Understanding Alibabaâ€™s Snapchat Obsession
Adam Rifkin stashed this in Snapchat
Alibaba missed the messaging-app race in China.
Snapchat is back in the news alongside Alibaba, which isÂ investing $200 million as part of a new $500 million funding round.
This is not the first time that these two companies have been linked with a deal. Bloomberg last JulyÂ reported that the two sides had metÂ regarding a potential investment at a $10 billion valuation. Leaked emails from Sony â€” including those of Sony Entertainment CEO and Snapchat board memberÂ Michael Lynton â€” subsequently backed up that story, but no deal was done. Until now.
So why is Alibaba, the company thatÂ dominates online retail in ChinaÂ and heldÂ the largest U.S. IPO in history last year, so interested in an ephemeral messaging app? And what value can it provide forÂ Snapchat?
Thereâ€™s plenty of scope for speculation, but one notableÂ point is that Alibaba missed the messaging-app race in China. Thatâ€™s its single-greatest failure as a business. With money to burn, it is making another small bet (comparative to its wealth) on a messaging app â€” donâ€™t forget thatÂ it invested $215 million in Tango last year.
Why Snapchat appeals to Alibaba:
The introduction of DiscoverÂ has turned it into a media platform â€” and a legitimate one, too â€” with the likes of CNN, MTV and National GeographicÂ providing content. Discover is only months old, but alreadyÂ early indicators suggest that it is generating attentionÂ among its youthful user base in the U.S., an audience that is prized by many, including retailers.
Snapchat previously took money from Tencent, a move that almost certainly helped SnapchatÂ get savvy about messaging.Â CEO Evan SpiegelÂ has been vocalÂ in his admiration for the way that Asian messaging apps make money â€” via digital content, games, commerce, media and more. Those business models are likely to have shaped his thinking for Snapchatâ€™s product roadmap and monetization plans, particularly as Tencent is an investor.
The first building block is already in place for Snapchat commerce: payments.Â The companyÂ launched its SnapcashÂ service last year.Â Many speculated it wouldÂ handle peer-to-peer payments using a Venmo-style model, but thereâ€™s certainly the potential to go way beyond that.
WeChat, Line (Japan) and Kakao Talk (Korea) have all introduced payment services in the last year, but it is WeChat (and Tencent) that has taken things the furthest. Beyond shopping inside custom-built stores inside its app, WeChat can be used to pay for bills and other utilities, and it has integrated Chinaâ€™s top taxi app.
Alibaba has taken a softly-softly approach to the U.S.Â It launched 11Main, an experimental e-commerce site, last year, but hasnâ€™t made a big push yet. Clearly, Snapchat would be an interesting platform for any company looking to sell to Americaâ€™s youth demographic, but it really isnâ€™t clear how that could work for Alibaba.
But Bets Are Betsâ€¦There is plenty of intrigue behind Alibabaâ€™s investment. Beyond building an e-commerce empire, thereâ€™s no clear evidenceÂ that Alibaba can be a hugely valuable strategic investor at this point.Â Maybe itâ€™s early days for the company, which has invested inÂ Quixey, TangoÂ andÂ LyftÂ in the U.S., recently made itsÂ first investment in India, and has opened funds inÂ Hong KongÂ andÂ Taiwan.Alibaba, for all its glory, has yet to really win in a business vertical outside of e-commerce and payments.