to dive back into Alibaba with a renewed sense of commitment. I’d enjoyed my travels and seen the world but was looking forward to enjoying the camaraderie of a start-up again. As opposed to when I first joined Alibaba, money was not a significant motivation the second time around and I agreed to come back for half my previous salary. Working as one of only two Westerners in a Chinese environment would be a great way to improve my Chinese-language skills, I figured.

  After the celebrations in the street had died down, Alibaba organized an all-company gathering at a hotel to kick off the new year. I was curious to see how Alibaba had changed since I’d left. When I arrived at the hotel, I was pleasantly surprised to hear cheers and the thumping of dance music emanating from the conference room and to see so many new faces streaming in. The mood was 180 degrees from where it had been a year earlier. Just a few months before, the company had finally become profitable, and tonight was the night to celebrate.

  Joining in the frenzy was Savio Kwan, cheering and chanting along with the staff, most of whom were 20 years his junior. Seeing the turnaround in company morale and performance, it was immediately clear how wrong I’d been in my first impressions of Savio’s management style. I’d come full circle to appreciate that Savio was exactly the COO that Alibaba had needed. Savio hadn’t provided a rigid backbone for the company. Instead, he had provided an exoskeleton—outer constraints that helped keep the company from growing out of control. His emphasis on codifying Alibaba’s values proved to be the critical formula that allowed the company to grow larger while maintaining its start-up spirit and strong team culture. It was exactly what our young company needed to allow new leaders to emerge from the pack.

  One such leader was Liqi, my new boss and the head of international operations. With the room full and the music pumping, Liqi jumped on stage, grabbed a microphone, and invited everyone to start dancing. We swarmed the stage, jumping up and down as balloons bounced and flags waved, chanting and cheering in the euphoria of knowing that Alibaba was finally on the upswing. After a cold, dark Internet winter, spring had arrived.

  On my first day back in the office, I sat down with Liqi to discuss the year’s strategy. He was short, pudgy, and wore huge black-rimmed glasses, which made him look a bit like a Chinese member of Run-DMC. He had a deep, raspy voice and a sharp, slightly dirty, sense of humor that kept the staff doubled over during meetings. But behind all that, Liqi was incredibly tough. In contrast to Jack’s open, consensus-building style, Liqi’s focused on action and results, the only things that mattered to him. Style points meant nothing.

  Whereas Jack’s life experiences had made him equally comfortable among Chinese and foreigners, Liqi’s relationship with foreigners was complicated. Like a lot of Chinese, he seemed to simultaneously admire and resent Americans. Of course some of the resentment was justified. He once described to me how he’d gone to a top Guangzhou university in the 1980s but wasn’t allowed to enter the five-star Garden Hotel there because he was a local Chinese. Foreigners, on the other hand, could wander in and out of the hotel freely—policy at the time when China was just opening up and it was assumed local Chinese didn’t have the means to stay at the hotel themselves. Liqi could read and understand English well but was uncomfortable speaking it, so all our meetings were held in Chinese. It was a huge help to my language skills but made it much more difficult to argue my case in strategy discussions.

  Nevertheless I admired Liqi. He had joined up with Jack in the days of China Pages, and Liqi had the true spirit of an entrepreneur. And with firmness and decisiveness, Liqi had built up Alibaba’s national sales force, a key factor in its reaching profitability. A street-smart, no-nonsense manager, he was a perfect counterweight to Jack. If Jack was a budding Bill Gates, Liqi was his Steve Ballmer. Given my own tendency to be a bit too laidback, I realized that working for someone like Liqi would be good for me.

  “Porter, we haven’t worked together before, so we will have to take time to get used to each other’s style,” Liqi said directly that first day. “One thing I can say is that I care about results. You are going to be judged based on the numbers you deliver. And there’s one main thing you’re going to be focused on—getting buyers to Alibaba. We’ve done a great job of signing up China Suppliers for the last year, but now we need to feed them. We finally have enough money to end our zero budget marketing strategy. But we need a cost-effective way to attract buyers from around the world to support our sales. Until now we haven’t had a breakthrough. And you need to find that breakthrough.”

  “Yes, I understand. Buyer, buyer, buyer,” I said, sounding as confident as I could. But behind my facade of confidence I was nervous. Where was I going to find a breakthrough?

  As we discussed the year ahead, we looked at the calendar. “In April the Canton Fair is going on in Guangzhou,” Liqi added. “There are going to be buyers from all around the world there. Our sales team is g
oing to have a huge booth there to meet with and sell to Chinese suppliers. So make sure to leave room on your calendar for that.”

  I welcomed the prospect of heading to the China Import and Export Fair, also called the Canton Fair, in a couple months. As an event it could be grueling, involving long hours standing up at booths and fighting through massive crowds. But at least it would allow me to go out and network with Alibaba’s international buyers, speak English, and have some contact with the outside world. As much as I liked Hangzhou, I needed to come up for air from time to time.

  Right around this time I began to read some unsettling reports in Western media about a mysterious new illness that was sending people in Guangzhou to the hospital. At first it seemed to be just a strange flu that affected only a handful of people. But before long the illness had a name—SARS—and a death count.

  As the illness spread from Guangzhou to densely populated Hong Kong, panic set in. The Western news programs showed scenes of hospitals, ambulances, and people wearing face masks in the hope of protecting themselves. But the Chinese media covered up the story, afraid that reporting on it might create panic in China and hurt the economy. “There’s nothing to worry about” was the message from the Chinese government.

  As I read about the growing epidemic, I grew concerned for my own safety and the safety of our team if we continued with our plan to attend the Canton Fair. Heading to the epicenter of the SARS outbreak with the goal of shaking hands with thousands of strangers from all over the world seemed like just about the worst possible move at the moment. I wrote a strongly worded email to Liqi and Savio, stressing that we should reconsider our plan to attend the fair in light of the health risks to our team. Liqi’s response did not encourage me: