After leaving Alibaba, I took time to travel. After living in China for so long, I used it as a way to remind myself that there was a whole world out there beyond China’s Great Wall. But Jack’s predictions of a winter for the company soon proved all too prescient. And as I read the headlines, I couldn’t help but feel some regret, that maybe I’d quit the fight before the job was done.
At about the time I was packing up my office, Lehman Brothers collapsed. Only later would it become clear just how much the global economy would suffer. During the next couple of years, as the global economy melted down, exports from China cooled off, directly impacting Alibaba.com’s customer base. With exporters struggling to stay afloat, they cut their advertising on Alibaba.com, which put downward pressure on Alibaba.com’s stock. Within a year Alibaba’s once high-flying stock had lost nearly 90 percent of its value, falling from HK$40 per share to almost HK$4 per share.
But even that paled in comparison to the next blow—a scandal among Alibaba’s sales team involving criminal fraud. To Jack’s dismay he and Alibaba’s senior managers discovered that 100 sales team members had knowingly signed up shady suppliers and certified 2,300 storefronts as Gold Suppliers, even though they didn’t meet Alibaba’s qualifications. Some of the illegitimate suppliers had gone on to defraud international buyers using Alibaba.com. Savio Kwan, who had years earlier left the COO position and recently returned to Alibaba as a member of Alibaba.com’s board of directors, was brought in to lead the company’s internal investigation and described the situation in dire terms: “The company was at risk of developing a culture of pursuing short-term financial gain at all cost.”1
Jack’s reaction to the scandal was swift. Once he knew the full scope of the problem, he called for Alibaba.com’s CEO, David Wei, and COO, Elvis Lee, to resign. Although they weren’t personally implicated in the crime, Jack felt he had to send a strong signal to the market because the company had built its reputation on trust and because he believed that the top executives had to take responsibility for allowing an environment in which this could occur.
A series of other crises followed. When Taobao adjusted the policies on its Tmall shopping website to favor larger, more qualified sellers over smaller, less professional ones, hundreds of Taobao users assembled outside its offices and held demonstrations against the company. Public demonstrations of any kind were highly unusual in China, and the government stepped in to assert itself in the dispute, reprimanding Jack for changing Taobao’s policies too quickly.
But no controversy was quite as big as the spin-off of Alibaba’s AliPay unit as a separate entity owned and controlled by Jack Ma and Simon Xie, an Alibaba cofounder. When I first read a headline saying that AliPay had been spun off, I was relieved. Throughout my time at Alibaba I had always conservatively valued AliPay at zero. Although it was the circulatory system of Alibaba Group’s ecosystem, it was the one business unit that was operating in a regulatory gray area without an official license from banking regulators. The risk was that China’s banks would lobby their government allies to have AliPay shut down. And if this happened, the result would have been disastrous, in effect shutting down the majority of transactions on Taobao and imperiling millions of jobs that depended on Alibaba’s ecosystem. So when I read that AliPay had been spun off, I assumed that Jack and Alibaba had at last found a way to navigate the banking regulations and that spinning it off was simply a prelude to AliPay’s obtaining a license.
But the way in which the transfer was handled led to an acrimonious and highly public battle between Yahoo! and Alibaba about whether or not Jack had secured proper board approval before transferring AliPay into a separate company. Although I understood Jack and viewed his motivation as simply to comply with local regulations by transferring AliPay to a local entity, to outside observers the transfer fit all too neatly the stereotype of Chinese business people who would try to cheat their foreign partners. After months of negotiating, Alibaba and its investors ultimately solved the problem, but the controversy left a black mark on Alibaba’s record and damaged a lot of the goodwill that Alibaba had generated over the years.
By the time I sat down with Jack again, three years after I left Alibaba, it was clear that the controversies had taken their toll. In the fall of 2011 I met with Jack in Berkeley, where he was taking time off from China and in many ways Alibaba as well. The good news was that Taobao and its sister site Tmall were continuing to grow exponentially; Taobao alone had surpassed eBay’s global transaction volumes. But running such a large company that so many people’s livelihoods depended upon forced Jack to confront the reality that he was never going to please everyone. Jack looked worn out and spoke without his usual spark. “When you have 400 million people using the Internet in China,” he lamented. “If we set a policy that 99 percent of the people like but only 1 percent of the people don’t like, that still means there are four million people angry at us.”
The only time I’d ever seen Jack so down was when we had traveled to the US to lay off the Silicon Valley staff. But he’d foreseen this winter of discontent. And he’d always told us, “Today is tough. Tomorrow is tougher. The day after tomorrow is beautiful. But most people die tomorrow night and don’t get the chance to see the sun rise the day after tomorrow.”
As dark as the winter was, the global currents that had set Alibaba on its path all those years ago were still in force. I knew it was only a matter of time before spring returned to Alibaba.