share his vision of helping grow e-commerce to the benefit of china. with no cease-fire inside, our battle became more contentious. we had one card up our sleeves that ebay had not anticipated. to pay $1agreed billion in cash to alibaba.com. the move is designed to catch up with the ebay. yahoo! is going to become alibaba's big is investor in alibaba will take over yahoo!'s china operations. >> it was one of the biggest deals in internet history and set off a media frenzy. for the first time, a chinese in a company had taken over the local company. with a search engine in our portfolio, we boldly plant that -- >> ebay has been trying to build and be as successful as a lot of companies in china. this is really representing a big challenge for ebay in china. >> the mood was euphoric.

mandarin]ng >> to make the partnership work it was critical to smooth and integrate yahoo! china under ali baba's management. we chartered a transfer to bring yahoo! china to visit their new national headquarters. it didn't take long before we realize that the two teams have very different cultures. seemedina's team weary of management changes and seem to think that getting taken over by a local company was a step down. the two teams didn't mix well. and other important challenges getting government support. jack that with local government

leaders to explain the benefits they would bring. have earned the support of local government over the years because, at an e-commerce company, alibaba was seen as a giant. >> [speaking mandarin] >> with the government embracing the partnership, we received an important green light. we learned that when we acquired yahoo! china we also acquired up local hot potato. severals broke that years earlier yahoo! handed e-mail information about a chinese political dissidents to the government, yahoo! was put on the defensive.

ourreports coincided with annual summit where bill clinton was said to be the keynote speaker, and give an address that will be broadcast live on local television. [applause] >> whatever political system country has, the internet has the power of comm unication in the hands of ordinary people. i was proud that jack had brought one of the few foreigners who could argue credibly to a chinese audience about the need to open china's internet. lastense of pride didn't long into the international media were quick to pounce on our new partner.

>> i am peter goodman with the washington post. this is a question -- your company was founded at a time when internet companies were marketing themselves both to consumers and to shareholders as not really business propositions but forces for liberation, for freedom of information, free flow of information, free expression. ngere are people thasayi that you have become a tool for the chinese government. how does that make you feel personally and what can you tell us about your company's role? >> i appreciate the question, it's not asthat clear-cut as you are making it out to be. >> jerry yang was clearly uncomfortable with the question. for the next several months,

yahoo! attended to lay low and avoid the issue. but they're muted response only fueled the controversy. and while, the issue put on the hot seat. >> welcome back. jack must the best-known internet guru. >> recently, yahoo! gave information to the government that led to the detention of a chinese journalist. if you are running yahoo! china at the time, would you have done the same thing? >> yes. whenever you do business you have to weigh loss. either you can change the law will stop if you cannot change the law, follow the law. is a law in china. these are the basic principles. >> i felt it was unfair that he had to defend yahoo!'s previous actions but, while apple may not have agreed with his position, it offered a clear and consistent response based on his own beliefs. >> good morning and welcome to

this hearing on the internet in china. >> yahoo!, meanwhile, continue to muddle through the issue and was ultimately call to congress to defend its actions. our besthina, we did to move beyond the controversy and call the strategy meeting to develop a plan. gave a typically inspiring speech but i felt he underestimated the complexity of building a successful search engine, and we left the meeting without a clear vision of how we would turn our newly acquired company and to china's leading search engine. for the next year, china -- from prhina suffered distractions and squabbles that threatened to hang a cloud over the entire company. unfortunately, things were looking much brighter on the other side of our company. ♪ >> [speaking mandarin]

the funding race from yahoo! allowed taube out to start national advertising campaigns. and they finally surpassed ebay. with money in the bank and confidence in future, we planned one last attack on ebay which we hoped would provide a knockout blow. wall street watching, we announced we would make taube out free for an additional year and called on ebay to follow our move. >> i'm still working on the release of taobao. i think ebay's earnings will be after the close, make sure it is posted. >> ok. and,'s stock dropped 5%

in a knee-jerk reaction, henry gomez issued a response, arguing that free is not a business model. we released it in the u.s. yesterday. at 3:00 in the morning today. you may already came back with a response saying free is not a business model. based are saying they are much stronger because they can charge. i think we're much stronger because he can stay free. >> we can afford to be free, that's true. that's good. >> ok. >> that's great. that is exactly what we want. we want them to do things like that. that's good.

