Joe Tsai: the Taiwanese Bezos?
WHY YOU SHOULD CARE
Because this guy you hadn’t heard of is about to make a bigger splash than Twitter’s IPO.
He played lacrosse at the Lawrenceville School, the elite prep school not far from Princeton, and then went to Yale, where he also played lacrosse. Followed by Yale Law School and a job at the white-shoe firm of Sullivan & Cromwell in New York.
So who’s surprised that he’s now executive vice chairman of a company?
But here’s where it gets interesting.
Joe Tsai, originally from Taiwan, risked it all in 1999 to earn $50 a week when he joined forces with Jack Ma in Alibaba, a fledgling startup e-commerce company in China. Now it’s the biggest in the world.
Roll over Amazon … and eBay and PayPal.
Alibaba websites grossed $5.75 billion on China’s Cyber Monday in November, compared to a measly $1.74 billion in the U.S. for all retailers.
Before too long (likely sometime in 2014), American investors will have a chance to buy into a company that seems to have been created to mint money in one of the biggest Internet IPOs ever to hit Wall Street—estimated at $15 billion.
Jack Ma—the visionary, garrulous, self-deprecating and charismatic former English teacher who chairs Alibaba—is the architect and inspiration behind the company’s meteoric rise.
But it might not have happened without Joe Tsai, the sophisticated, American-trained lawyer and finance guy with a foot in both East and West and the smarts to cut a good deal. This is not just a Chinese company.
“He’s very personable. Relatively humble. Very gracious. Very smart. Very decisive,” says a U.S. business executive who’s sat on the other side of the negotiating table from Tsai. “That partnership [with Ma] is worth a fortune.”
Literally. Alibaba websites grossed $5.75 billion on China’s Cyber Monday in November, compared to a measly $1.74 billion in the U.S. for all retailers, according to Retail Net Group. And unlike Amazon, Alibaba makes a solid net profit: $707 million last year in the second quarter, compared to a $7 million loss at Amazon. Educated guesses at what the company is worth have topped $150 billion.
If you ever lied to him, he’d never forgive you. I don’t think you would get three strikes with Joe Tsai.
– Business partner
Tsai is the straight guy next to the flamboyant muse who’s become the public face of the company, and he seems to like it that way. Of average height with wavy black hair, he’s the type to show up at a meeting wearing a blazer and no tie—about as formal as Silicon Valley culture gets.
He’s quick to add, however, that while Tsai is cordial and engaging, “if you ever lied to him, he’d never forgive you. I don’t think you would get three strikes with Joe Tsai.”“In an industry where people boast about their quirkiness as much as about what they’ve accomplished, he is the opposite,” says a business partner. “He’s very much about the task at hand.”
Tsai has homes in Hong Kong and San Diego, where his wife is involved in the classical music scene. But he doesn’t talk much about his life outside of business.
Alibaba’s model is different from Amazon’s. It never tried to operate a store and warehouse system as Amazon does. Instead, its websites earn advertising revenues while providing a free listing service for consumers and small businesses, and charging listing fees to larger businesses. The approach has secured 80 percent of China’s immense and growing e-commerce market. And it controls the payment system, analogous to PayPal.
Also unlike Amazon, it doesn’t compete against or squeeze other retailers to make money. It doesn’t have to negotiate down book prices, for example; it just puts buyers and sellers together.
We have to move out of our comfort zone of e-commerce. We have to be more eclectic. … In mobile, the boundaries between e-commerce, communications, social networking, etc. become blurred.
– Joe Tsai
Great businesses earn money, but raking in the dough doesn’t make them great. They believe in something that keeps them going, provides a focus, gets employees excited when they get up in the morning and roll into the office. What is the key motivator for Alibaba? Scrappy support for independent entrepreneurship—their own, naturally, but also their customers’ and business partners’. They stand not in opposition to but apart from the state-owned behemoths that still control much of the Chinese economy.
That scrappy spirit was on full display in a stiff exchange of notes with the Hong Kong Stock Exchange, when Tsai started negotiating for an Alibaba IPO last year. The Hong Kong Exchange, concerned about shareholder democracy, rejected Tsai’s proposal that an existing 16-member partners committee be allowed to nominate a majority of board members, subject to shareholder approval.
“For the past 14 years,” Tsai wrote, “Alibaba operated with the ethos of helping the ‘small guy’ to succeed, as embodied in our mission: ‘To make it easy to do business anywhere.’ This clear sense of mission, long-term focus and commitment to values defines the ‘Alibaba culture’ and it is what makes us successful. … Our governance structure is a creative way to address the core issues that matter to shareholders while staying true to who we are—which we cannot, and will not, change.”
Tsai did not mince his words: “The question Hong Kong must address is whether it is ready to look forward as the rest of the world passes it by.”
The New York Stock Exchange has no such qualms; Hong Kong won’t take different kinds of shareholders, but the NYSE does.
Can Alibaba keep up its momentum? The company is no longer feisty and small, and as technology evolves, it lags behind in one critical area: mobile. Alibaba has to move its platform to smaller and smaller screens, where other players in China have a lead in market share and technology.
“Mobile commerce could really disrupt the traditional marketplaces in the PC environment,” Tsai recently told Forbes. “We have to move out of our comfort zone of e-commerce. We have to be more eclectic. … In mobile, the boundaries between e-commerce, communications, social networking, etc. become blurred.”
About a year ago, Alibaba freed Tsai from his duties as CFO to become the vice chair, allowing him to work on business development, partnership and investment deals that promise to help Alibaba at home and abroad. He’s set up a U.S. investment office and invested in Weibo (the Chinese version of Twitter), logistics (delivery) companies, an investment service connected to Alibaba’s payment system, mobile games, pharmaceutical data and the production of films, TV dramas and mobile digital content.
In the U.S., Tsai’s negotiated a series of investment deals, leading a $50 million investment this past October in Quixey, the Silicon Valley creator of a search engine for apps. The same month, he led a $216 million investment in Amazon rival ShopRunner, whose members pay a fee for free two-day delivery of goods from prominent U.S. retail outlets, essentially replicating Amazon’s Prime program for familiar brands like American Eagle Outfitters and Speedo, plus many less familiar brands.
Perhaps most significant, Alibaba in March put $215 million into Tango, the free mobile message app with 200 million users.
Will these deals and the technology that comes with them be enough to keep Alibaba ahead of its Chinese rivals, positioning it to push out messages and draw in more customers? It’s an important shift in the business model—and no one is counting them out.
As for Tsai: He still loves lacrosse and plays, at least a little. This year, he told Forbes, he’s sponsoring the Hong Kong men’s team at the world championships in Denver.
As Alibaba continues to keep its financials under wrap, analysts will continue to play a guessing game over what it might really be worth. What we do know: It’s a behemoth, and its public share offering in New York is the most eagerly anticipated play since Facebook.