It was recently announced that Alibaba will invest $200 million in the Los Angeles based start-up, Snapchat. This is a big move for Snapchat, which is valued at $15 billion based on Alibaba’s offer. We currently can only speculate how this will effect the two companies, but it could be very beneficial for both of them. While Snapchat is hugely popular in the United States, it is currently blocked in China. And, while Alibaba is a huge e-commerce company in China, they are having trouble gaining traction in the United States and challenging Amazon’s dominance. By working together, both companies can gain access to new markets and become more profitable.
Alibaba currently has a strong position in the Chinese online retail industry. Since filing their IPO, Alibaba has tried to make an impact in the United States’ online retail market, but have yet to make a dent in Amazon’s market share. One cause of this is, while Alibaba and its affiliates may be household names in China, they are relatively unheard of in the United States. They hope to change this by investing in Snapchat. With Snapchat and their past investments in other mobile companies, it is clear Alibaba is looking to diversify their business. They have seen more users move over to mobile, and it is clear to Alibaba that having a strong position in the mobile space is required to stay competitive against other large e-commerce firms. One such company, Tencent, has made moves into the mobile space with their hugely successful mobile messaging app, WeChat, along with many other investments in mobile game companies and other mobile services (1). Alibaba has seen their competitor’s profit skyrocket in this area, and is working quickly to catch up. Alibaba has seen how popular the mobile messaging app has become and clearly sees the value because this isn’t the first time they have tried to invest in Snapchat. Alibaba hopes to take advantage of Snapchat’s user-base in the United States as WeChat is having trouble gaining a following in western markets. Not only will Alibaba’s interest in Snapchat benefit them, I think this will be a major leap for the adolescent mobile messaging company.
Snapchat has made a big impression in the United States’ mobile messaging space, but they are still trying to figure out how to monetize all of their users. They are currently working on a variety of new features, such as video chat, mobile payments, photo saving, and ‘Discover’. Discover allows users to view original content from a variety of companies. This looks like they are trying to move into a position to start challenging Facebook and Twitter. While all of these new features provide great opportunities for Snapchat, they can not provide the jumping off point that Alibaba can. Snapchat is currently blocked in China, which is the largest mobile market in the world. With their position and influence in the Chinese marketplace, Alibaba has the ability to provide Snapchat with roads into the restrictive space. As of November, WeChat has around 468 million users, most of which are thought to be in China (2). China, as of December 2014, is estimated to have 557 million mobile internet users and over a billion mobile phones in use (1). If Snapchat can gain entry into Eastern markets, it would be a huge step towards becoming a top messaging app around the world. As smart phones continue to be adopted, both Alibaba and Snapchat can be poised to see huge benefits from having a share in this market.