S9E3: Joe Tsai Says Start Local, Then Go Global

28:31And, you know, of course, I started this talk by saying, you know, we do what we believe in. We don't listen to investors. But now, as a large company, we have very smart investors that give us feedback about the industry, about what our competitors are doing. Not just competitors in China, but competitors around the world, right? We're in a globally competitive industry, especially talking about AI. cloud, you know, that's a global business. So you get a very good perspective from global investors. But of course, at the time, when we decided, when Alibaba went IPO in 2014, we were going to go list in Hong Kong, but we ended up not doing that.

29:19We went to New York. There were a lot of considerations that went into it. I would like to tell you, you know, There was some intricate reason, and we analyzed everything. But the simple reason was the New York Stock Exchange is well-known, and there was a lot of market liquidity. Most global investors, I think still as today, are American or have American roots. So it was natural for us to sort of tap into the capital markets in the United States. Well, after the IPO, you stepped down as CFO and stepped into the role of vice chairman. And Alibaba went through a 10-year period, which you discussed earlier, was on the less innovative side, a 10-year period of challenge.

30:08And you returned as chairman in 2023. You talked about quick decision-making. So can you walk us through the quick decisions you made when you returned as chairman?

30:21number one we I wouldn't say I made the decision we collectively as a new management team including our CEO Eddie Wu we decided what we were going to focus on we were going to focus on our core business of e-commerce and we were going to focus on AI and cloud we were doubling down I mean we had a cloud business but it's a CPU-based compute business, we decided that AI is going to drive future need for cloud, GPU-based cloud computing business. And so you pick those two lanes where we're going to be extremely good at, we're going to be extremely competitive. And then the rest of the assets or businesses that we have are just less important.

31:15and you have to decide what's important and what's not.

31:21So deciding what's important, first decision. The second decision is, okay, in the lanes that we want to be very good at, what kind of resources we want to allocate to, whether it's capital or people, you want to put the best resources into it. The third decision is on the rest of the stuff, let's sell them or get rid of an exit or whatever. somehow manage them in a way so that it's not distracting to the management team. It's very important. Management team has limited bandwidth. You only have 24 hours a day. You're not going to be able to watch eight different businesses. I mean, we used to go to investors and say, Alibaba has six different divisions and this here, the segment and that segment.

32:04That's stupid. If I was an investor, start listening to a guy that says, I have six businesses. then they're going to say, what are you going to really focus on? There's no focus. So we actually streamlined a lot of that. We sold unimportant assets or non-strategic assets. But then there are some businesses that are in the gray area. They are not core core. However, they have strategic value. One example is our fruit delivery business. It's a business called Elema. we were getting killed by our competition. We had only 20 % market share. Our competition had like 70 % market share. And every investor is like, when are you going to exit this business?

32:53Just get out of food delivery. And I told people,

32:59you're right, food delivery itself, we may not want to be in the food delivery business per se, but the whole delivery infrastructure was going to be important for e-commerce because it's an instant commerce delivery infrastructure. If you want to buy stuff, you order meals, they'll come to you in 30 minutes or even shorter period of time. But what if in the future people want to buy clothing, luggage, their cell phones, whatever, they want it in 30 minutes? If I sold that business, I would have lost that quick delivery infrastructure. And so even though that business itself was not core to us.

33:37It has strategic importance. So we had to sort of decide in the gray area what to do with those. There were a lot of businesses where a lot of the management teams of those gray area businesses came to us and say, oh, we're strategic and important. And I'm like, you're not. I would hate to be one of those folks. But then you have to be a little bit direct. You have to say, I'm sorry. I know you've worked very hard. that you've done a very good job, but you're just not going to be core to our business. And we kind of have to find some way to either find a partner for you to take on the risk or do something different.

