Alibaba Group’s founder saw Internet’s potential for China

The online world opened to billionaire Jack Ma, founder of Alibaba Group Holding Ltd., on his first trip to the U.S. in 1995. A friend he was visiting in Seattle showed him the Internet.

“I searched the word beer, b-e-e-r, very simple word,” Ma recalled. “I found American beer, German beer, and no Chinese beer. So I was curious. I searched ‘China,’ and all search engines said no China, no data.”

He decided to fix that.

Almost 20 years later, Alibaba is China’s largest online retailer, and Ma’s U.S.-inspired brainchild is readying for an initial public offering in New York that could raise as much as $20 billion, potentially making it the largest IPO ever. The valuation may make the 49-year-old entrepreneur the third-wealthiest person in China, with $12.5 billion, and one of the 100 richest worldwide in the Bloomberg Billionaires Index.

Ma’s ascent to dot-com billionaire is remarkable for not following the traditional script. Unlike Facebook’s Mark Zuckerberg, Apple’s Steve Jobs or Microsoft’s Bill Gates, Ma, 49, has no background in computing and professes not to understand technology. Raised during China’s Cultural Revolution, Ma began his career as an English teacher.

Now, the IPO will represent the crowning feat of Ma’s two decades spent building a 25,000-employee powerhouse that forced eBay Inc. to pull back from China and drew an initial $1 billion investment from Yahoo.

Alibaba has grown from an online experiment in Ma’s living room that offered two dozen items for sale to a venue for 7 million retailers selling everything from Alaskan salmon to airplanes. Its businesses generated about $8 billion in revenue last year, a 62 percent increase over 2012, according to quarterly figures compiled by Bloomberg.

“A lot of people hate change, but precisely because we grasped all the changes, we were able to see the future,” Ma said at a speech to employees when he stepped down as chief executive officer a year ago. Ma remains chairman. The company declined to make him available for an interview, citing pre-IPO restrictions.

Alibaba has helped transform life in China, offering opportunities to entrepreneurs and revolutionizing retailing for consumers who just a few decades ago used ration coupons to buy items such as clothing, rice and bicycles. Like Zuckerberg, Jobs or Amazon.com’s Jeff Bezos, Ma has become an iconic figure whose effects stretch far.

The story of Ma, a former English teacher who lingered outside his native city of Hangzhou’s main hotel to practice the language with foreigners, reflects China’s emergence as an economic superpower. Chinese Internet users have grown to 618 million, greater than the population of any other country except India, and could exceed 850 million by 2015, according to government data. McKinsey & Co. predicts online retailing in the world’s second-largest economy will reach $395 billion next year, triple its 2011 level. Ma has positioned Alibaba to ride China’s surging forces of technological change.

“If Steve Jobs created the operating system for the smartphone, Jack Ma and his team created the operating system for commerce in China and the future,” said Porter Erisman, who directed a documentary, “Crocodile in the Yangtze: A Westerner Inside China’s Alibaba.com,” that chronicled his eight-year employment at the company starting in 2000. “He’s someone who loves a challenge. He’s motivated by doing things that push China forward.”

Already, Alibaba is the source of more than 70 percent of package deliveries in China and has broken what may be a worldwide sales record of $5.6 billion in a single day. It has also pioneered a service that lets users deposit money into accounts by smartphone, drawing about $87 billion in its first nine months, more than double Goldman Sachs Group Inc.’s 2013 revenue. Alibaba has helped create 15 million jobs, Ma said in a February letter to employees on the company’s official microblog.

“Jack is very passionate,” Jonathan Lu, Ma’s handpicked successor as CEO of Alibaba, said in an interview last year. “He has a strong awareness of crisis and is very farsighted.”

The first step to building an online empire began when Ma registered a website, China Pages, a Yellow Pages-like directory, in the U.S. after his visit to Seattle.

To start China Pages, Ma took 7,000 yuan from his savings and borrowed money from his sister, according to a book in Chinese by Ma’s personal assistant Chen Wei and verified by an Alibaba spokesman.

Ma’s early attempts with China Pages didn’t take off, so he joined the Ministry of Commerce in Beijing, helping the agency set up a website. It was there he met a first-time visitor to China, Jerry Yang, the co-founder of Yahoo who eventually invested $1 billion to obtain 40 percent of Alibaba, a stake that was later reduced after Yahoo said the Chinese company spun off its PayPal-like online-payment business, Alipay.

By 1999, the Internet stock boom had gripped Wall Street. Ma, feeling the change as far away as China’s capital, left government service and returned home to tackle a new idea.

Back in his Hangzhou apartment with his wife, Zhang Ying, and a group of friends, Ma set up Alibaba.com, a site that allowed businesses to sell to each other. Believing that the moment would become of historic value, Ma had the kickoff meeting recorded on film.

“Don’t worry, I think the Internet dream will not die,” Ma was filmed saying at the February 1999 meeting, which was later aired by China’s state-run broadcaster, CCTV. “The reward we will receive for the price we pay in the next three to five years is not this apartment, but 50 of these apartments.”

Alibaba.com, which had struggled to find a way to generate revenue, learned that merchants were willing to pay for better displays of their goods. The website attracted 1 million users in 2002 and became profitable that year, according to details released by the company.

Ma’s management philosophy has roots in tai chi. He sometimes travels with a personal tai chi trainer and formed a company spreading awareness of the Chinese martial art with movie star Jet Li. Ma also cites motivation in the works of Hong Kong novelist Louis Leung-Yung Cha, who writes under the pen name Jin Yong, and encourages employees to give themselves nicknames based on the novels’ characters.

Ma’s economic interest in Alibaba is about 7.4 percent, after subtracting for stakes he controls through a nonprofit organization. The IPO could make Ma’s net worth five times what it was in 2012 — when Alibaba delisted its business-to-business unit Alibaba.com from the Hong Kong Stock Exchange after share prices slumped.

He’s come a long way from his $15 monthly teacher’s wages.

This story was originally published May 7, 2014 at 9:20 PM with the headline "Alibaba Group’s founder saw Internet’s potential for China."