Episode 1: Jerry Yang of Yahoo!: Why I Believed in Alibaba


Episode 1 of the 996 Podcast

GGV Capital’s Hans Tung and Zara Zhang interview Jerry Yang, founder and former CEO of Yahoo!, who orchestrated arguably the best deal in tech history. In 2005, he arranged for Yahoo! to invest $1 billion for a 40% stake in fledgling Chinese e-commerce site Alibaba at a post-money valuation of $5 billion. Today, Alibaba is worth almost half a trillion dollars. During the interview, Jerry conducts a post-mortem for Yahoo!’s China strategy, and offers advice for US tech companies looking to expand into China.

Transcript

HANS TUNG: Hi there. Welcome to the 996 podcast, brought to you by GGV Capital and co-produced by the Sinica Podcast. On this show, we interview movers and shakers of China’s tech industry, as well as tech leaders who have a U.S.-China cross-border perspective. My name’s Hans Tung. I am the managing partner at GGV Capital, and have been working at startups and investing in them in both the U.S. and China for the past 20 years.

ZARA ZHANG: My name is Zara Zhang. I’m the investment analyst at GGV Capital and a former journalist. Why is this show called 996? 9-9-6 is the work schedule that many Chinese founders have organically adopted. That is, 9 a.m. to 9 p.m., six days a week.

HANS TUNG: To us, 996 captures the intensity, drive and speed of Chinese Internet companies, many of which are moving faster than even their American counterparts.

ZARA ZHANG: On the show today we have Jerry Yang, the co-founder and former CEO of Yahoo!, and the founding partner of AME Cloud Ventures, which focuses on seed to later stage companies building infrastructure and value chains around data. Jerry was a pioneer in the consumer Internet industry, an icon of Silicon Valley and has been an inspiration to both engineers and entrepreneurs worldwide.

HANS TUNG: Jerry also orchestrated one of the most famous and lucrative deals in tech history, anywhere in the world. In 2005, he arranged for Yahoo! to invest $1 billion in cash, plus the asset of Yahoo! China, in exchange for a 40 percent stake in a small but fast-growing Chinese company by the name of Alibaba, which happened to be a GGV portfolio already back then. The post money valuation of the deal was for $5 billion. The deal was considered by many as being expensive and risky. It was also the largest foreign investment ever made in China’s tech industry.

Today, 12 years later, Alibaba is worth close to $500 billion, or half a trillion, for a return of 100X in 10 years for Yahoo!.

ZARA ZHANG: Jerry remains active on the U.S.-China cross-border technology scene. He’s on the board of Alibaba and Lenovo, speaks frequently at various events and advises U.S. tech companies looking to go to China, as well as Chinese tech companies trying to expand into the U.S.. Welcome to the show, Jerry.

JERRY YANG: Thanks. Thanks for having me, it’s a great way to kick off 2018.

HANS TUNG: Glad to have you here. Thank you for coming. You first met Jack during your first visit to China in 1997. Let’s go back and chat about that context. He was a government official assigned to you to be a translator and take you around the Great Wall. At that time, what was your impression of him? And back then, did you have any inkling at all he was going to do something big over the next few decades?

Back then, you were the king of Internet. Yahoo! was the highest-valued company in the entire world. What struck you about China back then?

JERRY YANG: Well, I was born and raised in Taiwan, as you well know, Hans, and since I came to the U.S. I never went back to Asia very often. So being able to go back to China for the first time in 1997 was a thrill. Meeting Jack then was very interesting, because I was immediately struck by how inquisitive and how curious he was about the Internet, and Internet was not very big in China in 1997.

Jack spoke great English. He had never spent time outside of China, so he learned it in China, which was also very unusual back then. But it was clear that he was an entrepreneur at heart, even from 1997.

Now of course, I had no idea what he would go on to do. He may not have had any idea what he was going to go on to do.

HANS TUNG: Right. I think China had what, like 7 million Internet users back then?

JERRY YANG: It was very, very small and the Internet connections were terrible. And so this was very much an early days kind of a time. So I would say that over time, obviously the country embraced Internet, but at that time it was really kind of early days in the backwaters.

ZARA ZHANG: Did you guys talk about the Internet at all?

HANS TUNG: Yeah, he was very inquisitive. He asked about the web, he asked about the Internet and he asked about all the information part of it. I think he had some experience building directories or things like that for telecommunications.

ZARA ZHANG: Yellow Pages.

JERRY YANG: Yellow Pages, yeah. So he was very knowledgeable about a lot of aspects of what Yahoo! was back then, which was a large directory and a search engine, so we did talk a lot about that and he clearly was not your typical government person.

HANS TUNG: Back then, all throughout Asia, people were trying to figure out what the Internet is, what the Internet meant, and I think at that time the market leaders in Taiwan, China or Hong Kong, Japan were just starting. What was your impression of Asia’s potential for the Internet market at that time?

JERRY YANG: Well in 1997, when I visited China and first met Jack, this was on the heels of the previous year in 1996, I started Yahoo! Japan with SoftBank and Masayoshi Son. So Masa, as he is now, is very much a visionary. He pushes and wants to be 10 and 20 years ahead of where the trend is. He saw the opportunity. He was one of our first investors in Yahoo! in the late stage, right before we went public.

But also, his condition was to start Yahoo! in Japan, and I think we were in no position back then. We were a young company. I think we had less than 50 people and we were too busy in the U.S. But he was so persistent and forceful as Masa is still today, that we agreed to launch Yahoo! Japan in probably some sort of a record time. He supplied all the labor. He put some of his best executives, he even put his younger brother, Taizo, as one of our lead surfers.

So we had launched Yahoo! Japan the previous year, and it was difficult to get it launched but then we saw the early successes of having been first to market there.

So to your question, I think there is this very palpable energy around Asia, not only in Japan but in Korea. Korea was really just beginning to take off, and then obviously China wasn’t far behind.

HANS TUNG: Since Yahoo! Japan worked out so well over time, were you thinking about doing something similar, even as earlier as than, for other parts of Asia?

JERRY YANG: Yeah, we tried to do the same model elsewhere. We tried to do Yahoo! Korea. It did not work out as well, and I think there were some very strong incumbent competitors in Korea that has turned out to be huge.

HANS TUNG: Right, like Daum.

JERRY YANG: Daum and Naver, they had those guys. And in China, we knew we had to plant a flag early and try to get some things going, but also ultimately we needed partners to survive in China given not only the market, which is usually the driving factor, but in China you also have the government and the regulatory side of it that made it very unique.

ZARA ZHANG: And as you know, it’s not easy for a U.S. tech company to operate in China. What do you think are some of the most common challenges faced by U.S. companies when they try to go to China?

JERRY YANG: Well, I think number one is really understanding what is the goal and how do you define success? Part of the early days of the Internet in China, you know the late 90s and early 2000s, the challenges were really that the regulatory side was also just growing up. So they were trying to figure out how to regulate the Internet industry; at the same time, all these companies were coming up.

So some companies were less regulated than others. I think now there is a more or less a more clear roadmap for companies that want to be in China. And I think as the last 20 years have shown, the government has been open in some ways and closed in other ways about letting companies in, and I think part of it is having partners or having investors maybe like GGV, yourselves, who understand the highs and lows, or the rise and fall of different sensibilities within the Chinese culture and the Chinese government.

ZARA ZHANG: On the topic of local partners, how do you pick a local partner that fits your company culture? How do you make sure that they are actually empowered?

JERRY YANG: Yeah, that’s a really good question, Zara. I think we were very lucky in Japan to have SoftBank as our local partner who put all their weight behind us. Japan is notoriously difficult as a market, and for us to have had Masa’s support and backing was really critical.

