It’s been a rough 18 months for Chinese Internet tycoon Jack Ma, founder and chairman of the Alibaba Group, a sprawling conglomerate of Web companies. Early in 2011 a fraud scandal hit his business-to-business e-commerce site, Alibaba.com. At roughly the same time, the U.S. government publicly shamed Alibaba-owned Taobao, a hugely successful hybrid of Amazon.com (AMZN) and EBay (EBAY), for enabling the sale of counterfeit merchandise. Last fall thousands of small merchants protested online and outside Alibaba’s headquarters in Ma’s hometown, the eastern city of Hangzhou, against a hike in Taobao’s listing fees. “I was so lonely at that time,” says Ma, who considers himself a champion of local entrepreneurs and says the higher prices were necessary to fight piracy. “Nobody wanted to believe Jack Ma.”
His bad run may be coming to an end. On May 21 he reached a long-desired deal with Yahoo! (YHOO) to buy back half of the U.S. Web portal’s 40 percent stake in Alibaba Group. The Chinese company will pay Yahoo $7.1 billion for the shares, valuing Alibaba at about $35 billion. Yahoo and another large shareholder, SoftBank, agreed to reduce their voting rights to 49.9 percent, even though the two combined still own more than half of Alibaba. Shareholders also approved a plan to pay as much as $2.5 billion to privatize Hong Kong-listed Alibaba.com, the group’s flagship brand.
Taken together, the deals are huge steps toward Ma’s goal of an initial public offering for Alibaba Group. The IPO, which Ma says is still a few years off, could be the largest stock market debut in Chinese Internet history. That would certainly show critics that he’s built a sustainable company: “This is not a business that belongs to Jack Ma,” he says during a wide-ranging interview in Beijing in early June.
Ma, a former English teacher, started Alibaba in 1999. For most of the company’s history, he played the part of the hometown favorite standing up to foreigners such as Meg Whitman, who tried to bury Taobao when she was chief executive officer of EBay. As his difficulties last year show, Ma’s operation is no longer the scrappy underdog—it’s a rapidly expanding empire. Alibaba.com has offices in the U.S., Britain, India, Japan, and Korea. Taobao and Tmall.com, a sister site that opened in 2008, dominate e-commerce in China and together account for 71 percent of consumers’ online purchases, according to research firm Analysys International. Most of those customers use Alipay, his online payment service. In the year ended Sept. 30, Alibaba Group earned $268 million on sales of $2.3 billion, according to Yahoo’s annual report. Says Zeng Ming, Ma’s chief strategist: “We are much more influential than we thought.”
For Alibaba to keep its momentum, the company will need focus—right at a time when Ma is showing signs of distraction. “I am going to enjoy some other things apart from business,” he says. Already one of China’s richest men, with a stake in Alibaba worth about $2.6 billion, Ma shows little interest in technology: He doesn’t spend much time online and depends on a colleague to help him download U.S. TV shows to his iPad. Instead, he dabbles in poker, traditional medicine, and other pastimes. He’s teamed up with movie star Jet Li to spread awareness of tai chi and is so into the ancient Chinese martial art that he brings along a personal trainer when he travels. Environmentalism is another pet cause. In 2010, Ma joined the global board of the Nature Conservancy. Says Orville Schell, a former dean of the journalism school at the University of California at Berkeley, and a close friend: “Business is not his first love.”
Ma has been spending time in the Bay Area. He rents a home there, and he has audited history courses at Berkeley, where his son is an undergraduate. The time in the U.S. has clearly rubbed off on him. “I want people to learn what democracy means,” he says. One way to do that: The company’s 25,000 employees elect 10 representatives who determine how Alibaba spends part of its philanthropy budget. “This is the first test in China of a real democracy,” Ma says.
The Chinese government isn’t terribly interested in testing democracy, of course. Beijing is showing an interest, however, in what Alibaba does. In the past, Ma thought the best way to keep the government happy was for Alibaba to do well and create jobs. But, he says, “when you have millions of [small companies] using your site and billions of dollars of transactions every day, the government cares.” In 2011, after the fraud and counterfeiting scandals, Ma met with government officials 40 to 50 times. “I try my best to talk with them and make sure they understand what we are doing,” he says.
Ma also wants the world to know that he takes antipiracy efforts seriously. Alibaba has hired James Mendenhall, a top lawyer in the George W. Bush administration, as its Washington lobbyist, and Taobao says it removed 63 million pirated products last year. In December, the U.S. Trade Representative acknowledged that Taobao is making “significant efforts” to expunge the fakes. Tmall specializes in authentic, name-brand goods.
The looming challenge for Ma and Alibaba is competition. China’s e-commerce market may grow 42 percent this year, to $173 billion, according to JPMorgan Chase (JPM). That growth has global retailers slavering. In February, Wal-Mart Stores (WMT) acquired Shanghai-based e-commerce site Yihaodian. A group of investors that includes Russia’s Digital Sky Technologies put $1.5 billion into retailer 360buy Jingdong Mall last year. And on May 24, Tencent, Alibaba’s chief competitor, announced plans to invest $1 billion in its e-commerce unit.
The rivals will be battling uphill, says Michael Clendenin, managing director of RedTech Advisors in Shanghai. Other retailers hold inventory and operate costly delivery networks; Taobao and Tmall let vendors take care of those low-margin tasks and instead earn money through storefront fees, ads, and infrastructure support. “He’s the ultimate winner,” Clendenin says. “In e-commerce, Jack Ma is the house—and the house always wins.”