💡JCNews #59
Alibaba's Strategy
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Like every week in the #JCNews, you’ll find my latest and most interesting readings, including a must-read!
Let’s talk about this together on LinkedIn or on Twitter. The #JCNews are also available on Alan's Blog. Have a good reading!
💡The weekly must-read
Each week, I share with you a must-read which you chose.
👉Alibaba strategy: the big learnings (Not Boring)
They negotiated a deal for Goldman to acquire a majority stake in Alibaba for $5 million. Jack pushed back at a 50/50 split, and Lin agreed, but the Goldman investment committee decided it didn’t want all that risk 🤦🏻♂️. Goldman kept 33% and syndicated out 17% to GGV, Venture TDF, Fidelity Growth Partners, Investor AB (Joe’s old employer), and Transpac.
Even the best companies of today, started small, were close to death, were not very well valued by investors. Every new project is fragile.
Since the Chinese market was so nascent, the Alibaba team realized it couldn’t just copy the US business model of charging businesses to list and taking a cut of transactions. Instead, Alibaba gave away the product and transactions for free and charged sellers for better placement. It worked.
That was very bold, and I love it. What are the bold moves you can do?
Jack announced that Taobao was a consumer marketplace customized for China, and that it would be completely free for three years. Alibaba, via Taobao, was going to war with eBay.
And that customer awareness also led Jack to decide to keep the product free for three years, because he knew that he couldn’t both convince customers to try something new and charge them at the same time, investors be damned.
Yahoo! invested $1 billion for 40% of Alibaba in one of the greatest investments of all time. With cash in the bank, Alibaba pledged to keep Taobao free for three more years.
Used a free offering and payment product to build up both sides of the network, growing the market before worrying about monetizing it.
Free is a powerful business model to get to scale. It is a good way to start the flywheel. We really believe in building free products such as Alan Baby to serve a lot of European people.
Understanding that customers needed a way to pay for things online in order to build trust and remove friction from an otherwise uncertain process, the team built an escrow service, AliPay, that would become a multi-hundred-billion dollar giant that we will return to later.
Building the tools for yourself to be successful, and making it a business is a shared aspect of Amazon and Alibaba. They also have Seb ;)
Jack realized that eBay was under intense pressure from shareholders to start making money in China, and that although free was the right model and eBay had deeper pockets, it would not be able to follow Alibaba’s lead. At the launch event, he announced that Taobao would be free for three years, and he was right: instead of eliminating its fees, eBay vocally defended its paid model, which sowed the seeds of its eventual defeat.
The company’s battle plan went something like this:
Declare war on eBay to get free press and piggyback off the larger company’s ad budget
Don’t make personal attacks on Meg Whitman or play the nationalism card
Do argue that eBay’s business model didn’t fit in the Chinese market
Take the battle to eBay’s turf by organizing a US press tour, turning up the heat on the bigger, public company
Stay locally focused: Taobao built a cute product with animated characters to appeal to younger Chinese shoppers who would fuel its growth, while eBay tried to fit its China site into the same architecture and brand that it used globally.
I find their communication plan very interesting, and could be applied by other companies.
Despite not charging transaction fees on Taobao, Alibaba is able to take a huge cut of the revenue generated on its platforms by offering all of the services that a merchant might need to run their business. [...] Alibaba’s subsidiaries offer inventory & logistics, distribution, marketing, R&D and IT, financing, and other operating services to merchants. They can run nearly the entire small business P&L.
Cloud: Alibaba seems to be running the same strategy that it ran for its eCommerce businesses. In a nascent and rapidly growing market, getting and staying out front means more than turning a profit. Eleven years into Cloud, Alibaba is still losing money.
If you can finance our growth to become really massive as soon as possible, then you can add services that will generate revenue and margin.
🏯Building a company
In addition to selected articles, I share one of Alan's leadership principles each week - the same one I share internally and with our investors every Wednesday.
👉 Alaners don’t play politics (Healthy Business)
As a company grows, and team size crosses a “magic number,” the balance of incentives usually shifts from encouraging a focus on company impact to a focus on personal careers. We don’t want that to happen at Alan.
Each Alaner should ask themselves when they do something: am I spending my time on (a) work that might increase the value of my projects or (b) networking, promoting myself within the company? The latter will never be rewarded at Alan, because Alaners are owners and we don’t play politics.
👉NPE Canvas: core principles for products in touch with users (Kima Ventures)
Founders of end-user facing products should focus on a few core principles
The hardest part of a VC’s job is to detect something early on that has yet to be realized. And it’s even more difficult with end-user facing products especially mobile consumer applications who secretly hope to become the next Facebook, Snapchat, Tinder.
That’s why it fundamentally matters for entrepreneurs to reflect on a few core principles to never lose sight of where they’re heading to (or at least trying to…).
A possible framework to do so is the NPE Canvas > Narrative — Primitive — Enablers.
The NPE Canvas
Narrative: it is the frame of your web. The Profound, Authentic and Sustainable behavior of your users on which you build your experience. It can be hard to frame at first, until it becomes ridiculously obvious. Everything you build should serve your narrative.
Primitive: it enables your users to express themselves within the narrative. Core, Simple and especially Self-sufficient in order to hook the users without any additional features. You never stop working on it, while keeping it simply actionnable.
Enablers: you need them to Enhance, Strengthen and Simplify the experience of your users.
Examples
Narrative: the Narrative of Tinder is the ego (90% of the users only swipe & chat), Snap’s is the need for non judgmental genuine interactions, Zenly’s is the need to know where your people are.
Primitive: Tinder has the swipe & match, Snap the instant camera, Zenly the map.
Enablers: Snap has the lenses for instance.
🗞In the news
📱Technologies
👉 How $14.5 Billion Chime Proved Silicon Valley Investors Wrong (The Information)
The company, which makes money by taking a portion of the 1.5% interchange fees Visa charges a merchant every time a customer uses a Chime debit card, generated more than $600m in revenue last year.
🏥 Healthcare
👉 Investing in the Future of Healthcare (Colossus)
There’s about a third of all procedures and care that takes place in the hospital that can be done in a home setting.
Our healthcare system typically rewards managing a condition, but I want to see more of the healthcare system where we reward meaningfully preventing you from ever getting to that point. And I think testing more is a paradigm that’s okay as long as it’s really affordable and can actually affect people’s wellness, their health in a way before they actually have a condition. We’re seeing a ton more companies like that.
💚 Alan
👉What it takes to scale up European tech (Sifted). I am proud to be part of the #ScaleUpEurope initiative, launched by President Emmanuel Macron, and explore how Europe can push its startups to the next level, particularly in the “Talent” stream. That begins on March 4th! Stay tuned.
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Let’s talk about this together on LinkedIn or on Twitter. #JCNews are also available on Alan's Blog. Have a good week!