Is China’s Internet advertising starting to “reverse fold”?

2022-05-29 0 By

Photo @ visual Chinese article | advertising hand zhang 01 market “reverse fold” “the stronger the strong, the weak weak constant” Matthew effect, seems to be the Internet advertising market failure.This fact can easily be seen by examining the 2021 financial results of China’s major Internet companies.If the Internet advertising market is a world that folds up, it does so in a different way — with the giants slowing their growth and a host of new stars advancing rapidly in three steps at a time.Alibaba, Tencent and Baidu, the three traditional giants, saw their advertising business grow between 7% and 11% year on year.Considering the comparison base of 2020, when the epidemic was raging, an increase of around 10% is indeed not ideal.On a quarterly basis, Alibaba and Tencent fell in the fourth quarter of the year, with Tencent falling 13%.If the scale of advertising revenue in 2020 is sorted, it can be found that there is still a large gap between the First Group composed of Alibaba, Tencent and Baidu and other companies. For example, the gap between Baidu and JD.com is nearly 20 billion yuan.But in the report card for 2021, the gap between Pinduoduo, JD and Baidu has narrowed to less than 10 billion yuan.At the same time, the second echelon represented by Kuaishou began to accelerate commercialization.Within one year, Kuaishou’s advertising revenue jumped from 21.855 billion yuan to 42.665 billion yuan, achieving a high growth rate of 95% under the condition of a good base;Other members of the “10 billion club”, such as Meituan and Xiaomi, also saw growth ranging from 40 to 55 percent in 2021.If there used to be a clear pecking order among Internet advertisers, the ranks will become much tighter in 2021.We focused on 16 Internet companies with more than $100 million in AD revenue per quarter for a detailed analysis. If you take them as a group, the entire cluster will grow by 20.7% in 2021 — not long ago, QuestMobile released data showing that the size of China’s Internet advertising market grew by 20.4% last year.The data pretty much match up.At an average of 20 percent, the titans and the rising stars are experiencing a double whammy.In addition to growth rates, the new stars generally outperformed the giants in terms of growth in absolute terms — Tencent and Baidu made 6.4 billion and 7.8 billion more in advertising revenue than the previous year, while Pinduoduo, JD.com and Kuaishou added 24.6 billion, 18.6 billion and 20.8 billion, respectively.The reasons for “reverse folding” are complex: macroeconomic challenges and changes in the regulatory environment have put pressure on the overall advertising market, which has pushed the giants closer to the ceiling earlier;On the other hand, new stars take the initiative to “make up lessons” under the pressure of revenue, and actively make up for their shortcomings in the efficiency of commercial flow realization. These efforts also allow them to get quick returns.02 Titans explore second Growth Curve After growth slowed significantly, the titans are exploring the second growth curve.Alibaba’s strategy is to find new markets, while Tencent and Baidu are banking on new models.For Alibaba, the importance of the sunken market has grown dramatically.Its annual active consumers have reached 1.28 billion globally, with 979 million from the Chinese mainland, according to financial data released by the company.For most companies, approaching a billion active users is out of reach;But there is still incremental market to be found for giants like Alibaba that anchor a nationwide market — wechat has 1.268 billion monthly active accounts, compared with 979 million annual active consumers.Although it is saturated in first – and second-tier cities, Alibaba still has plenty of room in the sinking market.In its earnings statement, Alibaba noted that “annual active consumer growth was mainly driven by Taote, and the proportion of new consumers in less developed regions continued to increase.”In discussing the 1% drop in fourth-quarter customer management revenue, Alibaba cited two factors: weak market conditions and increased competition in China’s e-commerce market.The former is hard to reverse, so Alibaba has to focus on the latter.The so-called “intensified market competition” is nothing more than two points: First, Douyin, Kuaishou and other platforms encroached on the e-commerce market through short videos and live broadcasts;Second, direct competitors such as Pinduoduo are attacking in the sinking market.By tapping into the niche market, Alibaba is expected to tap into more consumers, usage time and GMV — Taobao now has 280 million annual active consumers, with payment orders growing more than 100 percent year on year, according to data.The advertising revenue of e-commerce platforms is positively correlated with the scale of commodity transactions, and the exploration of new markets will contribute to the improvement of the platform’s advertising business in the future.Different from Alibaba, the scale of users covered by Tencent’s social ecosystem belongs to the “nationwide level” in a real sense, and the space for new users to be tapped is limited.In this context, Tencent advertising relies more on the new mode to improve the efficiency of traffic realization and enhance the attractiveness of advertising resources, specifically focusing on two keywords: “video number” and “private domain”.In terms of video numbers, earnings data show that per capita usage and total video playback have more than doubled year on year.After a series of successful operations, such as the recent Leslie Cheung concert restoration and the previous Westlife concert, The video account has come a long way in occupying the minds of its users.Considering the increasing appeal of short video