Page 51 - How China Is Winning the Tech Race

In 2003, he took on eBay in China by launching a homegrown Chinese
auction site called Taobao (“hidden treasure”) that allowed consumers to buy
and sell mobile phone charge cards, online game merchandise, and jewelry,
among other items. In 2005, Taobao’s market share jumped to 59 percent; it
then reached a commanding 83 percent by August 2007, counting 30 million
users and $2.2 billion in transactions. Alibaba claimed victory over the once-
dominant eBay China with richer graphics on its Web site and aggressive mar-
keting tactics such as giving sellers free listing of their goods but charging $250
and upward for extra services such as personalized Web pages. It also scored
with locals by using an escrow system in which buyers could return items to
sellers even six weeks after the sale, according to the Beijing tech consultant
Natkin. “You can’t localize a product just by doing a translation,” he says.
Rumors have swirled that Ma jumped ahead of eBay through corrupt
practices. One of my sources ticked off a list of tricks Ma employed: falsely
inflating Web traffic numbers, hiring hackers to disrupt the eBay site, and
cozying up with journalists and even taking them to whorehouses in a mis-
guided effort to get good press.
“I have been criticized, but it’s not important to me. When you make bold
decisions, 70 percent of the people hate you and 30 percent love you,” says Ma.
eBay China’s troubles began shortly after it acquired an eBay clone called
Eachnet for $180 million in 2003 and escalated after the Chinese subsidiary
lost its CEO, Bo Shao, in 2004. The Chinese “returnee” Shao had formed
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Shanghai-based Eachnet in 1999. He told me that he copied the eBay model
and jiggered it for China after doing some research on the auction site
business in the late 1990s at Boston Consulting Group. After the acquisition,
eBay hired a foreigner who did not speak Chinese to oversee the site. The
operations were moved to California. Decision making slowed to a crawl, and
transmission speeds stalled. It could take nine months to change one line of
text on the site.
Then eBay China lost Shao’s firm hand at the controls. His wife insisted
that they leave Shanghai after her father died from a heart attack, which she
blamed on a slow-moving ambulance. The couple shuttled between Silicon
Valley’s wealthy Atherton community and southern France, making Shao an
absentee chairman and further contributing to eBay China’s problems. Today
Shao heads up two new start-ups in China and is scouting for deals for the
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U.S. venture firm Matrix Partners.

Alibaba—The Wizardry of Jack Ma 25