Chinese e-commerce giant Alibaba's decision to invest US$200 million into photo and message sharing app Snapchat goes beyond financial gains.

The foray into social media is part of the company's strategy to grow into a bigger player in the U.S. market for online shopping and content creation.

Like Us on Facebook

Brandon Qurtararo, vice president of Digital Capital Advisors, an investment bank, explains, "As an e-commerce site, you want to have access to places where people live their online lives ... You want to become a place where you go not just to buy a roll of tissue papers and groceries," quotes LA Times.

It is the same reason that's why the company, founded in his garage by former school teacher Jack Ma, also invested in Quixey, a mobile search engine, and Kabam, a mobile game maker. The two are among the 10 past investments of Alibaba Holdings in the U.S. valued at over US$1billion, estimates CB Insights, a tracking company.

The appeal of Snapchat, besides its posts disappearing in a few seconds, is that it offers Instagram's simplicity,"YouTube videos" drawing power and "the feel of a town square with observations on daily life" similar to Twitter.

Just to indicate how Snapchat has caught the attention of other big companies, news provider CNN assigned several employees tasked with exclusively creating and posting content to Snapchat, said CNN Senior Director of Strategy Samantha Barry.

Because of the CNN postings, people are clicking on the news channel to read or watch its content. Barry notes that they stay longer on the opened pages. And to maximize their use, she said that CNN had placed ads in their Snapchat content. The advertising income is shared between CNN and Snapchat.

Analysts advice Snapchat to expand its reach beyond its traditional market of youth if it wants to a longer lifespan like Facebook and YouTube by evolving into a trusted platform for a wider set of advertisers that have ties with an older audience with bigger spending power than teenagers.

As Snapchat considers newer technology, the experts suggest that the company partner with an online shopping platform like Alibaba for Snapchat to transform into a new form of advertising and vending products.

Forbes points out that the US$200 million investment is paltry for both Alibaba and Snapchat given their sizes, but it writes, "Clearly this is a purchase based on potential rather than proven commercial prowess."

It also cited Snapchat's reach of 170 million, just 118 million short of Twitter's 288 million monthly active users. Forbes said it could be financial plays or smart investments in enterprises that Alibaba understands.

Tagssnapchat, Funding