34:18Yeah, that clarity and focus on the strategy has served you well over the last few years, you and the team. You brought up doubling down on cloud computing and AI. So I want to talk about that. AI is really the newest arena for a race between the world's two largest economies, the United States and China. How do you see the race playing out? I think AI is a race among companies, but AI shouldn't be a race between countries. It's a technology. It's electricity. I describe AI as having access to AI as having access to water and air. Can you imagine if a country denies another country something that's essential to life?

35:02so I don't see this race as a race between two countries. I think there's a lot of areas where people can cooperate and benefit the world. AI today has achieved a lot in the medical area. We've been able to have AI tools that could detect early stages of pancreatic cancer. And, I mean, you know, a lot of these positive benefits should be available to everybody. So I don't subscribe to this view that there should be a race between two countries. I can understand that there's a school of thought that says if the military gets a hold of AI, that whoever runs faster or develops AI faster for military use will have supremacy.

36:08But let's just limit that to the military field and let AI capabilities proliferate around the world. And that's the way to go, I think. I think most people today would agree that AI has this potential to be hugely transformative globally. But yet there are two very different strategies between Chinese companies and American companies. Chinese companies have access to very low cost of energy. They're pursuing mass distribution, open source, like Alibaba is. And American companies have a hardware semiconductor advantage. So maybe we don't call it a race, but which approach do you think will win?

36:53We have to define what winning means. I think for me, winning means it gets proliferated. I hate the word diffusion. I wanted to say proliferation, but then people bring in kind of the analogy of nuclear weapons, whatever. So AI should be used by the most number of people. And in whichever society where they have most people use AI and benefit from AI is going to be the winner. Well, Alibaba has pursued that strategy. Quen, Alibaba's model, recently surpassed 700 million downloads globally. It's the leading open source model in the world. How much of Quen's success, your success in building Quen as a product, comes from prior successes scaling other products like Cowbell?

37:41A lot. If you think about these large-scale Internet companies with hundreds of millions or even billions of users, the problems that we try to solve is the problem of scale, the problem of concurrent users coming in, so the problems of parallel computing. So having that experience really helped us in developing the right algorithms to ultimately that turn into AI. And our effort in the modern AI as we know it is based on the transformer architecture. So we had development efforts dating back to 2019. And remember, this is like three years before OpenAI publicly came out with ChatGPT. but we didn't put enough resources into it, right?

38:49Back then, people were still debating whether that's the right technology path versus something different. But once back, you know, in 2022, when ChatGPT came out, I think everybody woke up and said, we need to double down. We need to put those investments in. But by then, we had already, you know, at least three years of development in Transformers, but also large-scale computing. That's all we had invested in our cloud infrastructure back 17 years ago when we decided that our e-commerce business was getting so large in terms of users and also the data that we have to manage. We have to develop proprietary software to manage computing clusters.

39:41and basically my layman's way of thinking about it is your software enables clusters of 50 ,000 computers, 100 ,000 computers to work and think like one brain, even though they're located in different data centers. So that's the technology that we developed proprietary. That formed the basis of our cloud computing business today. so we went into cloud computing out of necessity not because it was a hot thing back 17 years ago nobody has heard about cloud computing nobody really thought it was a business so yeah so basically we we had a lot of uh found a good foundational work that's done before sort of the current version of AI.

40:38We'll be back with more of Joe Tsai after this.

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41:42I want to return to a lifelong passion of yours on this point of competition, sports. You acquired majority ownership of both the NBA's Brooklyn Nets and the WNBA's New York Liberty in 2019, and together they were recently valued at nearly double what you acquired them for. How did you know these were great investments and not just passion projects? I didn't.

42:10I thought they were safe investments in the sense that the value was not going to go down. I think a few years ago, I gave the analogy of if you live in New York City, you see a rooftop apartment, Park Avenue apartment, you buy into it, you're not going to lose money because it's in a good location, it's a prized asset that everybody wants. So I thought the downside was going to be protected, but I did not anticipate how much value, the valuation of these professional sports teams have increased over the last few years. There are two leagues in the United States, the NFL and the NBA, where there's a tremendous amount of value being created, and that's because of the media rights, meaning broadcast rights.