But it was also one where he had the majority of equity in Yahoo! Japan, so it was a case where he had more of the stake of the company,in order for us to be successful there.

In other places, I think it just depends. If you can find a great local team and local manager. A lot of times that is the key ingredient, whether you find a partner or not. And it depends on the kind of company, because if it’s a large-ish company and there isn’t so much local innovation or product localization that’s required, that is one formula.

We’ve seen a lot of U.S. companies that basically use the market as more of a sales and marketing market; whereas a lot of our companies today, especially our venture companies and portfolio companies, do require not only product rollout but also some indigenous localization or innovation that needs to happen. And there, you need more talented executive teams than just your standard sales and marketing executives.

So it really kind of depends on it, but ultimately it comes down to running the business. You know, people get stuck on finding equity partners or government partners or capital. But ultimately, it’s who’s running the business day to day, on the ground, and growing the marketplace. Our successful examples tend to be people who are great getting the product out into the market, that fits the Chinese market. I think that’s that’s the secret sauce that’s hard to come by and it helps to have other backing and other capital partners, but usually it’s much more about the people on the ground.

HANS TUNG: You had a few attempts at this in China.

JERRY YANG: Yes.

HANS TUNG: Obviously, the most recent one, the final one, worked extremely well. It was the best thing, one could argue, that Yahoo! ever did after the initial inception. But before that, for example, you worked with Zhou Hongyi of 3721. Extremely controversial figure, who now runs Qihoo 360. How did you decide to pick him in the first place over someone like a Robin Li or anyone else in China? Was insisting on having 100 percent ownership via acquisition the right strategy? Or, what you did the second time with Jack, a partial but material stake — would that be a better strategy for a U.S. company looking at expanding to China in the Internet space?

JERRY YANG: Well we realized that in China,we needed a local operating person. As I said, being in China, running a product without a local executive team was very, very difficult. And this was still before the regulatory side was clear about what Yahoo! is allowed to do and what it is not allowed to do. So we did acquire 3721 and really used acquisition to buy the management team which is Zhou Hongyi and his team.

Hongyi is, as you know, he is very scrappy. He’s bold.

HANS TUNG: Doesn’t play by the Western rules.

JERRY YANG: Well, he really just sees himself as a true maverick, and especially, this is almost 20 years ago, he was really a maverick. And so I would say that my experience with him has been challenged from the standpoint of him being a subsidiary within a large U.S. company at the time. But his approach to the Chinese market, his sort of ability to kind of come up with things that really can disrupt the market, to this day he has done that. I actually learned a lot from him.

And you know, our episode in China, the challenge was and is now kind of a seminal moment, if you will, was meeting with the government officials and them in not so uncertain terms saying that Yahoo! really shouldn’t be operating in China. Or even, what was the word they said. That they had this regulation coming up next year that will make what we were doing illegal. And of course, they said regulation. I think it never got passed, but you kind of get the idea that they really suggest that we don’t operate in the media and information business in China.

So that was when we got the hint and we said well, if we’re going to pull out of China, we want to put our efforts with somebody that we think could be a winner.

HANS TUNG: And this was even with the 3721 acquisition already?

JERRY YANG: Yes, this is post-3721,because we owned it 100 percent and the government was not really keen on having a foreign-owned entity that has potential information and media presence, so we knew we had to get out.

HANS TUNG: If you were selling Starbucks coffee, you wouldn’t have this issue.

JERRY YANG: Yeah, and part of a debate was if we’re going to leave China, we should parlay our assets there into something else. And that’s when we went down this investment path. Obviously by that time, we had reconnected with Jack, but also more importantly that e-commerce was not an area that was subject to foreign investment. We felt that if we could translate our holdings in China or our operations in China into a minority investment, the government would be fine with that and obviously in the area of e-commerce, that was fine.

So that’s how we ended up at least sequentially getting there.

HANS TUNG: So the deal was $1 billion in cash plus Yahoo! China for a 40 percent stake in Alibaba.

JERRY YANG: Correct.

HANS TUNG: I think the valuation of Alibaba afterwards, was it $5 billion?

JERRY YANG: $5 billion post, yes.

HANS TUNG: That’s right, it should be $5 billion post.

JERRY YANG: Maybe that was pre, depending on how much you value Yahoo! China, right?

HANS TUNG: So what I remember, I mean this was done in 2005 after the HYSTA Summit in May in Pebble Beach, and when it was announced in, I think it was June or July, it was earth shattering because it was on the heels of Baidu going public, valuation quadrupled post listing to about $5 billion, and you have two $5 billion companies, one public, one private in China. Everyone said these companies had no business being valued that much, there is just not enough revenue to ever justify it. How were you able to make that decision to do this and commit one-third of cash on the Yahoo! balance sheet?

I will argue that without you as the CEO, this deal would never have gotten done.

JERRY YANG: Well, I wasn’t the CEO. Terry Semel was the CEO. Terry was with me in China at that moment when the government told us that we couldn’t be in China anymore, and Terry was extremely positive about China and quite frankly, doesn’t get enough credit for all the things we did there.

In my mind and thinking back about it, it was a very obvious thing to do. I think a lot of people say this about decisions that you feel good about, with right decisions that you don’t really think of all the difficulties.

But I think in retrospect you’re right. It is a huge investment for a company like Yahoo! to use that much of our cash to bet on that kind of valuation on that market.

HANS TUNG: An unproven market, completely unproven.

JERRY YANG: Yeah, but I think there are obviously a couple of guideposts. One is we saw the success in Japan where we were in the auction business and commerce business, and we saw betting on the leader, even though there’s not a lot of tech, there were a lot of marketplace dynamics that were already starting to take effect.

And the second thing which I’ve talked about publicly is that during the time we were running Yahoo! China, whether it’s through our team or with Zhou Hongyi, we tried to establish our e-commerce business using the same playbook that we did in Japan, and we were just getting killed and completely annihilated by Taobao. So we knew how fierce and how smart and how strategic both on the grand level but also on the tactical level Jack and his team were. I think that through that competition, we became very respectful of his capabilities.

So it was kind of in this humbling experience of having competed with Jack that we realized we would rather partner with him than try to compete with him. And I think Jack and Alibaba benefited from that investment as well. That really, like you said, put them on the map as sort of the leading Internet company in China.

It was the right time, clearly.

HANS TUNG: It was clearly win-win.

JERRY YANG: Yeah.

HANS TUNG: Besides Jack and Alibaba, how appealing was working with someone like Robin Li and Baidu, or Pony Ma and Tencent to you back then? You had your choice.

JERRY YANG: Well, I don’t know if we had our choice, but clearly they are great entrepreneurs and they are proving, you know, if you look at Pony and the acquisition of WeChat turned out to be one of the seminal —

HANS TUNG: And Foxmail too. WeChat, come on. That’s a great deal.

JERRY YANG: It’s unbelievable. We could talk about their history and how they’ve made multiple transitions in business models into success. But I would say that the simple answer is that while they were great entrepreneurs, for Yahoo! to be involved in search, which is Baidu or in QQ, which is communications and messaging would have been difficult. I think e-commerce was the obvious, safe place for us to be.

HANS TUNG: From a government views standpoint.

JERRY YANG: Correct.

HANS TUNG: Got it, so that was a factor as well. And you mentioned earlier about getting very clear understanding from China’s government of what you could or could not do in China.

JERRY YANG: Well I didn’t say it was clear. It was clear that we couldn’t do that, but it was never clear that you could do something. So you try and you hope that you’re reading the tea leaves correctly along the way, yeah.

