Interview with Joe Tsai: Alibaba, Leadership, and Sports

Interviewer: "Joe, I'm excited to have this conversation with you. I want to start in 1999 - you were making $700,000 a year in a job, and you were offered to join the startup Alibaba where you were actually going to be paid $600 a year. You did this after a mutual friend introduced you to Jack Ma, who your friend said was very smart and kind of crazy. So my question for you is: why did you pick 'kind of crazy'?"

Joe Tsai: "Thanks, Jeffrey. Before I get to your question, I want to say I'm actually very honored to be interviewed by you on this stage. You've been a mentor to me, and the one thing that you taught me is how to treat people - treat all walks of life, no matter who they are, with respect. I've learned a lot from you, so thank you very much. I'm very honored to be here.

About the 'kind of crazy' - this was in 1999 when I showed up in this second-story apartment in Hangzhou to visit with Jack. I had read a little bit about him in The Economist. This was before anybody got famous, but the editor of The Economist, Chris Anderson, identified Jack as the Jeff Bezos of China. We were like, 'Who is...' - very few people knew Jeff Bezos back then, much less the person in China.

When I went to his apartment, before I went in, there were like 10-12 pairs of shoes in front of it. You know, you took off your shoes before you step into people's homes. So I thought maybe there were 10-12 people working in this apartment. I went in, and obviously Jack, being the charismatic individual that he is, I was just mesmerized by him for about an hour.

Then I had to go to the bathroom, so I said, 'Jack, excuse me, let me use the restroom.' He said, 'It's right over there.' I went in and saw that there were something like 12 toothbrushes on the sink, and I realized these people were just living there 24/7. They were in sleeping bags, working away. Something dawned on me that this was the garage equivalent - the HP garage of China.

The thing that really struck me wasn't really the crazy part. I mean, Jack was talking about a big vision that I didn't really quite understand. He said to do a startup, you don't really have a business plan, you just kind of go along - those are all the crazy aspects. But that wasn't the reason I decided to quit my current job to join Alibaba. It was really the idea that he was a leader. He was leading these disciples who really truly believed. He gave them the mission about what technology was going to do, in particular internet technology, what it was going to do to not just the company but also the whole country."

Interviewer: "Did he have a real vision for what this was at that time?"

Joe Tsai: "The vision at the time was to create an internet platform so all the small companies, manufacturers, and trading companies from China doing exports could list themselves on this platform. In fact, we called it the BBS, the bulletin board system, and that was the first website of Alibaba.com. It was in English, in fact, because it was made for non-Chinese people that are sourcing from China to use and buy stuff from China. We were at the cusp of China entering the WTO, so once that happened, Chinese exporters - you know, the export-driven economy came to life, and that was what propelled the early success of Alibaba."

Interviewer: "So talk about a pivot - you're a lawyer, you're a private equity investor, to give all that up to walk away and go into a tech startup is just a huge leap. So why did you think you could do it? What gave you the courage to do it?"

Joe Tsai: "I've always been a curious person and someone who's not satisfied with where I am. I always wonder what happens on the other side of the fence. As a lawyer, I was doing advisory work - lawyers rarely control the decision, they give advice to clients and then the clients make their decisions. So I decided that I wanted to go from being an adviser to someone in a decision-making role, and I joined the private equity firm.

When you're investing, you are committing capital, you have to underwrite the investment thesis, and you're making decisions. But then I realized as an investor, you know, I was sitting on boards of companies, but you're really not involved in the actual business itself. You simply allocated capital to entrepreneurs and management teams for them to do the business. So I became curious about what's on the other side. I wanted to be in an operating company.

The confluence of factors at the time was the rise of the internet. Companies like Yahoo, eBay had come before Alibaba two or three years prior to that - that felt really exciting. So for me, it was an opportunity to get on the other side of the fence to see how a company actually operates, but in an exciting business like the internet."

Interviewer: "How old were you at the time?"

Joe Tsai: "I was 35, I think. Had a family - I'd been married for like three years, and then my wife had our first child, our first daughter was on the way. When she was born, we called her Ali baby."

Interviewer: "That's amazing. A roll of the dice - as we know, 99% of all startups fail. So why and how was this the one? How did this go on to become such a, you know, really one of if not the biggest success in all of China, certainly at the time?"

