In September 2014, Alibaba Group Holding Ltd BABA 0.64% had the biggest IPO in U.S. history at $24 billion. Americans were clearly excited to get a piece of the giant Chinese company.
As of March, Alibaba reportedly had about 350 million active buyers that use its services, more than the entire population of the U.S. However, very few Americans have used or fully understand Alibaba’s services.
The Chinese Amazon?
Since many U.S. investors don’t have first-hand experience with Alibaba, they have consistently drawn comparisons to the largest e-commerce company in the U.S.: Amazon.com, Inc. AMZN 2.89%. Just this week, Entrepeneur.com published an infographic pitting Amazon and Alibaba head-to-head.
Unfortunately, understanding what Alibaba is and what it does is far more complicated than simply declaring it “the Chinese Amazon.”
“We’re a much larger company than Amazon in terms of the services that we provide, and also our business model is different than Amazon,” Alibaba VP of Global Media Robert Christie told me in a recent phone conversation. He explained that Amazon and Chinese e-commerce company JD.com Inc(ADR) JD 0.27% operate mostly on a 1P model, which means that they purchase goods and resell them at a profit.
Alibaba’s Model
Alibaba’s 3P business model means…
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