HANS TUNG: So in that context, switching the topic a little bit, do you think that if Travis and Uber decide to do a deal with Didi, which was a GGV portfolio, to sell over China to Didi in exchange for a stake in Didi and have Didi have a stake in Uber in the U.S. as well, do you think that was a similar context 10 years later?

JERRY YANG: I’m an observer on the board for Didi, but I don’t really know the details of that transaction. My guess is that there was some government, certainly agreement for them to. First of all there had to be some sort of government approval for Didi and Kuaidi to merge previously. And then when Didi and Uber resolved their competition in China, the government had to at least let it happen, because they’re essentially the last two players left.

So whether there was significant issues with Uber being a U.S. company in China, you certainly can speculate that if you have massive amounts of data around transportation and routes and people’s moving patterns, that could be construed as something that’s sensitive. But whether that really was a factor or not, who knows. I wasn’t part of those discussions.

HANS TUNG: Travis has shared in certain circles that his understanding from China’s government was a subsidy, in his case, could end up being illegal soon, maybe if that is the best way for Uber to catch up. Uber, obviously they would think twice about what to do.

JERRY YANG: Yeah, welcome to China.

HANS TUNG: On that note, the same thing happened here as well in the U.S., where Alibaba’s most recent interest in acquiring a payment processor in the U.S. was denied. This was even after Jack had already famously met with President Trump and had a great conversation, for President Trump to praise him afterwards. So it seems like there’s just a lot of politics and polarization around U.S.-China business dealings in a way that’s kind of not really aligned with the underlying business economics and interests.

HANS TUNG: Yeah, I think that is one of our, given GGV’s interests and a lot of our investment commonalities is obviously cross-border, and I think the U.S.-China cross-border issues are getting more complex rather than less. And as tech companies become bigger and bigger, if you look Alibaba or Amazon or your FANG stocks and companies, there are enormous complexities now with regards to how these deals are evaluated or proposed deals.

And it’s not even just Internet deals. If you look at all the semiconductor deals in the last couple of years, the regulatory body in the U.S., which is CFIUS, is largely a political body. So I think it becomes much more difficult for sort of these bigger companies to do deals that may touch on other people. So you can imagine it’s not maybe just the government that don’t want certain deals to happen like the one you’re talking about. Maybe there are other companies that don’t want that to happen, and they will lobby.

So I think it’s a politicized issue right now between the two countries. We certainly hope that that environment and atmosphere would change over time, as I think the best outcome is for more free flowing of products and ideas and capabilities and markets. But for now, it seems like we’re entering a more cautious time between the two countries.

HANS TUNG: I know that, for example, from the perspective of Visa and Mastercard, they are extremely wary of Alipay and Tenpay. The China volume of Alipay and Tenpay together is becoming closer and closer to what Visa and Mastercard are doing on a global basis, outside of China. So it’s like you said, it’s not just a political issue but also for other players in the market, people are just weary of the fast expansion that Chinese companies have in general.

And with Chinese tourists being the fastest growing outbound traffic anywhere, and the spending power that you put on top of that, it makes any existing playing in any domestic market in other countries wary of what could happen. So it’s almost as if — and this may not be the perfect analogy — that the Chinese company and the U.S. company are going after different parts of the world. We see this, you probably have seen it as well. U.S. companies do better in Western Europe, Canada, Australia, New Zealand, to some extent Latin America. The executives of Indian descent in American companies have especially shown that they can do well in India.

Whereas the Chinese companies do better in Southeast Asia, including Indonesia, the Muslim countries in the Middle East and North Africa, and to some extent Eastern Europe. It seems like the world is almost dividing in half. And then you look at the Chinese politics of One Belt, One Road expanding into the Middle East, Eastern Europe, different parts of Europe and Africa in general, that the world is becoming more and more into these two camps.

JERRY YANG: Yeah, and it’s not clear whether it is really two camps or not. I think as the U.S. current policy tends to be retrenching from a lot of our even longtime allies, it’s unclear how even the U.S. influence in foreign markets will continue.

But I do think, and Evan Osnos wrote inadvertently,I think he wrote it yesterday or today that the U.S. is helping make China great.

HANS TUNG: Very interesting article on the Twitter and LinkedIn this morning.

JERRY YANG: But I think part of it is, as you said, that the government policy of One Belt, One Road is taking a lot of government resources to build infrastructure, to build ties and development into Southeast Asia, sort of the Indo China and Indonesia, and then sort of westward through the Stans and into Africa. So it won’t be surprising, I think, to see Chinese companies also for the private sector taking advantage of the tailwind that the government is supplying.

ZARA ZHANG: So if you had the chance to do it again, would you have tried operating in China from day one? Or would you have invested in a local company from day one?

JERRY YANG: Those are hard questions because I think with our experience, it was a moment in time. Today, if you were to try to start, you wouldn’t start what we started back then because the rules are more clear, there are more players, the market is more developed. So you know, we would have to find another kind of a greenfield, early stage endeavour to have that question.

But I would say that having spent the time of trying to operate in China, having spent the time through acquisitions and trying to acquire a Chinese company, having spent the time competing with Taobao and Alibaba, it led us to this very, as I said, almost a natural and obvious decision to invest in Alibaba. Which I don’t think we would have done had we gone in there trying to invest as a pure investor, because we didn’t have the skillset of being an investor or trying to find a partner. And believe me, we tried to find partners, but finding a JV partner or something else would have been I think also very complex.

It is almost like the old saying goes, every step we took was for a reason. Now we never imagined, I never imagined that by investing in Alibaba in 2005 we would end up having Alibaba being nearly half-trillion dollar company. But certainly we felt like they were our best chance to be successful in China through their hard work and their perseverance.

ZARA ZHANG: What kind of advice do you give to U.S. companies who seek your advice as they try to go to China? What do you think big companies like Facebook or Airbnb should do as they approach the Chinese market?

JERRY YANG: I tell a lot of our companies to try to go early, not necessarily to set up a very inflexible joint venture or anything like that, but go early to explore the market, get to know people, build relationships, understand the market and understand their product market fit. It really is two different worlds now, I think the Chinese market especially.

Almost in every market, B2B, B2C is I think as different in China as anywhere else from the U.S. So there is no sort of “Hey, we can do what we did in the U.S. and it will work in China.” Probably more the other way around these days. I’m sure we’ll get to that. That’s one thing, is to just understand China early and meet people early.

The second thing is, if there really is an ambition to China, there has to be a plan but also you have to probably go in there before too big. I think there is some wariness by the multiple different factions within China, whether it’s the government or the private sector or whoever to say hey,if you’re a large, large company like Airbnb or Facebook coming to China, there is more worry about them coming in and going against what a government policy is or a government agenda is.

I think Airbnb probably has had more success than say Facebook, but over time I think all these things will play out in the way that it really depends on what the market will accept in China and the government would accept in China. But I think by going somewhat early helps companies not have that big company syndrome being put on them. It’s much tougher on the company, because they’re not big. But I think if they really view China as a core market then they should do that sooner rather than later.

ZARA ZHANG: I guess the lesson is that it’s never too early to factor China into your growth plan, hire people.

JERRY YANG: I think if you ran a company or used to run companies, you think about entering markets in 12, 24, maybe on the outset 36 months and I think in China you just have to think much longer term. It may take you five years to get anywherem it may take you 10 years. We know plenty of companies that have been there for a long time and still have very little market share but they continue to work and try to cultivate relationships.

And so China, I say this to a lot of our companies. China is not a place for transactions. China is really a place for relationships, and if you view it as a transaction to say “Hey, we’re going to start a JV, we’re going to knock this off of our checklist and we’re going to move onto the next country.”.