43:06Streamers and TV networks pay a lot for these media rights to be able to broadcast your games. And that's supported the increase in valuation. Yeah, you applied that investor mindset, assessing risk in becoming an investor in these two amazing franchises. Now, you turned a true passion, sports, into an investment strategy. And business school advice on passion is somewhat mixed. Some say avoid turning it into a career, and others say you've got to do what you love. Where do you stand?

43:45I can't imagine if you woke up every morning and you went to work and you hated your job that's not a recipe for success but you could be passionate about a lot of things but at least you have to be interested in what you do and you want to do it better. Whether you call it a passion or something different or dedication or interest, there's gradations.

44:26If one of you says, I'm passionate about cooking, and then you go out and try to open up a restaurant, that's great, but that's probably not why you went to Stanford Business School for. You know, so my advice is find the people first. Find the people that you want to spend time with. And then obviously the mission of the company and the stuff that you do is something that you have an inherent interest in. Whether you call that passion or not, you should be passionate about your colleagues, about your coworkers. That's what I call passion. Well, with that, Joe, I'd like to turn it over to a few of my classmates who have prepared questions for you.

45:14Hi, Joe. Thank you so much for coming over and speaking with us today. My name is Catherine. I'm a current MBA2 student. And before GSB, I actually spent three years working at JPMorgan Hong Kong as a coverage banker for Alibaba Group. So working across many business units and then ecosystem players such as AliCloud, Hema, AliPicture, AliHealth, etc. What really amazed me is Alibaba's capability of pioneering very sophisticated business structuring and capital allocation. Looking back, what are some decisions that you've made or the group have made are misunderstood by the market, but it's really critical for the growth of the company?

46:02Well, I would like to think we're very sophisticated in technology, in products. this and this you know I mean I think we do a pretty decent job in terms of managing the capital markets and I guess so called financial engineering I'm sorry your question is what is what are some decisions on business structuring and capital allocation that are potentially misunderstood by the market yet to be very critical for Alibaba's growth today Yeah. Look, I think today everybody is worried about the amount of capital that's being allocated to AI at the different layers, right? In our company, AI means a full stack of things.

46:55how much money we put into developing our LLM, how much CapEx we make into our cloud infrastructure.

47:08And also, in order to test how good your AI is, you have a consumer application. So we now have the Qianwen app, which is our consumer application. So how much money do you allocate to promoting marketing to promote the consumer application. So along the full stack, you have to allocate capital. And I think every company that's serious about AI is doing all these things. And perhaps that's the part that investors are trying to figure out, whether you're allocating correctly to different parts of the stack.

47:51I don't think there is the right I don't even have the right answer for you but I do think that these three things that I've mentioned a consumer AI application the large language model that's backing up that's supporting the application and also the infrastructure that's supporting everything those are equally important and you kind of have to anticipate that, you just have to believe that there's going to be demand. Like infrastructure, you know, the infrastructure investments, you have to be very forward-looking, securing data center capacity, securing the energy, you know, buying the equipment.

48:37There is a lead time to it, but I think that...

48:47your judgment of whether there's going to be demand should be based on what ultimately, you know, the users, the enterprises that are going to need the demand as opposed to some philosophical pursuit of AGI. There is a lot of philosophical pursuit of AGI right now that's driving the demand. But then at the end of the day, you need to kind of look at what the market can bear.

49:22Hi, Joe. My name is Hong. I'm MBA1 currently at GSB. I was also a coverage banker at Credit Suisse in Hong Kong. And I wanted to ask you a question on Alibaba's culture. People often describe Alibaba's culture as having a very strong Ali flavor, a.k.a. Aliver, in Chinese with its own language systems and expectations. While this has helped drive performance, it can potentially also create pressure and bureaucracy. How do you think about the trade-off between maintaining a strong corporate culture and ensuring openness, inclusiveness, and innovation as Alibaba continues to mature in the future?