and live broadcast to advertisers, the development of video number become Tencent advertising in the future available live chess, Tencent in the financial report also clearly pointed out that “believe video number will provide important commercial opportunities, including short video streaming advertising, live rewards and live e-commerce.”In the private domain, small program, public number, enterprise wechat and other tools can improve the post-link capability of Tencent advertising, such as friends circle advertising directly connected small program mode so that the conversion of public and private domain traffic is very natural.Therefore, Tencent also mentioned in its financial report that “wechat mini program helps independent merchants to thrive in their private domain, and the total volume of physical merchandise transactions by merchants doubled year-on-year in 2021”.As more advertisers began to take the initiative to try private domain play in Tencent advertising domain, currently more than one-third of the advertising revenue of circle of friends comes from “small programs as landing pages of advertising and through the enterprise wechat to connect users and customer service representatives of advertising”.And Baidu’s hosting page is essentially assuming a similar role with small procedures.By hosting various templates and components of page output, advertisers in different industries can establish conversion loops directly within Baidu.Data shows that in Baidu’s advertising revenue, the income contributed by hosting pages has reached more than 40 percent.This means that Baidu is no longer merely a “hub” for consumers, but has the ability to become a “destination” for transaction conversion directly, which will make the platform more attractive to advertisers.In 2021, a total of four companies saw their advertising revenue grow by around 100% or more than 100% year on year: Kuaishou, Bilibili, Zhihu and Huya.Among them, The statistical aperture of Huya is “advertising and other income”, the financial statement clearly indicates that the growth of this part of income is mainly attributed to the copyright content income, and the development of advertising business has little relation.The other three coincidentally share the same characteristic: they all went public or secondary in 2021 — Kuaishou and Zhihu went public in February and March, respectively, while Bilibili completed a secondary listing in Hong Kong at the end of March last year.The logic is not hard to understand. Going public often means companies are under greater pressure to perform.According to financial data, the three companies all have large traffic volumes: in terms of average monthly active users, Kuaishou, Bilibili and Zhihu have 544 million, 272 million and 103 million respectively.In other words, they have been less commercialised in the past and have significantly accelerated the pace at which they can monetise their existing traffic since going public last year.In its earnings statement, Bilibili said the increase in advertising revenue was due to “the brand appeal of the platform being fully recognized in China’s online advertising market.”It is worth noting that, although they have achieved a high growth rate of advertising business, the three companies also have different traffic monetization strategies: Similar to Tencent, Kuaishou mainly tells stories around post-link.Its total e-commerce transaction volume reached 680 billion yuan last year, up 78 percent year on year, and the connection between advertising and sales conversion scenarios can reduce traffic loss and improve advertising effectiveness.The number of Kuaishou advertisers rose 60 percent year on year, and average monthly spending by advertisers on the platform also increased by a double-digit percentage, according to data.In its earnings statement, it described the relationship between e-commerce and advertising as “a natural extension of platform functionality that helps the resilience of the online marketing business and enables closed loop transactions within the ecosystem.”The statistical coverage of zhihu’s advertising revenue is relatively special, which is divided into “advertising” and “commercial content solutions”.Among them, “advertising” is more hard broad-based, while “commercial content solutions” is more inclined to soft broad-based with stronger embedding and less interference.Looking at the changes in the two sections, we can see that the growth of Zhihu’s advertising revenue, which grew more than 600% year-on-year last year, was almost entirely contributed by “commercial content solutions”.High quality user-generated content and an accurate, problem-based layer make Zhihu’s “commercial content solution” attractive to advertisers, but the relationship between commercial realisation and platform credibility may be a trade-off for the company this year.Bilibili’s high growth in advertising revenue is largely due to the platform’s continuous efforts in advertising business development.In the second half of last year, station B began to emphasize the short video Story Mode.Although the attempt of B station to cover short videos is not certain to succeed, it also opens up the imagination space for the future advertising realization of the platform.However, the problem it faces is similar to that of Zhihu, that is, the platform is based on the rise of small groups, and the community atmosphere is more or less resistant to the mainstream business culture. How to guarantee user experience while “eating exactly” has become a thorny problem.The overall Growth of China’s Internet advertising market is likely to slow this year and next, with year-on-year growth slowing to around 10%, according to QuestMobile’s forecast.If the perspective is focused on specific companies, platforms such as IQiyi, Autohome, Sohu and Douyu