HANS TUNG: It’s not going to go well.

JERRY YANG: Well, chances are it’s not going to go well. Whereas I think if those people who really sustain, commit capital, China by and large wants the companies to go to their country and do something for them. You know they’re China now. This isn’t 20 years ago. So the China status has also changed.

I think it really takes a different kind of attitude and long-term view.

ZARA ZHANG: It’s not just another market.

JERRY YANG: Right.

HANS TUNG: It seems like any founding team in the U.S., if you don’t have someone who is from China originally, or of Chinese descent, it makes it a lot harder to understand China. We are both in Wish, in Peter Szulczewski, and also having Danny Zhang as a co-founder, who is from China makes it a lot easier for Wish to figure out how to leverage China for its global ambitions.

JERRY YANG: Well yeah, and I think that these are all generations, right. I think right now there are, in your example you are exactly right. Having somebody that understood China and Chinese and can go back there and function there, which is not all the Chinese people can. I can’t go back and function there, but Danny can. I think that’s critical.

But I think over time, as China becomes a market that everybody has to be able to expose themselves to, because right now it is still the U.S. and maybe Western Europe, but pretty soon China is the top one or two markets that you have to be successful at if you’re building a company. That may or may not be exclusively the domain of people who are Chinese, but so far it has been that it really takes a while to really understand China. Being an expat there is not the easiest thing to do in a very, very dynamic competitive environment.

I mean, your show is called 996. That’s a very shocking kind of thing for people who visit from Silicon Valley.

HANS TUNG: 9 a.m. to 9 p.m. six days a week. That is the work schedule in China. If we look at just two sets of data points, look at the valuation of Amazon versus Alibaba. Alibaba is somewhere around 80 percent, 90 percent valuation of Amazon. Alibaba arguably has all of China and parts of Southeast Asia, and Amazon has a worldwide market. They have some presence in China, yet the valuation is very close.

If you look at Didi versus Uber, Didi started four years after Uber did. Didi, you are now an observer on their board. They are primarily a Chinese company with strategic investments elsewhere, outside of China. Uber is all around the world, with minority stake in China. Yet the valuation of the two companies are very similar to each other now.

So the Chinese market has just been, for the right mobile Internet company who has the right product market fit and who do work 9-9-6, can build a company and scale it much faster than anybody else who has the rest of the world. That has never happened before.

What does that mean and how is it going to impact Silicon Valley? I’ve noticed some of the smartest product people in Silicon Valley are increasingly paying attention to what’s happening in China with WeChat, with Alipay and so forth, and that has changed the way they think about building product in the U.S. and for other markets. Is that a growing trend or is that more of an anomaly still? If you had to make a prediction, five, especially 10 years down the road, how would Silicon Valley think about these different things going on?

JERRY YANG: You know, it’s a really good question and I think part of the reality is that the volume of the companies that you talk about, whether it’s Alibaba or Tencent or Didi, the volume they do every day astounds people who don’t spend time there. it is adding another zero, sometimes two zeroes when you talk about —

HANS TUNG: Scaling China.

JERRY YANG: Whether it is Meituan doing deliveries or number of transactions in Alipay and Tenpay, or the number of rides that Didi gives, there is a scale factor that is extremely important, I think, when people are developing products in China. They don’t necessarily need the fanciest technologists, but they’ve got to handle the kind of scale that’s much, much, much higher out of the gate and be stable.

So there is an element of, as those companies grow and as those companies scale, they can take that advantage of stability and scale elsewhere that U.S. companies may have to really do to get the kind of scale elsewhere, especially if they go to China, for example. So that’s one element.

The other element I think is that there is still a lot of more fundamental innovation here in Silicon Valley. It is still the melting pot of the world’s best entrepreneurs. We have entrepreneurs, you and I both probably have entrepreneurs from every country and every ethnicity, and so it’s a very diverse set of entrepreneurs. I think in China it is still relatively monolithic in terms that they are mostly Chinese.

But you’re starting to see innovation that is really for China market sake, really indigenous and really local and you have seen business models develop and you are seeing because of the scale, you’re seeing the density of the population allow certain things to happen in China that won’t happen in the U.S.

We are seeing business model differences, not just technology or product differences but really starting to see business model differences. I think that’s what’s going to happen in five to 10 years, where you’re going to have business models that really are innovative and different in China than the U.S. I am a little closer to Alibaba, but the new retail that Alibaba is advancing is really hard to do here in the U.S. but it really works in China.

So I think you’re just beginning to see China going from you could say the early days of the Internet, being sort of a copycat culture, to more indigenous development for local market and products which has now graduated to more indigenous business models and innovation.

And when you have all those things really working it’s kind of like a flywheel, the business models get big and you are seeing not only Alibaba, Tencent and Baidu being large players in their own ecosystems in terms of investment and M&A, you are seeing their next generation in Didi and Meituan and those people are now very aggressive investors in M&A as well. So they’re really creating their own sort of ecosystem there.

ZARA ZHANG: I think part of the reason things scale so fast in China is due to the leapfrogging effect. So China skipped credit cards into mobile payment, skipped on-premise software into SaaS, skipped landline to mobile. How much do you think the growth can be attributed to this effect, and how can companies continue to scale once this low-hanging fruit is already picked?

JERRY YANG: It’s a great question. I do think leapfrog has been a great benefit to China, but you also have to remember, India could have done the same leapfrogging and by most measures —

HANS TUNG: Most developing countries could all have leapfrogged forward.

JERRY YANG: They could have all done it.

HANS TUNG: So what made China different?

JERRY YANG: I think by most measure, India is far behind China when they could have arguably been about the same starting point in the mid 90s or late 90s, right. So I do think that the leapfrog is something that China as a country, we’re very conscious of trying to take advantage of and probably a lot of it is the government leadership, but a lot of it is I think the entrepreneurial spirit to say, “Hey, we’re going to solve a problem and we’re going to solve a problem with no existing infrastructure.” And whether it’s logistics, which they didn’t have vast logistics network like UPS or FedEx or whatever or like you said landline, versus mobile phones or a number of other ways in which China developed faster than the U.S. I think e-commerce is one of them. For a while, retail and e-commerce coexisted but it’s clear that e-commerce has more benefit without having to go build a bunch of malls and stores.

I think there is a conscious effort for China to do these leapfrogging moves. Now I think over time, as things scale, it is harder and harder to leapfrog. You can’t really leapfrog existing scaled infrastructure, so that may slow down growth at some point, which it has to slow down at some point.

But the question really is, are there are new areas in which they can grow just as fast from the leapfrogging perspective? You mentioned cloud and SaaS. I think there is actually an argument to be made that SaaS in China is still very much the early days. Yes, Ali Cloud is a big player, AWS is just getting started there, but it’s not like here where major, major, major businesses are running on the cloud. There is still a lot of room to grow in digital media in China online. I think that’s an area where there’s still a lot of opportunity.

So my guess is that as areas mature they need to continue to find leapfrogging opportunities. It’s not surprising that a lot of these large Internet companies in China are starting to look outside of China, Indonesia being a key battleground for a lot of companies, but it’s going to happen elsewhere in the world as well.

HANS TUNG: It seems like, a question that Zara just posed, a lot of smart journalists in the west, especially the New York Times where they asked a similar question, thinking that China benefitted because it was behind and leapfrogged, it is easier. Somehow it implies it is easier.

But if you and I look at the quality of entrepreneurs from the portal days to the gaming days to the search, messaging, e-commerce days, now to the mobile Internet days, the quality of engineers is continuing to go up. For one reason or the other, a lot of these smart people may have been educated or worked in the U.S, whether it is due to glass ceiling or other factors, it kind of made it easier for them to — not easier, but it kind of prompted them to try to go back to China and try to make it work there, rather than be here to do it.