they will regret what they said today. you have to prove the model and how big the model is, you have to prove that you can create value in this market. but they are not listening. only a percent of people, -- 8% of internet users have tried the online shopping. 92% have not tried the internet. why do you want to prove this model is better? you see the ebay? >> 15.1 million users at the end of september.

fasterre growing at 50% rate then they are. -- than they are. >> unless they do something really, really meaningful. >> [speaking mandarin]

>> i don't take it too seriously. they took it too seriously in china for competition. not only created real value for the chinese market in china [speaking mandarin] [laughter] >

>> over the next year, taupo continued to gain market share. it seemed too little too late and jack encouraged the team to look beyond the battle with ebay to focus on more meaningful roles. >> [speaking mandarin]

>> in the end of 2006, we read the news we had always hoped for but didn't totally expect. ebay announced it was shutting down its chinese website. in a strange way, i knew i would miss having such a mighty competitor, but it was exciting to think we had won the war. thewith taobao the winner, doors were open for us to do something that had been postponed for five years. >> now, back to china, there is an ipo fever. >> you can call alibaba. the initial public offering of the chinese internet site is coming next week. investors are paying attention, after all, this is a chinese internet company.

perfect for the current market. >> it was a strange feeling to wake up on the day of our ipo. head.was going through my i had always imagined that reaching an ipo would feel like crossing the finish line, but when the day arrived and felt touch more like a graduation. while it was exciting to reach a new milestone, i was also said that a more innocent era had come to an end and there would be no turning back. as i pulled into the hong kong stock exchange, jack was just arriving. to the media and investors, this was the day about money. but i knew alibaba had gotten this far because money had never been our main goal, and i was confident that, by following the same strategy, it was just a matter of time before and taobao would become possible and have its own day in the sun. as i looked around the room i began to feel that i was ready for new adventures, that it would soon be time to move on.

i wondered how the company would cope from growing from a david into a goliath. jack was once again on a pedestal. but i knew he was human and it would be harder and harder to live up to the high expectations of those who looked up to him, year to sing his praises. -- eager to sing his praises. >> [singing opera]

[applause] >> a year after the ipo i decided to leave the company and did what i always seem to do when my life reaches across road, travel. before i left, the team offered to organize a going away party but i declined. it was just too hard to say omething that meant so much to me. i could only watch alibaba developments from afar stop i felt private times they met success and disappointment at the times the company made mistakes and failed to live up to its own values. but through it all i remained

inspired by the lessons i had learned, from a time when anything seemed possible, from a teacher i had met. >> [speaking mandarin] >> after some time on the road, i took one last chance and traveled back to visit some old friends and see what had become of the company that we had created. ♪

>> [speaking mandarin] ♪ >> [speaking mandarin]

[applause] [speaking mandarin]

[applause] [speaking mandarin] [applause] [speaking mandarin]

♪

as the evening came to a close, i reflected on my time at alibaba and all that i had seen over the previous 10 years. company started by an english teacher, hire employees and serve thousands of people. i saw a group of ordinary people that even i had underestimated come together as a team to build something they believed could change the world. i realized that the people outside ali baba would probably seem naive, but jack was right. alibaba was more than just a company, it was a dream for which we fought and struggled, laughed and cried. and in a country where speech still has limits, it was a place where my colleagues found self-expression in the form of a company. i own time at ali baba had come to an end but i knew the story would continue.

whether it would end as well as it began would be up to jack and a new team of colleagues and how well they upheld the values which carried us this far. fact found comfort in the that, whatever happened to jack, or to alibaba, the internet had sparked reams of a new generation in china and i felt that. the rest of the world had seen the china i had seen. maybe fear of china's rise and be replaced with optimism and hope. and that is the story of what i saw and what i learned from a teacher, his dream, and his country. ♪