50:05like I said you have to like the people you work with so I think if I were to define what is the essence of Ali were it is you want to have a beer with your co-worker after work or it's not even after work because it's also part of work because you're spending time with your co-workers

50:25and I think that's that's important and you know like the culture how do you avoid bureaucracy right well you have to define what's important what is not and be able to tell people that their division is not important you have to have the guts to tell them I think a lot of companies make mistakes because they don't want to hurt the people I mean use the word inclusive I'm sorry we're running a business we can't include everybody in the enterprise if they're not going to be contributing to where you want to go you have to let them know

51:07Thanks Joe for all the great sharing so I'm Musia second year MBA sadly I'm not a coverage banker for Alibaba but I actually work as a product manager in China and also build a partnership with Alibaba Cloud and broader ecosystem. So I was wondering, since Alibaba's ecosystem and also full-stack AI strategy, as you mentioned, really fascinated me. So from your perspective, what has been the most challenging and most difficult step to make, but is really crucial for the company in terms of AI transformation?

51:43I think what is difficult is every part of the stack that I mentioned that we have to invest in costs a lot of money. And then you invariably, people ask, what's the ROI? But like I said, you have to have a certain belief that it is strategically important, and you're not going to focus today on ROI.

52:13And the other thing is, it's not like we came to this with a well-designed grand plan that these are this, you know, layers of the AI stack that we have to... They all come sort of in different moments. And if they didn't have their own individual success at their layer, then they wouldn't have gotten attention, right? so it was a very bottoms up process and then when you look back in hindsight you think well that's kind of haphazard because there was no grand design to begin with what if your LLM development was unsuccessful then you would not have put any more resources into it and it turns out that having a really good large language model a large foundational model is really really important in the AI race.

53:13I'm not talking about race between countries. I'm talking about race among companies. So those are some of the difficulties. And in a way, there's a little bit of luck involved. But then at the end of the day, I go back to the people. You have to identify the right people to work on these projects. Thank you, Joe. And thank you to my classmates for those thoughtful questions. Joe, before we wrap up, we're going to do a view from the top tradition, the rapid fire segment. Are you ready? Yeah.

53:49All right, let's do it. City that feels most like home to you? Taipei. That's where I was born. Favorite sports arena food? Barclays Center, for sure. Okay, but what item at Barclays Center?

54:06For some reason, I'm thinking of the Vietnamese bami pork sandwich. All right. I'm a hot dog guy, but yeah, that's great too.

54:17Best purchase you've ever made through Taobao? Oh, a pair of gym shorts, Under Armour. Nice. I think I bought them 10 years ago. I'm still wearing them when I exercise. It's a great endorsement for Under Armour. the app on your phone that you use most I have two apps that I use a lot most, one is the Quinn app because that's now it's an assistant for me when I do research whatever, I want to know something I go to the Quinn app the other one is Twitter I get all of my news if I want to know what's going on in the world I can get it instantaneously from serving I mean, now the algorithm is so good, so they know what I'm looking for.

55:06It's basically subjects on AI and sports. Those are the two things. Well, last rapid fire question on sports. Would you rather win an NBA title with the Brooklyn Nets or become a professional lacrosse player? Oh, that's a tough one.

55:24Both have low probability. But I'll...

55:31I'll take the NBA title. All right, NBA title it is. And to close, one final question, and this one isn't rapid fire. What's your best piece of advice for those in the crowd today hoping to build a global company?

55:53I don't think you should think about building a global company from day one because you have to win local

56:05if you have a grand plan the world is a large place to build a global company you have to have a lot of infrastructure that starts with small pieces. So you have to have small wins. So think about small wins and win locally. Where you start, you have to win the market where you started. And then you can think about going overseas, going global. Because with those winning local battles, you're training your team. you're developing talent that enables you to be a global player so you got to start somewhere ladies and gentlemen joe tigh

56:59all right let's get right into it let's do it you asked joe about the newest arena for a race between the world's two largest economies, aka AI. Jeremy, you didn't hold back. Talk about his answer. Everybody wants to talk about the AI race. Yeah. And everybody is calling it a race. And most people are calling it a race between companies and a race between China and the US. That is a very common framing. And Joe is uniquely well-positioned to talk about this, not just because he's a co-founder and chairman of the world's largest, most used open source AI model, but also because he has bridged the US and China as a business leader for 25 years.

