Taking Stock / Alibaba and the 40 Months

Exactly four years have passed since the last time this column was devoted to Alibaba. No, not the guy and the 40 thieves in "The Arabian Nights," but the Alibaba from Wall Street.

Exactly four years have passed since the last time this column was devoted to Alibaba. No, not the guy and the 40 thieves in "The Arabian Nights," but the Alibaba from Wall Street, the Chinese Internet company that hit the headlines in the bubble years, raising $20 million from Softbank's Internet king Masayoshi San.

Alibaba, a dot.com founded to introduce manufacturers and buyers, caught our eye in January 2000 after entrepreneur Jack Ma told The Wall Street Journal how in a single meeting, he'd raised $20 million from Masayoshi for the B2B company he'd founded a few months earlier. They didn't talk about revenues or even a business model, Ma revealed: The discussion was entirely about shared vision.

Back in 2000, to us, the story of Alibaba.com screamed "Watch out!" as did hundreds of Wall Street stories - upstart startups raising billions despite being devoid of business models, based on no more than a gauzy dream of Internet changing the world.

Hype and the single entrepreneur

Everybody talked about spike-haired kids working round the clock and making a mint. But back in 2000, we wrote that what was working overtime was the hype. "The Internet world is full of companies like Alibaba, companies whose appeal lies mainly in a list of distinguished investors," we wrote: They develop a cool idea, rope in red-hot investors, recruit star management and then, if there's enough time before the IPO, they try to do some business. The Nasdaq crash began three months later. By the time six months had passed, the technology world was suffering the worst crisis in its history.

Dot.coms disappeared at a dizzying rate. Hundreds of millions of dollars evaporated. So-called e-tailers vanished and B2B morphed from meaning "Business to Business" to "Back to Basics," or the crueler "Back to Business School."

Softbank did not go broke. For one thing, it had holdings in companies that weathered the crisis, most notably Yahoo!. Secondly, it had the good sense to exit some investments for cash before the crash. But Masayoshi San's wealth, which had peaked at $70 billion, shrunk by 90 percent. The U.S. press stopped calling him the Bill Gates of Japan and returned its attention to the real deal in Redmond.

And just the other day, we opened The Wall Street Journal and - surprise! There was an old friend, Jack Ma of Alibaba.com. Yes! The company survived! Nor did it change its name or so much as shed that insolent .com suffix.

The survivor, and how

It turns out that in the two years since tapping Softbank for $20 million, Alibaba.com went through much the same as its fellow Internet companies. It didn't have a business model, it burned up money, it had to fire most of its workers and mainly, it couldn't raise a dime. But it did start working on changing its model.

Come the second half of 2002, it turned a corner. It began collecting money from suppliers so they could present themselves on its site. Rising interest in the Chinese market spurred a dramatic increase in usage of its Web site. Having slashed costs, it began approaching the break-even point.

By 2003, Alibaba.com was making money. Thousands of Chinese suppliers paying it $5,000 a year to advertise on its site lifted it to a $15 million-surplus cash flow for the year.

And now for the real surprise: On Tuesday this week, Jack Ma was back telling his Alibaba story and raising money. Raising money? Raking it in: He scored $82 million from a new shareholder, Granite Global, and existing ones: Softbank, Fidelity Ventures and TDF Ventures.

You could see the resurrection of Alibaba in the 40 months since the dot.com crash as a unique case, of an unbending, mulish management that managed to adapt to changing market conditions, of investors with patience, of a market growing like a weed in a country that is today the stuff of investors' dreams.

Or you could try to generalize and reach a few conclusions. Some of the ideas that arose in the bubble days weren't that stupid. Some things work on Internet, and work well, even though we tend to think of them in the sullied jargon of 2000. Every day more and more companies are making money from advertising on Internet, Internet telephony, online auctions and e-tail. The technology's maturation has been much slower than many expected, but the trend is clear. Use of Internet is growing in almost every sphere, by the end-consumers and in the business world, too. The establishment of tens of thousands of gratuitous companies, and their collapse, was essential to this market's evolution. And the ones that survived the massive weeding out and adjusted their business models to the harsher reality could well reach the grail of black ink.

Maybe the most important thing is that Wall Street is frothy again. Even companies whose name end in dot.com, until recently cause for little more than tasteless jokes, can tap investors for cash, or even $82 million through a private placement. Jack Ma's Chinese portal may be a good company in an interesting market. The $15-million profit that The Wall Street Journal reported may be a real story. But the really big story about the company isn't the mountain of cash it raised, it's the resurgence of an era of Alibaba stories.

We're going to be seeing a tremendous surge in press releases by companies, venture capital funds and entrepreneurs who had been skulking in the sidelines. That heady smell of IPOs is wafting through the market again and they'll be coming out and screaming to attract attention to their stories, even if their stories sound mainly like fairy tales from "Arabian Nights."