Joe Tsai: "I think the title of this session is called 'Survival and Innovation,' and in fact, there's a causal relationship - those two actually go hand in hand. From the very early days, we didn't have a lot of capital, so everything was about surviving - surviving with the little amount of cash we had left in the bank. Because Jack taught everybody: as long as you live another day, you have an opportunity to create.

So we had that instinct that we got to survive, which helped us to overcome failures. A lot of startups fail - some of their products iterate several times, they fail, and then they decide to fold the company and do something else. But Alibaba never did that. We kept going at it, and you might say necessity is the mother of invention. So out of the desire to survive and kind of hang on to our last breath came a lot of innovation.

In fact, if you look at the history of Alibaba, we did everything - all of our high-growth businesses were developed organically. We weren't successful with acquisitions, but we were an organic development type of company. We had a B2B marketplace, and then we went into the consumer marketplace - that's Taobao. Then we decided that payment was important to enable transactions to happen online, so we developed Alipay organically.

We developed the monetization engine organically, basically doing a search-based advertising system on an e-commerce marketplace. So you can imagine kind of a way of monetizing the marketplace via sort of search-based advertising like Google interposed on a system like eBay - that was our invention, that was our idea. And today, it is very profitable, that's still the case. We grew our cloud computing business organically. So I think the idea is that as long as you can survive and hang on to your breath for just one more day, something good may happen."

Interviewer: "All right, so you hold your breath and 15 years later, you take Alibaba public - largest IPO ever, raised $25 billion, market cap of the company is over $230 billion. And now 25 years since the founding and now 10 years after the IPO, what's the most exciting thing on the horizon today for Alibaba and for you personally?"

Joe Tsai: "So every day I'm in the company, I feel excited, and that's because I get to work with young people that are smart, that are creative, that are innovative. Alibaba does have this DNA of letting young people, letting our team do a lot of the innovation. It's not a very top-down driven type of company - we like innovation from the bottom up. So today, what's quite exciting to us, obviously, is AI."

Interviewer: "Before you jump into that, one thing is that there's a great quote from you, and you've been popularizing that even more in this last 18 months since you've returned to be chairman of it: 'My job is to get out of people's way.' Most chairmen don't think that way - explain."

Joe Tsai: "You know, I've been with the company for 26 years, so I didn't feel like I needed to prove to anybody that I'm in control or in charge. About 18 months ago - in fact, prior to that, I was for about two or three years slowly phasing out of the business. As one of the founders of the business, I thought the company was already very large and going on its own path.

Then 18 months ago, I came back into the chairmanship because I felt - a lot of people felt, including our board - that we needed to change the management team. We put a fairly young CEO in place, so the CEO of our company is 12 years younger than I am. They said, 'Well, Joe, why don't you come back as chairman, not CEO - chairman,' because we need an old pair of hands, if not steady pair of hands.

So the first thing - I walked into the board meeting, our lawyer said, 'Joe, now you're the executive chairman of the company.' I said, 'Wait a minute, don't give me the title executive. I'm the chairman of the company.' I know I'm a full-time officer of the company, so I'm an executive, but my title should not be executive chairman. I don't agree with the British system where they have an executive chairman and the CEO, and the reason is then who's in charge? Your employees are going to be confused, external parties are going to be confused about who's really in charge running the business.

In our company, I'm very clear - our CEO runs the company, and I provide support to the CEO. When it comes to allocating resources, I get involved in capital allocation decisions, I get involved in HR decisions. If we wanted to create an equity-based incentive plan, he would want to consult with me on stuff like that. It's important that as chairman of the company, you don't get into people's way, and a lot of chairmen can't let go. I don't think that's the right way to develop the next generation of leadership."

Interviewer: "Okay, so let's pivot over to one of the biggest, most important, and core businesses - cloud computing. And sort of differentiated maybe from Amazon is that you have been investing and developing your own AI capability. Give us a state of where you are today. Where are you in Grok 3 and Deep Seek and all these different competing LLMs out there? Where does Alibaba fit in this, and what matters to you? Where do you think the value is?"

Joe Tsai: "Well, I think Elon has already said Grok 3 is going to be the best AI ever for the rest of eternity, so do I need to answer this question now? I actually use Grok because I'm on X, his Twitter app, and they provide an interface to Grok which I use very often. I'm very impressed by the results. I also use a number of other AI apps, including our own.

The answer to your question - you know, this AI race, who's better, which AI is better - the answer yesterday is going to be different from the answer tomorrow. Right now, everybody is in a fairly tight race. The next model that's going to be launched is going to be better than some but not others, and then somebody else will launch something that's better than yours. We think that's what's going to happen.

