From A Chinese Apartment To Wall Street Darling: The Rise Of Alibaba : Parallels Chinese e-commerce giant Alibaba's initial public stock offering in New York is expected to be one of the biggest ever. It's come a long way since a former English teacher founded it in 1999.
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From A Chinese Apartment To Wall Street Darling: The Rise Of Alibaba

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From A Chinese Apartment To Wall Street Darling: The Rise Of Alibaba

From A Chinese Apartment To Wall Street Darling: The Rise Of Alibaba

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ROBERT SIEGEL, HOST:

Alibaba shares will start trading on the New York Stock Exchange soon. And today in New York, the company began a road show intended to promote its initial public offering. Alibaba is a Chinese company. It sells more than Amazon and eBay combined. And NPR Shanghai correspondent Frank Langfitt tells us it began as the project of a former English teacher.

FRANK LANGFITT, BYLINE: Like most great origin stories, Alibaba's is humble. A decade and a half ago, Jack Ma, a former English teacher gathered friends in an apartment in the eastern city of Hangzhou and laid out the challenges of trying to develop and dominate e-commerce when only a few million people here were actually on the Internet. Here's Ma captured on video at the time.

JACK MA: (Through translator) Our competitors are not in China but in America's Silicon Valley. Americans are strong at hardware and systems. But on information and software, Chinese brains are just as good as their's. This is the reason we dare to compete with Americans.

PORTER ERISMAN: I'm Porter Erisman and I'm the director of a film called "Crocodile in the Yangtze."

LANGFITT: Erisman worked with Ma in the early years of Alibaba. That scene in the apartment comes from Erisman's documentary on the company. He says the key to Alibaba's initial success was providing a crucial service to Chinese manufacturers who made everything from ball bearings to cigarette lighter.

ERISMAN: The problem was they had a difficult time finding buyers. They would have to go to trade shows in other countries or they would have to advertise in expensive magazines

LANGFITT: So Jack Ma built a business-to-business Internet platform and it took off. Next, he created a business-to-consumer - a sort of Chinese eBay, where many mom-and-pop operations sold everything from clothing to cameras and cell phones. He named it Taobao, which means searching for treasure in Chinese. There was one problem - eBay had already bought an e-commerce company in China and it dominated the market.

MEG WHITMAN: Today, eBay is truly a global marketplace.

LANGFITT: Then CEO Meg Whitman outlined the stakes here in an interview with CNBC.

WHITMAN: Our view is that one of the defining characteristics of winning e-commerce companies globally over the next five to ten years will be how successful they are in China.

LANGFITT: EBay charged for use of its platform. Ma focused on building customers, not revenue, and offered Taobao's services for free Here Erisman and Ma discuss a statement from eBay.

ERISMAN: Ebay already came back with a response saying free is not a business model. And they're saying they're much stronger because they can charge.

MA: That's good. The day when they disappear in China, they will regret what they said today.

(SOUNDBITE OF TAOBAO COMMERCIAL)

LANGFITT: By 2005, Taobao was busy advertising and had passed eBay. It had also found a potential way to make real money.

FELIX OBERHOLZER-GEE: People very new to the Internet - as always in Chinese business, there wasn't a whole lot of trust.

LANGFITT: Felix Oberholzer-Gee has co-authored case studies on Alibaba at Harvard Business School.

OBERHOLZER-GEE: They came out with Alipay, which was an escrow service that made sure that I would only get paid as a seller if in fact I sent some product to the buyer.

LANGFITT: And the buyer is satisfied. In the meantime, Alipay, the Chinese equivalent of PayPal, can hold the funds and earn a return off them. Last year, the services record payment for a single day just on its mobile platform was nearly $2 billion.

(SOUNDBITE OF CHEERING)

LANGFITT: Alibaba's success has turned Ma, a decidedly nonconformist CEO into an icon here. In 2009, he presided over a rally with 16,000 employees in the stadium in Hangzhou.

(MUSIC)

LANGFITT: He rose from beneath the stage wearing a leather jacket, faux mohawk, sunglasses and a fake nose ring and belted out this from "The Lion King."

MA: (Singing) Can you feel the love tonight?

LANGFITT: But China's Internet landscape changes quickly. And today Alibaba faces new challenges. In addition to its other platforms, Alibaba runs Tmall, an Amazon-like site were brand-name companies sell through virtual stores.

JEONGWEN CHIANG: My name is Jeongwen Chiang and I'm the professor at China Europe International Business School here.

LANGFITT: Chiang says some companies now find operating an Tmall, which charges for placement, too expensive and too crowded.

CHIANG: Some of the people who do business with Alibaba start to have a second thought about does it make sense to go into this gigantic cyberspace and get buried under, you know, hundreds and hundreds of merchants.

LANGFITT: Competitors are also teaming up to grab Tmall's sales. Another Internet marketplace which sells brand-name products has joined with the widely popular messaging app in hopes of taking a big chunk of the mobile e-commerce market. Again, Jeongwen Chiang .

CHIANG: I think this is going to be a big challenge for Alibaba, because Alibaba doesn't have any meaningful social platform.

LANGFITT: Alibaba is still China's undisputed e-commerce champ. But to maintain its big lead, it's going to have to work harder and harder. Frank Langfitt, NPR News, Shanghai.

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