Alibaba Might Not Be What You Think It Is

In September 2014, Alibaba Group Holding Ltd BABA 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. 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 Benzinga. He explained that Amazon and Chinese e-commerce company JD.com Inc(ADR) JD 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 that the company partners with existing logistics companies, uses its massive collection of data to improve the companies’ businesses, and then manages the distribution of the companies’ goods and services nationwide in China.

“The similarity [to Amazon] is that we both are in e-commerce, but Alibaba does more than just e-commerce,” Christie explained. Other segments of Alibaba’s operations are closer to the businesses of companies such as eBay Inc EBAY, Google Inc GOOGGOOGL, Orbitz Worldwide Inc OWW, Twitter Inc TWTR and ING Groep ING.

David Vs. Goliath

In addition to direct comparisons to Amazon, Christie mentioned JD.com as another common Alibaba pairing that falls frustratingly short of appropriate. While the two companies are certainly competing for much of the same Chinese e-commerce market share, Alibaba currently enjoys 85 percent of that share, while JD.com claims only 9 percent.

“It’s not even positioned in a lot of stories as David versus Goliath; it makes it seem like it’s an equal match between two heavyweights,” Christie told Benzinga.

Tough Year For Shareholders

Christie and Alibaba’s global communications team is hoping that a better understanding about the true nature of Alibaba’s business will help Americans realize that the company is much more than an online retailer. Perhaps a better understanding of the company will help stop the bleeding in Alibaba’s slumping share price, which has fallen more than 22 percent year-to-date.