But what has - you mentioned Deep Seek, and it's quite significant, and that's because they actually demonstrated that you can use some engineering innovation to drastically lower the cost of training and inference of large language models. Up to this point, people are massively investing into these frontier models."

Joe Tsai: "Here's the problem - if you think about training of frontier models as an endeavor to educate your kids, and you want to have the smartest kids, develop them so that they can acquire PhDs, and not just in one subject matter but 15 subject matters, from math to physics to biology to psychology - everything. You want to have the smartest kids. If that's the case, take that into today's AI race - there's maybe only five or six rich parents that can afford to have the smartest kids.

But is that something that we're really interested in? It's probably not. You have to start to ask yourself: what is the purpose, what is the goal of developing AI? Is this to have the smartest child so that they can win every single Nobel Prize, or is it something different? There's a lot of problems in the world that need to be solved. There's a lot of issues where we need to use AI, to apply AI so that it can be useful and productive and make an economic impact.

So I think people are going to start - when they look at the phenomenon of Deep Seek, people are going to start to shift away from 'alright, let's stop putting in hundreds of billions of dollars into compute infrastructure so that we can train the smartest PhD in everything that can win the Nobel Prize.' Let's find out what are the actual problems in the world and let's use AI to solve them. So a lot of people are going to start putting resources into applications. That's number one.

Number two is Deep Seek has taught us the value of open source. You know, if today your only purpose in life is to develop a closed source AI system that is the smartest PhD student in everything, the Nobel prize-winning kid, I personally think the value of that endeavor is approaching zero."

Interviewer: "That's a pretty amazing and pretty bold vision for AI, quite different from sort of what these big five very wealthy parents are pursuing right now."

Joe Tsai: "Because what about the rest of us? If there are only five people that can afford to have the smartest kids, that's not a world that you want to live in. So I think there's ways to develop smart kids as well, not using all this massive compute resources. If people can focus number one on applications, and number two, leveraging on the open source community, leverage on the ecosystem - open source.

The thing about the open source community is people share. Everything that you contribute to the open source is now in the ecosystem that other people can learn from. So I think in the future, probably smaller models will proliferate. I'll give you an example - we're in the e-commerce business, so if I want to develop a very smart shopping assistant to help recommend things to our shoppers, do I really need a large language model that has a trillion parameters? Probably not.

Just like if you hire a shopping assistant in your store, do you need to have them acquire a physics PhD to help you pick out the best dress in the store? Probably not. So I think now with open source, a lot of companies can participate because they can take the open source code and deploy it on their infrastructure, whether it's their own data center or on their laptop computer. Companies from big or small, entrepreneurs can now all develop together, develop AI together and contribute to the power of AI."

Interviewer: "So this is actually a very unique and distinctive point of view about AI and the development and most importantly the deployment. It's a much more democratized point of view about it. And I believe you're going to publish a paper today?"

Joe Tsai: "I'm writing an op-ed today which later on will be published online in the South China Morning Post newspaper. It's the top English language newspaper based in Hong Kong, which will talk a little bit about this. But remember though, I didn't use the word 'inclusive' or 'democratized' because I think these are overused concepts. I just think that with open source, with smaller models, you can open it up and a lot of developers, entrepreneurs, and smaller companies can contribute toward the development of AI. And I think that's a good thing - that's a good thing for innovation. It's not just limited to five or six companies that have - these five or six companies are investing 60 to 80 billion dollars a year in compute infrastructure. It's crazy."

Interviewer: "One of the things I've gotten to know about Joe is that there are two Joe Tsais, much like Clark Kent and Superman. There's the mild-mannered gentleman that you see here on the stage, and then there's this ferocious, ferocious competitor in the field of sports. So let me just quickly go through your lineup here: you own the Brooklyn Nets of the NBA, the New York Liberty of the WNBA, the San Diego Seals and Las Vegas Desert Dogs of the National Lacrosse League, and a stake in the Miami Dolphins of the NFL. And I understand that the roots of your interest in sports actually go back to when you were at an old boy boarding school, and you said at the time, 'I was better than everyone else in math, but I didn't get respect that way. I got respect on the football field.' So maybe you could connect the dots there of these two Joe Tsais?"

