In 1995, in Seattle, a former English teacher from Hangzhou named Jack Ma got his first look at the internet. As the story goes, he was shown Yahoo’s search engine by a friend and entered the first query that came to mind: “China” and “Beer.”
The search came up empty.
Ma saw an opportunity. He returned to China and started a web design company called China Pages. In 1999 he founded online marketplace Alibaba, which later expanded into auctions, online payment and business software.
Not far from Seattle, another technology entrepreneur also had an internet epiphany in 1995. That year, Microsoft co-founder and then CEO Bill Gates sent his “Internet Tidal Wave” memo, making the net central to his company’s strategy.
Dog or darling?
Both Gates and Ma are hugely successful and personify eras in the technology industry. But their fortunes have diverged in one important way: Jack Ma’s internet ventures are widely considered a resounding success. Microsoft’s are a disappointment.
In 2005, Ma sold 39% of holding company Alibaba Group to US internet giant Yahoo for US$1 billion. Yahoo also threw in its China operations, worth US$700 million. Last year Alibaba.com listed in Hong Kong, and it remains China’s most successful internet company.
Microsoft’s internet division remains unprofitable and outfoxed by nimble competitors. The company’s US$44 billion bid for Yahoo, announced in January, is an attempt to strengthen its internet portfolio. The bid puts Jack Ma in an uncomfortable position, and he has reportedly been seeking a bigger role in negotiations and exploring ways of minimizing the impact of an acquisition.
Why doesn’t Ma see a Microsoft takeover of Yahoo as a new opportunity? Despite its problems, Microsoft still has deep pockets and widespread channels that could boost Alibaba’s businesses.
One explanation is the US company’s history of alienating the Chinese government, which is critical of its “monopolistic” practices and bellicose anti-piracy position. Microsoft has yet to fill the big shoes of Tim Chen, its former Greater China CEO who decamped to NBA China.
To China’s leaders, Alibaba is a national champion run by a bootstrapping native son who is neither a returnee nor foreign educated. It’s also one of few Chinese internet successes that isn’t a potentially troublesome media company. Confronted with the specter of this gem falling under Microsoft’s influence, Beijing may force Microsoft to disgorge Alibaba.
There are other worries for Ma. Yahoo brought cash and technology to Alibaba, but Ma also had a comfortable relationship with co-founder Jerry Yang. Yang took a seat on Alibaba’s board, but Yahoo took a hands-off approach. Microsoft is not known for its light touch and delicate sense of diplomacy.
Finally, Ma may have an eye on the future. He and Alibaba are on the way up. Microsoft remains a heavyweight, but competitors are out-boxing it on many fronts. Why would Ma want to anchor himself to a giant past its prime?
Microsoft’s challenge is not just to win Ma over, but to turn him into an advocate for the deal. Communicating through bankers won’t work. A better move might be for Gates to invite Ma to Redmond for a heart-to-heart. Gates can’t replace Ma’s relationship with Yang, but he is widely respected in China.
It’s not just a photo-op. Microsoft has to show Ma that it can give him both autonomy and a shot at realizing his dreams. That could be tricky. Ma has talked openly of competing with Microsoft, using Alisoft to offer business software to Alibaba’s vast pool of small-scale customers.
But Ma also has international ambitions. He speaks confidently of conquering the world, but he’s profited mightily from home-turf advantage. If Microsoft can sell its international reach and marketing muscle as a route to true global success for Alibaba, it might get a hearing.
Whatever Microsoft offers, it has to be enough to overcome everything Ma would have to give up by associating with the firm.
Even if he sees off Microsoft, Ma can’t relax. Yahoo is a wounded creature, and other predators will be stalking it. Ma once said that entrepreneurs don’t complain about problems, they build solutions for them. The largest single stake in his company is in play. Whether with Microsoft or not, Ma needs to build a solution for this.