And not to try to make this into a China-India comparison, but a lot of Indian executives who may have been entrepreneurs in India end up being successful in the Valley and in Boston, in Seattle, and so forth. So the comparable talent that may have been able to propel India to the next level ends up staying here in the U.S., whereas the same level or quality of talent ends up going back to China and starts this whole new Internet sector. And obviously the government played a part in allowing that to happen and not trying to overregulate it too much.

One thing I also noticed is that for the Chinese entrepreneurs over these four generations, in some sense we are lucky that the Internet was the time that this awakening happened, and the spirit of Internet made it possible to continue to come up with new ways to increase efficiency into an ecosystem.

I mean, who would have thought that 10 years ago the most valuable companies in China would be non-government-owned, i.e. Alibaba and Tencent? In 2005, 2006 it was China Petrochemical, it was China Mobile, it was ICBC Bank. These days, you have the number one and number two most valuable company in China being completely privatized and run by entrepreneurs. That trend could accelerate over the next 10 years. That is something no one would have thought of as possible 10 years ago.

So something about Internet, something that fits Chinese innovative and entrepreneurial spirit that kind of enhance each other to make this great change in China.

The question is, could that be exported to Indonesia and to Middle East, to other countries where One Belt, One Road may play a factor? And somehow, this model can be an interesting developing model for other emerging markets that may not have been able to do that on their own but now could be affected by China.

JERRY YANG: It’s a great question, Hans, and just to go back on something you said, I think there’s another perspective with regards to Chinese entrepreneurs. I think that as the China market has taken off and started rising, quite frankly there were probably more opportunities for them to go back from a career and contribution standpoint than staying here in the U.S.

I don’t know if there is really a glass ceiling, we can get into that, but obviously there’s no glass ceiling for Indian tech executives and a number of other ethnicities. So it may just be that the opportunity in China is much bigger, and you could probably argue that for Indian global executives to go back to India, what are they going to do there?

So it really does speak to the rise of China’s economy and the rise of China’s development to make coming back for a lot of these overseas Chinese to be attractive. Not all of them have been successful, but I think there continues to be a massive need for talent in China, and so there is no question that as you think about,you highlighted a number of great entrepreneurs in China but you need hundreds of thousands of skilled tech workers and programmers and coders and developers and now big data and AI-capable engineers. These are in extreme shortage in China, even though they’re trying to crank them out.

So to me, it’s more of the opportunity back in the market that they have the heritage from rather than anything else. And to that point, the question is, can Chinese companies expand outside of China or help countries, markets that have not been developed outside of China?

I think that’s the next big question and the next big phase for China’s growth. Everybody’s trying to do it a little bit differently. I think governments are getting smarter post-Uber and post all these companies coming in. It is going to be less straightforward, I think, than the past 20 years. You have to deal with local regulations, you are going to deal with local people probably day one, especially if you’re a large company.

And so these become sort of upfront, negotiated, political government deals in many instances. I think it takes a different skillset to manoeuvre (maneuver) in all these different countries who all have different needs.

And, being able to kind of create not only a sustainable market but also develop talent locally, because it’s hard to export a bunch of Chinese managers into a country for a very, very long time. We’ve seen Japan try to do that, it didn’t work in the 80s and 90s.

So it’s got to be a different way. Nobody knows what it is yet, but I think it’s going to it’s going to be the next big challenge for a lot of these companies.

HANS TUNG: You obviously are very much aware of Alibaba’s acquisition in Southeast Asia in exporting Chinese managers to work in Southeast Asia. We also have seen other companies in Hangzhou building up a sizable presence, do a lot of local hires in the Middle East. That’s also in an area of e-commerce, exporting Chinese goods curated more like a Temo (Tmall) model to markets in the Muslim countries, and they are growing extremely fast. You can tell that the consumers in Muslim countries just are not used to getting this influx of goods at such cheap, affordable prices, such good quality at great prices. It’s a great formula for emerging markets worldwide.

It seems like the Chinese companies, even without too much government overtly supporting them, are finding a way to expand into emerging markets.

The whole 9-9-6, if not 12-12-7. So it seems that one could also guess that the local executives in these Muslim countries that work in these Chinese companies eventually may be their own Jerry Yang and Jack Ma in those countries.

So I guess my question is that the U.S., by not letting Chinese in, is missing on getting these datapoints to know what’s going on around the world. And sure, for the short term you prevented a Chinese company from coming into the U.S., but longer term, you’re missing out on what’s potentially possible in not making the necessary changes that you need to compete on a global basis, earlier.

JERRY YANG: Yeah. Well I’m a globalist, so I think any barrier is generally negative and you could argue that the U.S. being more protectionist now than before is missing out on some trends that could be happening elsewhere in the world. I think China has been criticized for the last 20 years for not benefitting —

HANS TUNG: Opening up more.

JERRY YANG: Benefitting from the great things that maybe companies like Google and Facebook are doing. I think it’s easy to point out that these barriers tend to have a negative effect, but also over time I think it remains to be seen how these different markets will develop. Because if markets that China now invest in end up more like China, and it is not just the market dynamics but it’s the way the government thinks about it and the trade and everything else.

So I think the stakes are much higher, and I’ve come back to that theme a couple of times, but I think the stakes are much higher and it is more complex. Whoever wants to win in these markets now have to go in with much more, sort of more commitment than maybe they were able to do 10 years ago.

HANS TUNG: That’s fair.

ZARA ZHANG: So I wonder, out of the Chinese tech giants, which one do you think is best equipped to go global? And this is a question for both Hans and Jerry.

JERRY YANG: Wow, face off, huh?

HANS TUNG: Jerry first.

JERRY YANG: I think my original business was an Internet portal or search or information business, and so I think of information businesses as a little bit easier to move around. I would say Tencent is probably in that camp. They have an unbelievable asset in WeChat and if the capabilities on WeChat is offered in other markets, in its full capacity, I think it would be very, very difficult for other people to compete.

Yes, there is what’s happened obviously in Line, and I think I have them all, but I do think that the power of the network and the power of software is very easy to roll out. Now Alibaba clearly is the other one that has payment as a potential way of entering markets, and their e-commerce once they establish it, is very, very powerful as.

But in terms of being able to move quickly, I would imagine moving a messaging app around is probably a little bit easier.

HANS TUNG: But Tencent so far hasn’t demonstrated the same level of commitment that the Alibaba management team has.

JERRY YANG: That’s a great question. I don’t know. I think they’re happy to let the Chinese diaspora spread the WeChat for now.

HANS TUNG: Got it.

JERRY YANG: What about you? What do you think?

HANS TUNG: I notice that the Alibaba/Tencent generation of entrepreneurs tend to be over 45, some even over 50 years of age, and that’s a generation that grew up still treating the West as being where a lot of innovation happen, and there’s a very healthy dose of respect. The entrepreneurs that we’re seeing that are between 30 and 40 grew up when the Chinese Internet market started to grow fast. They do respect the U.S., but there’s a lot more ambition on their part to show that their way is a better way.

I look at Cheng Wei at Didi or Zhang Yiming at Toutiao or Wang Xing at Meituan, all of them have shown more aggression at globalization. And even the younger entrepreneurs in Hangzhou that are used to doing stuff as cross-border are building companies that are exclusively focusing on China outbound now. And their aggression is even stronger than a Tencent or Ali to do that.

So I think it will be extremely interesting in the next 10 years. I do, like you, think that everything’s becoming a lot more politicized, so Chinese companies are more likely to do well in countries that are politically friendlier to China. And hence, the Muslim countries and African countries and the Southeast Asian countries make a lot more sense. So it will be interesting to see what happens in the next 10 years.

