On my recent trip to China where I met about a dozen Chinese Internet companies, there was probably one guy whose name came up more than any other: Jack Ma of Alibaba Group.
Ma, who spoke at the All Things D conference a couple of weeks ago, said then that he didn’t want to be liked or hated – just respected. I’d say that he’s already there in China. Everyone sees him as a major player in the space over there and his early lead and size are a bit daunting for many.
However, over 90% of those I spoke to over there had concerns (and some were deep concerns) about the actions he’d taken recently to part Alipay from the rest of Alibaba Group (and away from Alibaba’s other investors Yahoo! (YHOO) and Softbank).
The one very public supporter of Ma’s moves so far has been Giant Interactive’s (GA) CEO Mr. Yuzhu Shi. In a Sina (SINA) Weibo post just after the news broke about the separation, Shi called Ma a “Patriotic Maverick” for taking the steps he did.
On my visit, I had a chance to go to Giant for a meeting and asked a representative about the comments. I told him that many Americans were shocked by the remarks and surprised about what Shi meant by them. The representative told me that Shi had been one of the “Chinese tycoons” that was part of the Neptune investment group which made an offer with Ma and Alibaba management to buy back part of the Yahoo! stake in the group.
According to Forbes reporter Gady Epstein, the offer was made about 60 days ago and was to pare Yahoo!’s stake in the group back to 25% from 40%. The valuation for the group was pegged at $23.5 billion. Yahoo! apparently rejected the deal.
Ma and Shi are supposed to be friends and have common private equity investments together. The Giant representative said that Mr. Shi was frustrated at Yahoo!’s rejection and wanted to express his support of Ma immediately on Weibo. He had no idea that the flip comment would spark such surprise by Americans.
Beyond that though, most Chinese executives I spoke to were confused about why Ma would react this way with Alipay and not try to win his partners’ approval first before acting. Many were fearful that Ma was going down a dangerous road that could spark a negative reaction of Americans to all Chinese internet stocks if things went badly.
There’s no doubt fear of Ma’s market power in China too. Taobao is a monster ecommerce platform. Its Tmall business-to-consumer service, where they can charge up to 15% take-rates for certain products in certain prime locations on the website is also a growing force. One executive told me to watch for a Tmall spin-out soon from the rest of Taobao. That announcement took place yesterday — sooner than I expected given the ongoing discussions with Yahoo! and Softbank. Tmall’s offline advertising in major cities like Beijing is inescapable at the moment. Ma is currently on the warpath in customer acquisition for Tmall.
One executive told me about the power Ma holds with such great traffic to Taobao and Tmall. ”Anytime he wants,” this executive said, “Ma can put up a deal of some kind and attract major customers to the site. He recently promoted their move into groceries with a major discount on soda for next to nothing. The hits he generated — where customers signed up with their emails which he’ll be able to go back to and market to — was enormous in a 24 hour period.”
They see Ma pushing the group to also quickly set up its logistics business in China, where China really lags behind the US. There is no equivalent of a GSI Commerce over there (now owned by eBay (EBAY)). Ma wants to create one — to also help Taobao and Tmall but to be the backbone for all his ecommerce competitors as well.
I think Ma is aware that he’s taking some PR hits now both in the US and China. Last Saturday, he started texting the editor of Chinese magazine Caixin Media at 1 am Beijing time to tell her why a critical editorial she has made was wrong. He went on to give her an interview defending the actions he’d taken with Alipay and taking issues with some of the comments that Yahoo! and Softbank had mad. (I guess he didn’t get the message that Carol Bartz was touting at her Investor Day a few weeks ago saying that all three parties had agreed not to say a word to the press until they had a deal — that excuse was certainly a convenient way for Carol and Jerry to get to duck legitimate questions from their investors on that day.)
Ma wants a bigger stake in Alibaba Group and he looks like he’s on the way to getting it. But he doesn’t want his global reputation to be a negative one from this episode.
Yahoo! shareholders have had Yahoo! representing their interests in trying to negotiate a deal and one is apparently in place. I don’t place much hope in Yahoo! for holding out for a great deal, given their lack of preparedness in dealing with this issue when it broke in May – 45 days after delaying releasing the info, which they apparently had known about prior to June 2009 when 70% of Alipay was first transferred away from the group. I suspect Yahoo! wants a quick deal to make this whole issue just go away.
Masayoshi Son of Softbank is apparently playing hardball. If Yahoo! shareholders get a good deal out of these negotiations, it will be because of Son. Prior to yesterday, Son has been pushing for Alipay to be put in a VIE structure that the group would still control. Yesterday, however, the PBoC told Alipay competitor Tenpay (controlled by Tencent) that their VIE structure was invalid, causing a great deal of worry for them of the future of that business. The news will help Jack Ma make the case for the legitimacy of the steps he took.
I still think a deal between the three parties is likely in the next month or so. We will see how it plays out. I suspect it will be a deal that is a sweeter one than Neptune with some sort of “compensation” for the Alipay transfer.
Jack Ma will also probably get his wish of getting more respect as well as a little more fear.
[At the time of publication, Jackson was long YHOO and SINA.]