Chapter 4 Why did Jerry Yang give Yahoo China to Jack Ma?

In August 2005, there was a very explosive news in China's Internet industry: Yahoo announced the acquisition of 35% of Alibaba's shares for US$1 billion, and at the same time gave Yahoo China as a dowry to Jack Ma.This was the largest investment in China's Internet at that time, and this record has been maintained for a long time. It was not until 2011 that JD.com raised US$1.5 billion in financing, which broke Alibaba's record.So this was a particularly sensational news back then, and it was also considered the greatest success Jack Ma had achieved since he started his business.

Why did this happen in 2005? After the Internet bubble burst in 2000, the growth of China's entire Internet took a completely different path from that of the United States.China's news portals have begun to transform, and Chinese companies have outperformed their foreign competitors in almost every area.For example, Sina defeated Yahoo in the field of portals, NetEase defeated Yahoo and Google in the field of mailboxes, and Baidu defeated Google in the field of search. In 2003, Alibaba launched a domestic-oriented C2C platform called "Taobao", and Taobao defeated eBay in a year and a half.

Therefore, 2005 was a very critical time point for a Chinese Internet company to win over global Internet companies. It was also at this point in time that the largest investment in China took place.For Jack Ma, this is a moment of smugness.He once said: "The real reason for the acquisition of Yahoo China is that Alibaba sees that future e-commerce is absolutely inseparable from search engines, and hopes that the cooperation with Yahoo can inject new concepts and vitality into e-commerce. We will create A company that is truly great in the world.” So Ma Yun believed that the acquisition of Yahoo China might put Alibaba on the path of a great company, but in fact, this was the second mistake Ma Yun made in his entrepreneurial history.

Yahoo acquired a 35% stake in Alibaba for US$1 billion, which means that in August 2005, Ali's valuation had reached US$2.8 billion. What was the concept of US$2.8 billion in China's Internet at that time?Tencent went public in June 2004. At that time, it raised a total of 1.438 billion Hong Kong dollars, with a total market value of 5.2 billion Hong Kong dollars, which was also Tencent's market value at that time.What was the market value of Sina, China's largest news portal at that time? In January 2006, Sina's market value was US$1.27 billion, which means that in the first quarter of 2006, Sina's market value was only about half that of Alibaba.Therefore, on the one hand, the US$1 billion gave Ali a very large cash red envelope, and it also meant that at this point in time, Ali had actually become the company with the highest valuation in China's Internet sector at that time.

So why do we say that such a big red envelope - 1 billion US dollars in cash, plus a dowry as big as Yahoo China, is the second mistake Jack Ma made in his entrepreneurial history, and it is even the most expensive mistake Jack Ma has ever made a mistake? Let's first look at the relationship between Jack Ma and Yahoo.The founder of Yahoo is a Chinese, named Jerry Yang.Yang Zhiyuan was born in 1968, 4 years younger than Jack Ma, and a doctoral student at Stanford. In 1994, before finishing his Ph.D., he founded a company called "Yahoo".Yahoo soon rose up in the United States, becoming the largest search engine and the largest news portal in the United States.

When Ma Yun went to the United States for the first time in June 1995, he went to the Internet for the first time. The website he was on at that time was Yahoo.com.He searched for China Electric Appliances on Yahoo, but couldn't find any Chinese companies. He suddenly realized: "Why don't Chinese companies have any footprints in the entire Yahoo website?" He believes that through e-commerce, Chinese companies should be able to go global.This is a starting point for "Alibaba" to start a business - related to Yahoo. By the end of 1995, Jerry Yang came to China for the first time.At that time, Jack Ma was promoting his "China Yellow Pages" at the Ministry of Foreign Trade and Economic Cooperation (Ministry of Foreign Trade and Economic Cooperation).Because he graduated from the English Department and his English is very good, the Ministry of Foreign Trade and Economic Cooperation sent him to receive Yang Zhiyuan.Receiving Yang Zhiyuan for three days was the first contact between Ali and Yang Zhiyuan.

At the end of 2005, Ma Yun persuaded Yang Zhiyuan to come to China as soon as possible: "Because China is the most populous country in the world and e-commerce is very weak, you can put a lot of Yahoo's experience in China." So Yahoo entered China in May 1998 , opened the Chinese "Yahoo" website, which is China's first news portal. At that time, Yahoo put forward the concept of "find anything and communicate with everyone". "Find anything" is a search concept, and "communicate everyone" is a portal concept, which clearly points out what Yahoo wants to do in China.At that time, Yahoo quickly became the number one Chinese portal.

Later, the Chinese began to imitate it, imitating Yahoo to do the Internet in China.For example, Zhang Chaoyang created "Sohu". Sohu's current English name is Sohu, but its English name in its early years was Sohoo—Yahoo's English name was Yahoo.One is a tiger and the other is a fox.It can be seen that China's first local news portal website has a very strong imitation of Yahoo.But after 1999, with the rise of China's local news portals such as Sina, Netease, and Sohu, Yahoo was quickly pushed out of the first camp.First, the cost of foreign companies is very high, and second, to be a news portal in China—news is a regulated industry in China—there are many license issues that cannot be resolved, and many topics that cannot be resolved.So Yahoo quickly declined and slowly moved out.

Many people used Yahoo's mailbox back then, but in the field of mailboxes, Yahoo was attacked by Ding Lei again.Ding Lei's 163 e-mail is doing very well, so Yahoo is robbed of the market in the mailbox field, and Li Yanhong is encountered in search, and Li's Baidu is doing very well.Therefore, many of Yahoo's early advantages, such as its portal advantage, search advantage, and mailbox advantage, have all been eaten up by these "little tigers" in China, leaving only a skeleton of Yahoo. In 2003, Yahoo acquired Zhou Hongyi's "3721", a search engine in China at that time, for US$120 million, and then invited Zhou Hongyi to be the president of Yahoo China.Zhou Hongyi is a very innovative and destructive person, but he went to a multinational company, started to wear a suit and tie, and went to work on time every day. He couldn't bear it.Therefore, the contradiction between the culture of an international company like Yahoo and a "wild child" like Zhou Hongyi became very prominent.

Jerry Yang was helpless with Yahoo China, so in 2005, he negotiated an agreement through Sun Zhengyi, that is, to buy 35% of Alibaba's shares for US$1 billion, and then give Yahoo China to Alibaba as a dowry.As a result, Yahoo has since then accounted for 35% of Alibaba's shares. Before we talked about Sun Zhengyi, he invested 20 million US dollars in Alibaba, and also accounted for 35% of its shares-Sun Zhengyi and Yahoo together accounted for 70% of Alibaba's shares, becoming Alibaba's real investment people.This has left a major foreshadowing for Alibaba's future VIE.