JERRY YANG: Well I like your answer. You are basically saying I’m old and you’re young.

HANS TUNG: No! I have to look at younger entrepreneurs to give me a sense of what is possible for tomorrow.

JERRY YANG: That’s why we’re all doing this, is to stay young, right?

HANS TUNG: Yes, to stay young. We can’t do it by ourselves any more.

ZARA ZHANG: Speaking of young people, I think your story of meeting Jack at an early age confirms the thesis, and I’ve always felt this way, that we should judge people not just by who they are today, but also by who they could become in 10, 20 years. And now you’re an investor. How much of investing do you think is judging people in their future trajectory and how much of it is pure business?

JERRY YANG: Well, it’s really a good question. I think if you’re investing at the stage that we are at AME, it really is early stage, sometimes two founders in a garage just with an idea. And so I would say anything pre-Series A, you know seed or late seed, even some Series A companies, you’re really 80 percent investing in the team. I think where they want to go, the market matters. I think the product idea matters obviously, but it’s very different than later stage investing.

If you are looking at a Series B or growth, then it does matter where you’re spending all that capital to go to market. But before you go to market, it really is about the ideas behind the entrepreneur.

Hans knows this, but some of my most successful portfolio companies have started the company under one premise, and now they’re doing something almost 180 degrees different. I think that you can only explain that by having invested in people who are doggedly persistent in solving problems and following where their gut instinct tells them to go.

ZARA ZHANG: What advice do you have for people who are trying to develop this good judgment of other people?

JERRY YANG: Honestly, the more I’ve done this and we’re coming up on six years here as an investor, the more it feels like it’s luck. It really is. I mean obviously I say that jokingly, but I do think that if you look at our successful entrepreneurs, there are people who are very experienced, there are people who are first time. You look at some of our entrepreneurs who failed multiple times, some are very experienced and we all know, and certainly I believe that’s the case for me personally, that building companies, starting companies, you have to work really hard. You have to prepare all your life to do it. You have to really do it with all commitment and full passion, but luck has a huge part to do with it.

And for me to have started Yahoo! when we did, it was really I think the good timing more than anything else for me to meet Jack. That was one of the first people I met in China, it is blind luck. So I think you have to work hard and you have to prepare yourself, but I think luck is a huge part of making success.

Now if I had an algorithm to pick lucky entrepreneurs, that would be worth selling. Look, you look at cryptocurrency right? I mean four years ago, who would have bet on it? It remains to be seen. So I think it really comes down to, at least in my mind, understanding the rationale of how the entrepreneur thinks, what their motivations are, how they plan to deal with adversity, how they tell their stories.

Sometimes just listening to somebody’s pitch changes your opinion about them. Sometimes you look at the slide and you say oh my God, this is going to be great and then you hear it and you go oh my God, it’s terrible. And the opposite could be true too.

So to me, it’s really a feel game and it’s not about numbers. I don’t know. I would say it’s the hardest form of investing because you just never know. You’re really rolling the dice.

ZARA ZHANG: Another person that you met early on is Masa, Masayoshi Son of SouthBank. What do you think of his Vision Fund and how that’s changing the VC industry?

JERRY YANG: I think Masa, from the first day I met him —

HANS TUNG: Was he different?

JERRY YANG: No, I was going to say, he is the most persistent, tireless, he keeps pushing himself and pushing the people around him. He makes bets. He makes big bets and people remember a lot of his successes. Yahoo! fortunately was one of his early successes, but he’s also had plenty of failures. But he never lets the failures deter him. He just goes back and tries harder.

I think what the Vision Fund has done is allowed him to achieve something that I think he’s always wanted to do, which is rather than being an investor that has some influence but is still a passive influence like most investors are, quite frankly even us. We can pound the table and if the entrepreneur doesn’t want to listen, but in his case because of the checkbook and because of the platform, he has a very clear platform that he wants to build around AI and around IoT and around the emergence of cloud. He feels like he can use that power of the capital to create the next-generation platform companies to modernize.

I think you’re seeing the beginnings of that with Didi and Uber investments.

HANS TUNG: On the transportation, yeah.

JERRY YANG: And he is betting big on AI. He is a big believer in singularity. I think he’s very purposed, and I think he wants to do more than just being a passive investor and see portfolio companies grow up and sell it. He wants to influence them, he wants to drive a certain direction, and it’s a big bold bet. And that’s Masa.

HANS TUNG: Just taking a look at the ride-sharing market, I mean he is an investor in Kuaidi that ends up being merged into Didi. It is number one in China already. He is an investor in Grab, another GGV portfolio, it’s number one in Southeast Asia. He is an investor in Ola, number one in India. And by investing in all these Uber competitors in the biggest markets outside of U.S., he ends up indirectly or directly, you could argue, to drive down the valuation of Uber.

Now he can invest in Uber at much more attractive prices now. And after investment, it may be easier to replicate the Uber China Didi deal in Southeast Asia and India to have the local number one player buy out Uber assets locally, so that Uber can devote more of their resources back home on autonomous driving, for example, or Uber Eats, or other business more profitable and more interesting and more disruptive.

So in some sense, he’s trying to use the resources that he has to rationalize the market to form better keiretsu. He learned from the Alibaba and Yahoo! lessons to do it better now, the third time.

JERRY YANG: Well and as you said, to the extent that people compete and cooperate in different regions on the rideshare as a market, for example, it’s a win-win-win. I mean nobody is subsidizing and losing money and burning cash.

HANS TUNG: Everybody can be more profitable.

JERRY YANG: And then for him, that drives up his investment of asset value. So he’s got a very clear view of how these things can be made to be successful, but he’s still got a lot to prove in terms of being able to really realize some of these things over time.

HANS TUNG: As you say, he will make his share of mistakes, but the ones that prove to be winners like Yahoo!, like Alibaba, is going to make a ton more.

JERRY YANG: That’s the plan.

ZARA ZHANG: Yahoo!’s investment in Alibaba has been called the best investment an American company has ever made in a Chinese company. Which investment do you think has been second best?

JERRY YANG: It’s not an American company, but the Naspers investment, people don’t talk about that, but it is mind boggling.

HANS TUNG: And within what, the $20 million, $30 million evaluation?

JERRY YANG: It’s incredible, and they own 35 percent, 30 percent, whatever it is.

HANS TUNG: Do not sell a single share.

JERRY YANG: There are these stories that I think seem incredible now, but what makes this whole venture business so interesting is that for Jan and Brian to start WhatsApp and have 50 people and sell it to Facebook for $19 billion, it is those kinds of Silicon Valley stories or Beijing stories that makes every entrepreneur want to do this.

But I also think we may be coming into an era where we might see more of those kinds of investments rather than less.

HANS TUNG: The scale is a lot bigger now.

JERRY YANG: The scale is a lot bigger, and there is disproportionate kind of dynamics in the marketplace for the winners versus the losers.

HANS TUNG: For the winners, number one player, yeah.

JERRY YANG: And so I think that’s going to be the big thing, is who’s the next winner in a very big space.

HANS TUNG: Although you argue that today, startups are pawns of big players, whether it is FANG in the U.S. or BAT in China. Do you think that’s the case?

JERRY YANG: Well I think if you look at investors, and you guys are one of them, most investors invest thinking that on the upside they will be the next BAT whatever. But on the downside, they can sell it to one of these guys. You’ve had plenty of companies, we’ve had plenty of companies that always come to this crossroad where, I can go raise a lot more money or I can sell a company, and a lot of companies even if the entrepreneurs may or may not want to sell the company, a lot of investors will take the acquisition route.