Joe Tsai: "Well, you think it's two Joes, but it's really just one guy who started as an athlete in life. I was fairly athletic. When my parents sent me to boarding school in the United States, I was in a new environment, I was a little bit shy, new culture, and you know, it's an all-boys boarding school. So the only way you could get respect from people is if you play sports, and I went after the hardest thing - I played football, not soccer, I played American football in high school.

So unlike a lot of the tech entrepreneurs, I was an athlete first, and then I became sort of a geek because I work in a tech company, spent a lot of time with engineers and scientists. That was kind of the beginning, so my passion for sports has been, has always been there. But the opportunity to buy a professional sports team really came in a serendipitous way. I really had no intention - it wasn't like I grew up dreaming that I would own an NBA team. The opportunity came along in 2017, then I kind of studied the economics of the NBA and the major sports leagues, professional sports leagues, and got very intrigued. And today I'm pretty happy because the value of that investment has gone up quite a bit."

Interviewer: "You said quote, 'Sport teaches not just discipline and hard work but also how to fail. You lose, you must bounce back.' So what are the lessons on the sports field that you apply to the work field, your day job?"

Joe Tsai: "Well, it's the resiliency. Think about it - for those of you who have participated in team sports or individual sports like tennis and golf, you have to face failure pretty much every season. You're not going to win every single game during the season. So when you lose, they say yeah, you bounce back, but those who really have played - how do you bounce back? It's not to think about the next game, it's actually to think about tomorrow's practice. How am I going to improve tomorrow in practice so that I can get a little bit better and prepare for the next opponent?

So it's really incremental, step by step, and focusing on the details. And I think if you apply that principle to work, to business, it's the same thing. You just have to be very, very focused on every single operating aspect if you're running the business. And I've said as the chairman, I don't run the business, but I expect that our management team focus on things like that."

Interviewer: "With the assistance of the Alibaba search, I found a handful of quotes of yours, and they're actually pretty fantastic quotes, and I think very inspiring and very informative. I'm just going to read the quote, and maybe you could talk just a little bit about each one of these in terms of what they mean to you. 'The most important job of a leader is to give people your sight of the future.'"

Joe Tsai: "Well, it's clear because the team needs a direction. I think there's nothing more frustrating than people that work for you who really don't know how you're thinking about the future and don't really have a direction. Did I say that's the most important thing? Yeah, I have something that's even more important - I think as a leader you need to have the ability to work with people and recruit people that are smarter than you are. And I think that's absolutely important because you're not going to last forever, and at some point, the company's progress is going to outgrow your capabilities. So you have to bring in people that are better and smarter so that the company can continue to improve."

Interviewer: "'Humility is very important for a leader. You have to be able to admit mistakes.' Not easy for any leader to do."

Joe Tsai: "Well, if you can't even admit your mistakes, then it's going to be hard to imagine that you're willing to correct your mistakes. Imagine that - I mean, we're in a business where a slight veering away from doing the right thing can take you on a trajectory that's taking you to disaster. I think the good leaders always are willing to self-reflect and say, 'Alright, I was wrong, we need to change course.' And making that determination is hard, it's very, very difficult to tell people that you were wrong, but we have to do it."

Interviewer: "This one actually goes a little bit, maybe ties into some of the things that Elon was talking about. You said, 'A common problem of big companies is they get set in their organizational structure and fit the direction of the company into the structure, and it actually should be the reverse.'"

Joe Tsai: "Yeah, I mean, his whole comment on the government inefficiency - government comes with a huge structure, and structure defines direction. That shouldn't be the case. You always have to define what the direction is, and then you set the company's organizational structure and put the right people in the right place to achieve the purpose."

Interviewer: "You and I have known each other for some time. There is a quote of yours which you've now come to see actually doesn't apply to me: '99% of people need 7 to 8 hours of sleep. If you think you're in the 1%, you're fooling yourself.'"

Joe Tsai: "This is the one thing I really admire about Jeffrey - he sleeps four hours a day or three or something like that. I can't, I have to have seven to eight hours, pretty much within a 24-hour span. Because of jet lag and everything, I travel a lot, I can't sleep through the whole time, but I need to take a nap. But you are unique, and I did say that most people think that they're in that 1%, but they're not. But knowing Jeffrey, knowing him for all these years, he's truly in that 1%."

Interviewer: "So I'm actually very grateful to The Beatles - they wrote a song for me, it's called 'Eight Days a Week.' Thank you all very much."

Joe Tsai: "Thank you."