>> from pier 3 in san francisco, welcome to a special edition of "bloomberg west, the alibaba story." alibaba's founder jack ma once said, "ebay is a shark in the ocean. we are a crocodile in the yangtze river. if we fight in the ocean, we will lose. but if we fight in the river, we will win." over the next half hour, we take you inside the alibaba group to find out how this company founded by 18 people in jack ma's small apartment has grown into a company that has grown bigger than amazon and ebay combined. the businesses of china's e-commerce giant -- roughly 80%

of alibaba's revenue comes from chinese consumer sites. but it all started with ali baba.com, the world's largest business-to-business that form, connecting buyers and sellers. how does alibaba work, and is the process similar to buying something on amazon and ebay? bloomberg's sam went through the process of buying custom pants from alibaba.com, and he joins us now with more. sam, i know you like your pants. >> i love my pants, and i really wanted a lot of them. one way i could do that for not too much money was to order them from a manufacturer who uses alibaba.com. this is the basis of the entire alibaba.com system, connecting buyers all around the world with an equal number of manufacturers around the world to give them what they want. to reach those manufacturers, i had to create a buying request, a form that describes what i want to be made. within a day of posting my request, i had reports from

china and pakistan and the czech republic. to whittle it down, i first ditched any replies from companies that were not alibaba gold suppliers. gold is a tier manufacturers campaign for, and involves background checks. among the remaining companies, i judged their responses on basics like price and delivery times, but also on how well written their responses were. and other things, like whether they included a picture of some pants. it is a little like online dating. ultimately, i decided to work with a manufacturer in pakistan. i know what you're thinking. how can i be sure these suppliers were not a bunch of sweatshops? i checked with the united states department of labor international labor affairs bureau, and they gave this project a clean bill of health. to get started, my guy in pakistan needs money. this can happen in different ways.

alibaba has a customer service called alipay, which holds your money and only releases it to the manufacturer. alternatively, you can pay directly, using western union or wire transfers. how much money are we talking about? let's start by considering what i am asking for. i am looking for pants in different colors, in multiple size combinations, and more than one of each. that gets me at 298 pants. my cost is $2920. getting the pants air-shipped to me would cost another $1983. that would get my pants flown from pakistan to new york in two days. how did it all go? remarkably simple. it was like combining a craigslist ad with a giant 3-d printer. 25 days and $4500 after i started, i got exactly what i was looking for.

a whole big mess of pants. and they came out fine. but what do i do now? on the one hand, i have enough pants to last me for the rest of my life. or i could share them with 279 of my closest friends. [cheering] i guarantee there isn't a pair on the streets like them. >> love it. bloomberg businessweek's always stylish sam grobart. also with us, leslie picker who covers ipo's for bloomberg news. and our editor at large, cory johnson. how similar was the process to buying something from amazon or ebay? >> it is an entirely different process because it puts amazon and ebay based on individual customers dealing with retailers. in this case, i am my own

business and i am dealing with another business, in this case a manufacturer, who is coming back to me with specifications and timing and deals. much in the same way you would deal with somebody if you were buying auto parts, or computer motherboards. there is much more back-and-forth. as a result, you have to know what you are looking for as opposed to browsing through a catalog. >> you got the pants in two days. does alibaba have something similar to amazon prime free shipping? >> they do not. in this case, the shipping cost almost as much as the pants themselves. we had them air-ship using dhl, which cost almost $2000, which is about $500 less than making the pants themselves. >> let's talk about the rest of alibaba's business. 10 major businesses make up the alibaba group, including taobao, tmall, 1688.com. cory, how would you describe the group?

>> i think what is interesting about the evolution of this business is that they took the best ideas of internet commerce -- auction ideas, payment ideas -- and pulled them all together into this specifically chinese company. yes, it has pieces of all of those things. let's not forget the massive shipping component of their business. it is so important to what they do, their fulfillment facilities. it is similar to amazon. they have a massive fulfillment business that fulfills a lot of the needs that a more robust post office in china would do. >> roughly 80% of alibaba revenue comes from the chinese consumer sites taobao and tmall. leslie, how are taobao and tmall different? >> tmall is an online mall where businesses and brands sell products to consumers. taobao is very china-specific. it is where individuals and small businesses sell their products to consumers.

