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Jack Ma’s 2 Major Investment Mistakes
Aspire | 16 December 2015
By: Chen Xushuang
Articles (26) Profile

Jack Ma, Founder of Alibaba, is known to have this advice for young entrepreneurs: “Make enough mistakes. Any mistake is a wonderful revenue for you…You fall down many times, stand up. Don’t worry. Enjoy the show.”

However, even though he has attained immense success and ample entrepreneurial experience, Jack Ma himself is not infallible. Let’s take a look at two major investment mistakes that he has made.

1.       Yahoo China

The Rationale behind Investing

Alibaba acquired Yahoo China in 2005, receiving US$1 billion investment from Yahoo, while giving Yahoo 39 percent of its stock rights. At that time Yahoo was considered a big player among search engines, with Yahoo Mail and Yahoo Messenger 2 ranked top in the industry. One reason behind Alibaba’s acquisition of Yahoo China, is to transfer Yahoo’s technological prowess to Alibaba’s e-commerce platform Taobao. Ma had hoped that the collaboration between Alibaba and Yahoo China would inject dynamism as well as new concepts into e-commerce.

But It Didn’t Work Well…

It turned out that Yahoo China has made little contribution to the expansion of Alibaba Group, and as a result the latter had missed the crucial period to develop its middle- and small-sized companies’ search engine strategy. Besides that, Alibaba had to pay a costly annual premium, which according to analysts, amounted to US $50 million per year in order to obtain the right to use Yahoo’s brand and technology.

Lesson Learnt

The failure with Yahoo China shows that some strategic acquisitions are only theoretically great. While it is true that e-commerce is inseparable from search engine technology, it is not as simple as a matter of “1+1=2”. In other words, one cannot simply acquire a top search technology company and expect to gain an absolute advantage.

2.       Koubei.com

The Rationale behind Investing

Koubei.com (which translates to mean “Word of Mouth”) was established by Li Zhiguo, a former employee of Alibaba. It is one of the earliest cross-regional networking platforms focusing on lifestyle and consumption (including dining, entertainment, real estate etc.). Alibaba acquired Koubei.com in 2006 with around US $5-6 million, hoping to grow its e-commerce by tapping into the online community, and seeking to boost customer loyalty and facilitate interaction. At that time, many investors had expected Koubei.com to recreate the success of Baidu.com.

But It Didn’t Work Well…

In 2009, Koubei.com was integrated into Taobao, but it failed to fully utilise the latter’s huge user resource. As such, Alibaba had to spend US$50 million in 2011 to invest in the Meituan.com (original competitor of koubei.com), to take on Tencent in online-to-offline (O2O) business. Koubei.com, on the other hand, ended up being marginalised.

Lesson Learnt

One of the reasons behind Koubei’s downfall was the failure to position its services distinctly, as it only followed and adapted to the strategies of Taobao.com. Its merger with Yahoo China in 2008 also proved to be ineffective. According to COO of Yahoo Koubei Pan Guodong, the user base of Yahoo and Koubei were “different in styles”, and this perhaps explains why net traffic had failed to convert to substantial results.

Investors’ Takeaway

The leaderboard of tech companies is prone to quick shifts, and one successful company merging with another successful company does not guarantee double the success. Thus it is important to assess the compatibility of the two merging companies, in terms of their user base preferences, services provided, and business objectives, etc. Don’t be misled by a tech company’s large user base, as many accounts may be inactive. Instead, find out if the company operates on a clear and high efficacy business model.

As a Communications Studies graduate specialising in journalism, Xushuang is keen to observe and explore issues that readers want to know more about, and to deliver quality content through engaging writing.

Please click here for more information about this author.


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