So I don’t think it’s so much that startups are pawns, I think the investment community — and by the way, I think the large companies are much more savvy now and the capital is coming not just from the traditional venture capital firms, but also a lot of corporate money and a lot of other money that’s in the mix.

HANS TUNG: Especially with sovereign wealth.

JERRY YANG: Sovereign wealth funds are really starting to play a role, because they have to get the return somewhere, right. So I think it’s more complex than just saying companies are pawns. I think really, the investors are pushing for certain outcomes in most cases.

HANS TUNG: That are reasonably rational.

JERRY YANG: That are rational. And so it is very hard to find companies that want to be completely irrational for a very, very, very long time. Maybe companies like Magic Leap or something can do that. But it is very, very difficult I think for a large number of small startups to be able to maintain and raise cash with their investors if there is an alternative to sell at an attractive valuation.

HANS TUNG: And we would actually argue that in the older days, you remember 10 years ago, most of the Chinese startups run the risk of being cloned by the big boys, because they don’t even bother to buy you or invest in you. They just copy you.

JERRY YANG: We can build it.

HANS TUNG: That’s right. But these days, since the competition amongst themselves is so fierce, you almost have the issue of balance of power, they would rather buy or invest to save themselves time to compete against each other. You could argue it is actually better for startups than ever before.

JERRY YANG: Yeah, and I think we’re seeing a little bit of that in the U.S. where I would say five years ago the big Internet companies in the U.S. were much more acquisitive. Recently I would say they’re much less so. There are still acquisitions here and there, but they are more disciplined, they are a lot less acqui-hires, there is a lot less of the billion-dollar outcomes for a few engineers, kind of thing. I would suspect that China will go through that same phase at some point.

And to me, these are just cycles of things. Startups, in some ways, I think it’s a much more rational world here in Silicon Valley now. You can’t count on getting acquired two years from now. You have to come up with something that is sustainable.

HANS TUNG: Sustainable, not just a flash in the pan, and it’s cool.

JERRY YANG: And Hans, as you said, the big companies here are building everything. I mean Google is building everything from autonomous driving to solving aging, so there’s a wide array of activities that typically may be reserved for the startups 10 years ago, now the big companies are doing it very actively.

So if you’re a startup and you’re getting venture capital, you have to come up with something that the big companies aren’t going to do, and I think that’s also a shift a little bit. You know, you have to solve problems that the big guys either don’t want to solve or don’t have time.

HANS TUNG: Or weren’t going to solve it fast enough.

JERRY YANG: Right, or you have to be far out enough that they won’t get to it. That is a totally different challenge.

ZARA ZHANG: So looking forward, do you think the U.S. and China tech ecosystems will become more integrated or more separated and enclosed? Because I feel like for every app in the U.S., there is an equivalent in China and both ecosystems are very separate. The people are separate and people use different things in different countries.

JERRY YANG: I think today, I can’t even name one, really, an app that you would use in the U.S. to a high frequency that you would go to China and use. Maybe you can come up with one. But I do think that it’s been the two ecosystems and we talked about this.

I think the evolution of the last 15, 20 years from copycat to indigenous product innovation to now indigenous business model and innovation in China, that is really playing out. But I think there are ways in which companies, or the tech ecosystems can be more integrated. Eventually things that run on the cloud here should run on the cloud there and vice versa. Whether it’s sort of the B2B world or enterprise software world, logic says you don’t really need two Salesforce.coms or two Workday.coms, which I am on the board of. There is no real, managing your enterprise probably is the same from a product perspective across borders and cultures.

But I do think from a consumer standpoint, the consumer behaviors and the language and the cultures are different enough that you probably will see a separate ecosystem in some of the basics like mail and messaging and maps and search. They’re already fully developed in China. So I think it’s hard to say those things will revert back to the more common between the two countries.

And to me, it’s no longer just about politics and saying the countries don’t want to work with you. That’s not the case. I just think the market is already developed fully.

ZARA ZHANG: The cultural and language differences.

JERRY YANG: Yeah.

HANS TUNG: The only ones I can think of are more e-commerce companies, whereas Airbnb or Amazon, you can see people —

JERRY YANG: Yeah but Amazon is not a big app.

HANS TUNG: It’s not as big in China as it is here, by a longshot. But beyond e-commerce companies I think this is very hard, and that’s why you picked Alibaba as a partner 10 years ago.

And also, it seems like on the point you made earlier about indigenous product innovations and indigenous business model innovations in China, it just seems that e-commerce and virtual items sales, anything that’s not advertising or is a user-paid business model is becoming such a bigger influence than advertising, which is not the case here. In that companies that know how to do that well, to get the users to want to pay for things are better at emerging markets, in general. Because advertising in general is not as developed in emerging markets.

JERRY YANG: Yeah, you’re absolutely right. You know, advertising has really boosted Google and Facebook here in the U.S. and probably obviously Western Europe, but advertising as a business model is a very small percentage of all these countries, including China, in a lot of these emerging markets.

HANS TUNG: And so people pay for performance and also users pay for satisfaction. It’s hard to imagine 10 years ago that Chinese users would pay for anything. Now they fuel the growth of Ali and Tencent and everybody else.

JERRY YANG: It’s incredible.

HANS TUNG: It’s just incredible.

JERRY YANG: Yeah.

ZARA ZHANG: The last question I wanted to ask is on super apps. So actually just last week WeChat launched their mini games and also made their mini programs more powerful. I feel like WeChat is just becoming closer and closer to an operating system. So for Chinese people it doesn’t really matter if you have iPhone or Android. If you have WeChat, it’s the same.

But we’ve seen over time, and with Yahoo! as well, that vertically integrated, large platforms tend to get attacked by more category-focused players. Do you think super apps like Facebook and WeChat are sustainable?

JERRY YANG: You know, it’s a great question. I think it is the case that if you are smart, that you can continue to leverage the traffic and the eyeballs you have into more and more vertical applications. And so it’s not surprising, I think for example Facebook has always worried that if they didn’t have their own phone or that if Android wants to cut them out, because they’re not an operating system.

But I think if you developed enough critical applications within the same umbrella, and it’s interesting to see them embed some functionality — I am talking about Facebook — it’s interesting for them to embed some functionality within the Facebook app and then they split off Messenger, and they’ve kept Instagram and WhatsApp separate. So it’s a multi-app strategy in Facebook’s case.

In WeChat, I have not seen them go multi-app.

HANS TUNG: It’s all one.

JERRY YANG: They have really put it in one, and we’ve seen dangers of that. I invested in a company where you try to do all things to all people, you run out of UI. I mean, you’re still talking about a small phone, right? So how companies can navigate that kind of growth is really tricky from a product design standpoint, from a user perspective.

It can leverage a lot of machine learning and AI to do that, but ultimately I think it depends on whether they are getting more back from creating these verticals rather than less. If you’re creating a vertical and then you’re getting less traffic back, then something’s wrong.

I know the WeChat team a little bit. I think they are really, really, really smart. But I think Zara, your point is well taken in that that’s going to be one of their challenges. They have to continue to do messaging well, they have to continue to be able to do a lot of these, probably payments, well. But should they get into every little thing there is? Who knows.

That means there’s going to be room for others to either partner or come up with their own. Toutiao is a very interesting case study. I mean, there should be no reason Toutiao —

HANS TUNG: To be able to have so many apps.

JERRY YANG: To have existed at all, and for them to have that is really an opportunity that he saw.