>> sam, i have been admiring your outfit. are those yellow pants from alibaba.com? >> they are not. >> but they could be. >> they totally could be. and let me just say, i think that for $9 a pair, the gentleman over at mark's apparel in pakistan did a very nice job. i am a little fancier so these are different. >> i think the big question remains whether alibaba can be a global phenomenon. it already is in some respects. but can alibaba compete with the likes of amazon and ebay? leslie, how would you answer that question? >> so far, the strategy has been to invest in the u.s. they have been investing in businesses in silicon valley. they opened an office in san francisco to do those investments, to make those investments. they have not outright started moving into the u.s. trying to take over amazon or take over ebay. that has not been their strategy

and there is no indication that it will be. but they are capitalizing on the different startups in the u.s. to build their global brand. >> all right. leslie picker, sam grobart, and cory johnson. thank you all. coming up, from english teacher to china's richest man, we have the story of ali baba's colorful founder, jack ma. coming up next. ♪

>> welcome back to this special edition of bloomberg west. when it comes to alibaba, there is one man synonymous with the company. just like steve jobs was to apple. his name is jack ma, the founder and chairman of alibaba group

and now china's richest man. it is not quite a rags to riches story but it's pretty close. his first job paid only $12 a month. now his net worth is $22 billion. so who exactly is jack ma? take a listen. >> singing on a stage before thousands of employees, jack ma is not your average corporate chairman. he flunked his college entrance exam twice. he learned english, became an english teacher, and then left the classroom to ride the internet wave as china's economy opened in the 1990's. first starting china yellow pages, ma persuaded 80 people to give him $60,000. he then recruited 17 partners and alibaba group was born. his larger-than-life personality

has helped alibaba turn into the commerce giant it is today. he sings and performs mass weddings for employees during corporate events. he is a huge fan of kung fu and started a tai chi school with actor jet li. he quotes chinese philosophers at meetings, and his own wisdom has helped grow his personal fortune to $22 billion. he is now china's richest man. but for ma, it is not just about the money. he told charlie rose that, if alibaba cannot surpass microsoft or walmart, he would regret it for the rest of his life. for more, i sat down with porter erisman, the director of "crocodile in the yangtze, the alibaba story." porter joined alibaba in 2000 as the company was moving out of jack ma's small apartment.

he worked with him as head of communications for almost eight years. i started by asking what the founders were really like in those early days. >> they were just as ambitious and as big a dreamer as any silicon valley startup. and i think at the time, i think people thought this was an english teacher who was making bold claims about where the internet would go, where alibaba would go. there were a lot of skeptics, obviously. but the team stuck with the early apartment ideals back when they were founded. and now, it doesn't seem so crazy. >> did you have his blessing for this? you worked very closely -- i wonder what he thinks of the film. >> my last day at the company, i sat down with him and i told him i wanted to make a documentary of my experience, told completely from my perspective. he gave me his blessing for that. but after that, i disappeared

for three years. i wanted to keep it very independent from the company. i disappeared. i made the film. i started submitting it to festivals and then i told jack that i went ahead and made this film that he gave me his blessing for. i showed it to him and his first response was lukewarm. i think it is a fair portrait, and there are some things he probably would have told differently. but because it was from my own perspective, in the end, he thought it was fair, so he did not protest when i went on with my plan to show it all around the world. >> one of the things you capture so well, having lived in china myself, is the culture of alibaba and the employees. you open with jack ma on stage singing "the lion king," and everybody cheering. people had almost this patriotic devotion to alibaba. explain that to me. >> the interesting thing for people to understand is that, china at the time when alibaba was founded, there was not many places for young people to go

and pursue their dreams. working for the government was not a really great outlet, working for some state-owned enterprise. the internet was the first time young people in china had a chance to go out and chart their own destinies. the company attracted dreamers who had this passion and idealism. that is why i think they are so devoted to what alibaba is doing. i think you see that with a lot of internet companies in china. the first real national heroes that were not anointed by the state but were homegrown came out of the ranks of entrepreneurs. >> alibaba did go public once before, in 2007. that is where your film ends. what was that moment like? >> on the one hand, it was exciting, just like you would expect from an ipo. we had worked building this business to business marketplace for a long time. the ipo was so successful in hong kong that even the currency

was destabilized. the government had to intervene because so much money was coming into hong kong to invest. i think the stock price immediately shot right up and then the financial crisis came and they ended up, as the stock price fell, they pulled it back into the company. i think one of the lessons of my experience at alibaba is the company went through moments of euphoria and moments of crisis. you see that in the film. even when the company was in this euphoria of the ipo, jack ma was warning the staff and saying, look, this is the time to be careful because things are going to get tough. once you're on top, things can collapse. we were prepared for it. but of course it was a difficult time after the ipo. >> how did he handle the crisis? i think one of the most telling things about a leader is how they handle not the best times but the worst times. >> after the ipo, at our annual meeting in one of these stadium

events, jack was pleading with the staff to stay true to your values. don't let the euphoria of an ipo or sudden wealth takeover the company culture. he even predicted the financial crisis before it happened. he does a great job of sort of keeping the company focused on the long term and helping people anticipate the rocky road ahead. >> that was porter erisman, the director of "crocodile in the yangtze, the alibaba story." is there anything that can knock alibaba off of its golden road? we take a look at the biggest risks facing the company in china and around the world, next. ♪