57:47So I had to ask about it. And I pushed a little bit harder because I really do think that these two countries are taking very different approaches. I really hope that the exchange Joe and I had encourages people to think about some of the different principles with which these countries are looking towards the next 100 years of human flourishing. Yeah. And it seems like he pointed to population level adoption of AI. Yeah. Joe called AI a fundamental right, like air or water. Yeah. I'm not sure people think of it that way yet, but his answer was also telling about the Chinese approach. AI is a mechanism by which Chinese companies are growing their user engagement massively, including in the global south where there's less dollars to spend, but massive opportunity to use AI.

58:48So how is it going to play out? No, I'm kidding. But shifting gears, Joe had a lot to say about the nuts and bolts of his business, operations, supply chains, capital allocation. Was there anything in particular that you picked out or that you'd want to highlight? Focus and simplicity. When Joe came back to Alibaba as chairman, he and the team simplified the business. I think that is applicable to just about every business in any industry. The more you can simplify what you're doing and focus on doing it extremely well for your consumers and your users, the more right you have to earn more business with those consumers and users.

59:33So early in the conversation, you talked a little bit about investors and business plans. What did you take away? Founders have a vision of the future. Investors have pattern recognition of the past. So it's not surprising to me that Alibaba came to raise money in the Bay Area and struck out. No business plan. No business plan. Yeah, maybe that was a challenge. But also they were anticipating the next 25 years of global commerce. And investors don't think that way. It can be easy to fall into the trap of thinking, I'm building a company alongside investors. And I need investors to build a company.

1:00:16I think it's actually quite the opposite. you set a mission and a vision for the company, and only builders can do that. Stick to that mission and vision, and you find investors that see it as well. And over time, you prove to them, because they have pattern recognition, that that vision will play out. Part of what feels key here is something Joe said in the conversation. Everything you do, you have to bring a sense of humility to the work. What did you think about Joe Tsai on humility? It was such a consistent theme in almost every topic we discussed. He just really brings a humble approach. From the start, he talked about listening and learning from his co-founders, from Jack and the rest of the team.

1:01:01When launching Taobao, he talked about how he didn't have a perspective or at least a strong perspective on the product, but he knew how to structure a business. And he was just constantly, even more recently, when he rejoined as chairman, he talked about making changes as a team. I framed the question as what changes did you make? He reframed the question as these are the changes we made. That's an important distinction. Yeah. Yeah. So constantly he models humility and he clearly does not pound his chest on what he's good at, but he's very self-aware. He knows what he's good at, but he doesn't need to tell you.

1:01:41He'll just stick to it, which is a lesson for all of us. He's a team player. Hugely so. So when you're in Brooklyn, are you sitting courtside? Joe, if you're listening to this, please, I would love some courtside tickets. All right, Jeremy, thank you so much. Thanks, Michael. You've been listening to View from the Top, the podcast, a production of Stanford Graduate School of Business. This interview was conducted by me, Jeremy Tepper, of the MBA class of 2026. Michael McDowell is our managing producer, and Michael Riley edited and mixed this episode. Special thanks to Liz Walker. View from the Top is the Dean's premier speaker series.

1:02:23It was started in 1978 and is supported in part by the F. Kirk Brennan Speaker Series Fund. During interviews led by students, leaders from around the world share insights on effective leadership, core values, and lessons learned along the way. You can find more episodes of View from the Top on our website, gsb.stanford.edu slash business dash podcasts. Don't forget to rate and subscribe and follow us on social media at Stanford GSB. And see you next time on View from the Top.