HANS TUNG: Right. When we were coming up with questions for this interview, the super app question was something that fascinated us, because you could argue that Yahoo! was the first-generation super app that did everything. I mean, you did more than Google ever did in the early days of the Internet that was so needed. And then you have a Facebook and WeChat that doesn’t need to do everything themselves anymore, a separate platform that other apps can plug into it, because there are enough other apps around 10, 20 years later.

And so if you look at that model and you look at what someone like Toutiao has done is take an app, a news aggregation, every portal has something like that, and somehow they made it popular enough and frequently used enough to power another assortment of a short-form video app that’s all user-generated content.

So it is going to be interesting to see what are the other ways that you can build something that somehow the big boys are just not going to notice, it it happened right in front of them. It is something they are kind of familiar with, but five years later it is looking completely different than what we expected it would be.

If you don’t know how to do that, then you could be arguing maybe a pawn of the big company; but if you get that right, you can always win.

JERRY YANG: Yeah, it is pick your battles, but also I think there is an underlying user need or demand that they fulfilled. You are absolutely right, Hans, in describing what somebody needs to create, but this sounds like —

HANS TUNG: Mission impossible.

JERRY YANG: It sounds like finding a needle in the haystack and mission impossible, but for those people who end up doing it, they listen to their customers and they learn from their customers. And it still happens every day, and that’s why it’s so fun to do what we’re doing.

HANS TUNG: My last question is around Apple in China, when Apple first went to China with the iPhone, the government doesn’t know what it is. It’s interesting. It’s just yeah, another phone. Phones are all commodities, no problem, you can enter. After 10-plus years, it is no longer just a phone, it’s a computer. It has a lot of sensitive data that any government would want to know more about.

If you had to make a prediction, what does Apple need to do over the next 10 years to continue to do what they do in China?

JERRY YANG: Wow.

HANS TUNG: It is almost an anomaly compared to a Yahoo! or compared to Facebook, where it is going.

JERRY YANG: Apple has always been cited as the most successful American company in China.

HANS TUNG: To date.

JERRY YANG: And that nobody talks about. I think part of it is that they have, as I understand, I don’t know them very well but I understand Tim Cook personally even before he was CEO spent an enormous amount of time in China. So it goes back to sort of what we talked about, building that relationship, understanding the culture, really finding the value add for the country of China and make that value proposition unique enough —

HANS TUNG: That you will be allowed to do what you want.

JERRY YANG: Yeah, right. And I don’t think it is a one-way street. I think there are some checks and balances in China where you can’t just arbitrarily decide Apple goes out. I mean, can you imagine the uproar?

So there is a process. I think Apple has spent a lot of time investing not just money, but also a lot of relationships and a lot of —

HANS TUNG: And added value to the whole ecosystem.

JERRY YANG: Value adds, both manufacturing and otherwise. Look, I think the next 10 years is going to be very different, potentially, given that this is like you said, it’s not just a handset. It is more of a software company, it is more of a data company than ever before. And as China works through their own thinking about cloud and how cloud works in China, I would argue that’s an area where they are still fairly early in thinking through data regulations, regimes. You know, if I were Apple I would spend the time to think through how they can be additive to that process, like they’ve done. And so if they’re smart and do the right things, they will continue to be viewed as a valued player in China. And if they aren’t viewed as that, then they’ll have problems just like everybody else.

HANS TUNG: I think their role in the whole Didi-Uber thing is not as publicized. They could invest in Uber and then invest in Didi, and that made a huge difference in outcome. And also, you see Tim spent a lot of time visiting Chinese startups these days. These are apps that are developed locally in China and doing well on Apple’s app store in China, but many of them have ambition to grow beyond China. And to the extent that Apple could be a facilitator of a Chinese ecosystem exporting that outside of China, it kind of fits what President Xi is trying to do, extending China’s soft power beyond China.

So you can tell Tim is working very hard.

JERRY YANG: I don’t know anything inside Apple, but it certainly looks like they have a plan that they’ve executed for well over a decade.

ZARA ZHANG: So for the last part of the podcast we have a round of quickfire questions. The first one is, who is the entrepreneur that you admire the most and why?

HANS TUNG: Besides you and besides Jack, who else do you admire?

JERRY YANG: Well I think we talked about, I mean the one that I’m really impressed by in China is Cheng Wei and Jean Liu, but their combination at Didi is really incredible, and Cheng Wei to me is one of the most strategic but grounded entrepreneurs I’ve met. And so it’s not a surprise that he’s where he’s at today. And by the way, I think he is 12 by 12 by 7. I mean, there’s never a time that he’s not working. It’s incredible.

HANS TUNG: I have had my share of super entrepreneurs that I have had the fortune of working with. I think Cheng Wei is probably the fastest-growing executive over the last five years, from where he was before to where he is now, it is the biggest leap I’ve ever seen in an entrepreneur. It is just absolutely astounding.

JERRY YANG: And you know, a lot of people say that he doesn’t speak English, but I think he must understand it all, because he is so intuitively strategic, it’s incredible.

ZARA ZHANG: What’s the best and worst decision you’ve ever made? Besides investing in Alibaba.

JERRY YANG: You can’t keep saying that. Obviously investing in Alibaba turned out to be the best decision, but there were probably times people said that was the worst decision.

HANS TUNG: Starting Yahoo!?

JERRY YANG: I would say that a lot of times your toughest decisions are the ones that people will say is your best or worst, and only time will tell which one is which.

HANS TUNG: What motivates you to wake up each morning these days, and what still keeps you up at night?

JERRY YANG: Can I say doing a podcast with Hans? I feel like the energy that I see from a lot of our entrepreneurs where a lot of them are moonshot ideas. That is the business I’m in, to try and invest in things that might change the world. Maybe it’s one in a billion chance, but that gets me up in the morning, to know who I’m going to see and hear their ideas.

A lot of it is also helping them navigate through building the company. But I think their passion and energy is really inspiring and kind of like we said earlier, it keeps us young and keeps us on the forefront of what’s possible. I think as human beings, that’s really life.

Yes, I think making returns is part of the scorecarding, but in my case I feel like benefiting from our entrepreneurs has been a real joy. Now when they run into trouble, that’s what keeps me up at night.

HANS TUNG: That comes with the territory, for sure.

JERRY YANG: Yeah, for sure.

ZARA ZHANG: Thank you so much for joining us, Jerry. It was great to have you.

HANS TUNG: We’ve known each other for several years now, and it has been a very interesting ride together. So I look forward to have more.

JERRY YANG: Absolutely. Well, thanks for having me.

HANS TUNG: Thank you for coming.

Thanks for listening to this episode of 996. By the way, we also produces a weekly email newsletter in English, also called 996, which has a roundup of the week’s most important happenings in China. Subscribers have told us it is informative and fun to read. The newsletter also features original content and analysis from Zara and me. Subscribe at 996.GGVC.com.

ZARA ZHANG: GGV Capital is a multi-stage venture capital firm based in Silicon Valley, Shanghai and Beijing. We have been partnering with leading technology entrepreneurs for the last 17 years from seed to pre-IPO, with $3.8 billion in capital under management across eight funds. GGV invests in globally-minded entrepreneurs in consumer Internet, e-commerce, frontier tech and enterprise. GGV has invested in over 200 companies including Airbnb, Alibaba, Ctrip, Didi, Hellobike, Houzz, Keep, Slack, Square, Toutiao, Wish, Xiaohongshu, YY and others with 29 IPOs and 17 unicorns to date. Find out more at GGVC.com.

HANS TUNG: If you have any feedback on this podcast or would like to recommend a guest, please email us at 996@GGVC.com. This podcast is co-produced by our friend and business partner Kaiser Kuo, the host of the wonderful Sinica podcast. It covers China’s economic, political and cultural issues.