>> welcome back. i'm emily chang. alibaba is dominating in e-commerce, facilitating the delivery of 5 billion packages last year, more than ups. but the company is still on guard. it has bee making acquisitions to keep up with other chinese tech companies in areas like mobile and video. it is also entering the u.s. with the shopping site 11 main. but it's success here is not guaranteed as it competes on amazon and ebay's home turf. so what should the company be most worried about? i spoke to yahoo!'s c.o.o. from 2002-2007, and the managing director of china market research group, a strategic market intelligence firm focused on china. i started by asking dan what he sees is alibaba's biggest challenge as a public company.

>> i think its biggest challenges will be what everybody's are, when you get to scale, what happens then? there has not been a company in the technology space that has been around for a hundred years that has been able to reinvent itself. there have been a couple that have done it successfully recently. apple has done it and has done a nice transition in the executive. adobe has done it. from a software company to a cloud company. but time will tell whether or not these companies get disrupted after they spent all their time disrupting other people. also, once you get outside of china and he is dealing in a more competitive market, particularly if he focuses on the u.s. or europe, he will come up against people whose entire goal is going to be to make sure he doesn't win. but those are things that any company has to deal with. they are very smart and have been very successful. >> one of the most tangible descriptions of alibaba is that it is a little bit of amazon with a bit of paypal and some google. would you agree with that?

and do you think that alibaba can take on these companies on a global scale? >> sure. i think originally, when it got started, that would be an apt comparison. i think in many ways, alibaba was a copycat of those companies. but it has emerged as innovative in its own right right now. it is a hodgepodge of all the best technologies with a chinese twist. i do think it will be difficult for alibaba to be able to move into southeast asia or into the united states. when you look at it, there are very few tech companies that are consumer-facing that are able to be truly global players. you look at products like tencent and why people want to use those types of products. typically, they tend to be fairly localized. it will be difficult for alibaba to scale up and be as dominant in the united states or europe as they are in china. >> what about the prospect of alibaba buying yahoo!?

>> financially, it makes sense if you are alibaba. it is a very inexpensive way to buy back your shares in yahoo! japan. it is more interesting to softbank than alibaba. alibaba could. i am not sure that they would want the operating business as much as owning whatever equity is left. but there will be much less equity left now. i think it is more interesting to softbank than it is to alibaba because of the yahoo! japan stake and whatever is left in the chinese stake. but that would be about equity in other companies and not necessarily equity in yahoo! itself. there is a lot of scenarios that could play out. my hope is that yahoo! remains independent, that marissa continues to build something great. but it wouldn't surprise me if all of these rumors began to surface after the alibaba ipo. >> what does alibaba look like five to 10 years from now? >> they will have to become a lot more focused on mobile

devices. there is a lot of venture capital money now going into mobile facing e-commerce plays, starting to really chip away at alibaba's dominance in e-commerce. i think you are going to see that they might become a gigantic conglomerate. the question that shareholders have to know is, is it actually owned by alibaba or is it owned by jack ma and the equity firms themselves? there has been anger and frustration against ma because he has such low stake in his actual company. he is not like zuckerberg, who owns a large share. he has been busy making up his own investments through his pe firm as a vehicle and he gets a lot of press as an alibaba investment when it is really his own. >> that does it for this special edition of "bloomberg west, the alibaba story." ♪

>> live from pier 3 in san francisco, welcome to "bloomberg west," where we cover innovation, technology, and the future of business. i'm emily chang. ahead, he is one of the most legendary figures in a silicon valley, but larry ellison is stepping down from oracle. we will look into what life in oracle without larry ellison as a ceo will be like. after months of anticipation, it is finally here. alibaba group praised its ipo at $68 a share. that means they are raising 8.