Why Snapchat is Exploding

According to reports in TechCrunch, social media upstart Snapchat is looking to bring in more than $500 million in new investment. To that end, the company has been wooing groups that include Chinese e-commerce giant Alibaba and Saudi investor Prince Alwaleed Bin Talal. The amount they are seeking nearly matches the $648 million the company has already received to date. While the companies in question are not talking to reporters, Bloomberg reported that Alibaba has agreed to invest $200 million in Snapchat.

A couple of interesting notes here. First, Alibaba, as an e-commerce company, has an opportunity to hedge its ‘net interests while also expanding them in what some have called the “uncertain” marketplace of social media. Further, Prince Alwaleed has also invested in Twitter, long described as a competitor – or even a proto version of – Snapchat. Spreading investments across competing brands is nothing new to Alwaleed. His firm also holds interests in AOL, Apple, Motorola and Fox.

All this cross-investing and funding of competing brands might be seen as either bet-hedging or yet more evidence that the ‘net really is the Wild West. The former could certainly be a fair assessment, but the latter is less so.

Yes, the Internet still qualifies as both a technology and financial powder keg, both a realm of almost limitless possibility and an environment with all the loving nurture of outer space. There is certainly plenty of cash to be made, but many fortunes will be shattered along the way. So, what’s the best way for a company to set itself up to look enough like a winner in order to get the funding it needs to become what it aspires to be?

Again, Snapchat provides a solid answer. The platform began with a proven commodity then tweaked it just enough to be seen as completely distinct in the consumer marketplace. That distinction appealed to a wide and enthusiastic demographic, which flocked to the product in droves. When their experience exceeded expectations, they kept coming back for more. Quick success and a rapidly expanding fan base equals investor gold. Add to that a consumer base that either is not aware it IS the product or does not care, and you have a winning combination.