have already felt the cold winter in advance. Douyu, for example, experienced a rare situation of declining advertising revenue in four quarters.If we examine the challenges faced by the development of Internet companies’ advertising business, we can find four hidden dangers: first, the hidden danger of the loss of users’ attention.When the attention of some users starts to shift from long video to short video, the dilemma of weak growth of advertisement on long video platform becomes prominent.Sohu’s advertising revenue also fell 8% year on year as users stopped relying on the portal to consume news and information.At Tencent, “media advertising revenue”, which covers platforms such as Tencent Video and Tencent News, also fell 7 per cent.Advertising is built on the basis of attention economy, so the direction of advertisers’ budget allocation is often driven by the direction of users’ attention.The 2nd, advertiser puts in the hidden trouble that fund runs off.Last year, Autohome’s advertising revenue fell 42% year on year, largely due to the relative slump in the auto market. It mentioned in the financial report that “the decline in advertising revenue mainly comes from the decline in the average income of auto advertisers”.Beyond the auto industry, platforms that rely on online education, gaming or financial advertisers also came under greater pressure last year.In contrast, weibo’s advertising revenue rose 33 percent last year, partly due to the relative robustness of industries it relies on, such as beauty and consumer products. It noted in its earnings report that “advertising demand from key customers in key industries is relatively resilient in the face of macro and regulatory headwinds.”Third, the hidden danger of missing link capability.The more difficult it is to grow, the more advertisers will become obsessed with growth, and those platforms that lack post-link capabilities will become weaker.Compared with long video and short video, short video platform can load “yellow car” and other purchase link components in the content interface to achieve “WYSIWYG”;Long video platforms, on the other hand, lack post-link capabilities and users have not developed similar buying habits, making them less attractive to businesses looking for growth.Fourth, the hidden danger of regulatory policy impact.Apparently tightened regulatory policies have also hit the foundation of the development of Internet advertising. For example, the regulation of open-screen advertising was a focus of the work of the Ministry of Industry and Information Technology and other ministries last year, which required enterprises to set a clear and clear “skip” button on open-screen advertising, which naturally led to a decline in advertising revenue.Tencent in the financial report mentioned the “network advertising industry itself regulatory measures” to bring a variety of impacts.In addition, privacy policy changes such as “Individual protection Law” and Apple ATT framework also reduce the accuracy of advertising, thus affecting the growth of platform advertising revenue.This year’s regulatory crackdown on live streaming is also expected to hit Internet companies’ traffic realization efficiency.Where will Internet advertising go in 2022?From a quarterly perspective, China’s Internet advertising market as a whole experienced a pleasant change in the first half of the second half of the slowdown.From the beginning of the year to the end of the year, the year-on-year growth rate of the four quarters was 48 percent, 28 percent, 15 percent and 6 percent respectively, showing an obvious downward trend.Information from around the industry suggests that the downward momentum will continue through at least the first half of this year, with Tencent forecasting a “late 2022” recovery point in its earnings report.In terms of the importance of advertising revenue, if the 16 listed companies are taken as a whole, the contribution of advertising to overall revenue fell slightly to 23.08% last year from 24.44% in 2020.In terms of branch companies, the proportion of advertising revenue was basically flat (fluctuated within 1 percentage point) in 6 companies, and decreased in 7 companies;Only Kuaishou, Bilibili and Huya saw the biggest increase, rising from 37 percent in 2020 to 53 percent last year as advertising overtook live streaming to become the most important source of kuaishou’s revenue.In any case, the Internet advertising business will continue to face no small challenge this year under the multiple pressures of macro economy, regulatory policies and intensified competition.The so-called challenges are not limited to slowing growth rate, but also reflected in the readjustment and choice of development model.In the past few years, the Internet advertising industry has taken the wind of rapid economic development, relying on “data”, “technology” and “precision”.But now, “the honeymoon” period has in the past, more sorely tested in the present, such as when the user behavior data is increasingly difficult to obtain, represented by algorithm technology is strictly regulated by policies and regulations, when consumer fear of precision of ease, Internet advertising need to start thinking about how to expand their space in the wave of privacy protection.Fortunately can see traces of industry actively adjust, for example “search advertising” and “contextual advertising” is not strong dependence on the behavior of data model to explore began to appear, privacy computing and data security has gradually become a mainstream industry, Internet companies than ever before to the term “compliance” have a clear understanding.If winter comes, can spring be far behind?The slowdown may be frustrating, but it also gives the industry a chance to slow down and rethink where to go.And surprise, always with “big break big stand” inseparable.