With Facebook and Google Walled Off, China's Digital Ad 'Triopoly' Thrives
June 19 2017 - 5:59AM
Dow Jones News
By Jack Marshall
China is home to some of the world's largest digital-ad players,
mostly because they have a stranglehold on the world's
second-biggest market, where their Western rivals are pretty much
absent.
Baidu Inc., Alibaba Group Holding Ltd. and Tencent Holdings Ltd.
are forecast to attract a healthy 15% of the global market this
year, according to eMarketer, even as their digital ad revenue
comes almost exclusively from within China.
Only the industry's two behemoths, Alphabet Inc.'s Google and
Facebook Inc., do better world-wide: eMarketer expects them to
capture 49% of global digital ad spending this year, despite their
lack of presence in China.
China represents an attractive ad market that foreign companies
can't easily access, largely because of restrictions placed on them
by the Chinese government. Regulators blocked access to Facebook in
2009, and Google all but abandoned its China operations in 2010
over hacking and censorship concerns, although it has since
attempted to slowly work its way back in.
Alibaba, Tencent and Baidu are expected to attract over 62% of
the $50 billion digital ad market in China this year, eMarketer
said, and command a predicted 70% of a $76 billion market by
2019.
Each of the three Chinese ad giants has a different focus.
Alibaba operates the nation's largest e-commerce platforms Tmall
and Taobao, where it collects vast amounts of data and makes most
of its money by charging shops for advertising.
Tencent owns WeChat, the messaging app with more than 900
million users that has evolved to also offer mobile games, mobile
payments and a social-media-style timeline.
Baidu runs the dominant search engine, accounting for nearly 80%
of mobile searches in China in the first quarter.
"These three guys are pretty much dominant in the subsectors
they operate in," said Michael Levine, a global technology and
media investor and analyst.
The Chinese digital ad market is growing rapidly, as
mobile-device usage proliferates and ad formats and data-driven
targeting capabilities continue to evolve. As that market expands,
the dominance of the three is only expected to increase.
"Ad spending in China continues to shift rapidly toward digital
formats, fueled by rising time spent online and greater advertiser
spending on mobile formats," said eMarketer forecasting analyst
Cindy Liu.
While Alibaba and Tencent's presence is projected to quickly
expand in China, Baidu's roughly one-fifth share of the digital ad
market there is expected to erode, with e-commerce ad revenue
growth outpacing search-engine ads.
Still, a lack of significant product overlap and competition
between the three companies has made it difficult for other Chinese
companies to wrestle away market share, Mr. Levine said.
That could also help explain why other Chinese companies and
bankers are choosing to invest in online ad firms outside of China,
including in the U.S.
A group of Chinese investors led by the chairman of tech
conglomerate Miteno Communication Technology Co. last year paid
$900 million to acquire Media.net, a Dubai-based online ad broker
that gets 90% of its revenue from the U.S.
Investment bankers such as Luma Partners' Terry Kawaja have
predicted an influx of Chinese money into the international online
advertising sector over the next few years.
Write to Jack Marshall at Jack.Marshall@wsj.com
(END) Dow Jones Newswires
June 19, 2017 05:44 ET (09:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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