Alibaba Found Success By Acting Like A Dating Site
MELISSA BLOCK, HOST:
If you only know one thing about the Chinese e-commerce company Alibaba, it's probably that it's huge. Alibaba sells more stuff than Amazon and eBay combined. Its initial public offering tomorrow could be the largest ever, expected to raise more than $20 billion. Planet Money's Steve Henn explains how the company got to this point.
STEVE HENN, BYLINE: To understand how Alibaba got to be so enormous, it helps to think of it as a dating site.
HANNA HALABURDA: I do research on Internet platforms - it's eHarmony, it's eBay, it's Amazon, Alibaba.
HENN: Hanna Halaburda wrote about Alibaba while working at Harvard's business school. And she says like the dating site eHarmony or match.com, Alibaba's goal is to bring people together. Halaburda says an e-commerce site with no buyers or sellers is worthless. And obviously, no one wants to be the first and only singleton on a dating app.
HALABURDA: When you start a dating site, you don't start a dating site on empty. You get your friends, all your single friends and their friends and you ask them to sign up, to be there when the site opens for everybody else.
HENN: And that is essentially what Jack Ma, Alibaba's founder, did. In the mid-1990s, almost no one in China was using the Internet. Even though there were millions of manufactures in China, they had trouble finding each other. Customers had trouble finding them. No one was hooking up. Jack Ma thought he had found the solution.
HALABURDA: Before Jack Ma set up Alibaba, he first went with something like a version of white pages for Chinese companies.
HENN: It was called China Pages. It was online, and at the time there was nothing like it. But it didn't help.
HALABURDA: China Pages didn't really work out. It did not really work out.
HENN: The reason it didn't work out was kind of simple. I mean, think about dating sites - if you fill up a dating site with your friends, it helps if they're kind of good-looking and charming and not sleazy. When the dating app Tinder was getting started, it focused on signing up sorority sisters first. But at China Pages, potential buyers were never sure that the companies on the site were real. So eventually, Jack Ma left China Pages and tried again. This time he created Alibaba. And he did something different - for a fee, his staff would visit manufacturer's factories and vouch for them and then help them spruce up their online profiles. Hany Nada, an early investor, says it was kind of like a friend helping you with a profile on match.com.
HANY NADA: Let me show you how you can put your business online to get more buyers of your goods. And they actually had a demo and they walked them through the product catalog and the order management system and the pictures that you can have of your products.
HENN: Jack Ma realized that if he could get every Chinese manufacturer to sign up for his site, if he could polish up their profiles and make them look good, he'd have a group of businesses that lots of people would want to connect with, maybe start relationships with. In the world of e-commerce, Alibaba would have some hotties. And this plan worked. Once wholesalers and retailers from all over the world saw these manufacturers on the site, they wanted to be there too. Alibaba became famous. It became known as the place to do business online in China. Eventually, consumers in China wanted in as well.
NADA: In China, the shopping experience has always been bad.
HENN: Alibaba changed that. Hany Nada says that Alibaba has been brilliant at using the company's most attractive customers to lure in new customers.
NADA: If I was eBay, I'd be very, very nervous. And if I'm Amazon, I'm paying a lot of attention.
HENN: And that's the thing about networks - whether they're for dating or e-commerce, or for just keeping in touch with friends - the bigger the network gets, the more useful it gets for everyone on it. And the more reasons people who are not on it have to join. Steve Henn, NPR News, Silicon Valley.
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