Chinese Internet advertising began to "reverse fold"?

Image source @ Visual China

Text | Advertising ledger

01 "Reverse folding" appears in the advertising market

The Matthew effect of "the strong are strong, the weak are always weak" seems to be failing in the Internet advertising market.

Looking at the 2021 earnings data of China's major Internet companies, you can easily spot this fact. If the Internet advertising market is a folded world, it folds in a different way — giants are slowing down their growth, while a large number of new stars are advancing rapidly in three steps and two steps.

As the three traditional giants, Alibaba, Tencent and Baidu's advertising business grew by between 7% and 11% year-on-year. Considering the base of comparison is 2020, when the epidemic is raging, and the increase of about 10% is indeed not ideal. In terms of quarters, Alibaba and Tencent declined in the fourth quarter of the year, with Tencent's decline reaching 13%.

If there used to be a significant position gap between Internet advertisers, the whole team will become much tighter in 2021.

If we look at them as a whole, the entire cluster will increase its advertising revenue by 20.7% in 2021 - not long ago, questMobile released data that pointed out that the size of China's Internet advertising market increased by 20.4% last year, and the data basically coincided with each other.

The reasons for the "reverse folding" are complex: on the one hand, macroeconomic challenges and changes in the regulatory environment have put pressure on the advertising market as a whole, which has brought the giants closer to the ceiling earlier; on the other hand, because the rising stars have taken the initiative to "make up lessons" under the pressure of revenue and actively make up for the shortcomings in the efficiency of traffic commercialization in the past, and these efforts have also allowed them to quickly get a return.

02 Giants explore the "second growth curve"

Although the development of first- and second-tier cities tends to be saturated, Alibaba still has a lot of room in the sinking market. In the earnings report, Ali mentioned that "the annual active consumers are mainly increased by Taote, and the proportion of new consumers in less developed areas continues to increase".

By opening up a sinking market, Alibaba is expected to open up more consumers, usage time and GMV – the data shows that Taote now has 280 million annual active consumers, and the payment order volume has increased by more than 100% year-on-year. The advertising revenue of the e-commerce platform is positively correlated with the scale of commodity transactions, and the mining of new markets will help the platform to improve its advertising business in the future.

Unlike Alibaba, the scale of users covered in Tencent's social ecosystem belongs to the real sense of "national level", and the space for new user market mining is limited. In this context, Tencent Advertising relies more on the new model to improve traffic monetization efficiency and enhance the attractiveness of advertising resources, focusing on two keywords: "video number" and "private domain".

In terms of video numbers, the financial report data shows that the per capita usage time and total video playback have more than doubled year-on-year. After a series of successful operational activities (such as the recent restored version of Cheung Kwok Wing Concert and the previous West Side Boys Concert), the video number has made great progress in the occupation of the user's mind. Considering the increasing attractiveness of short videos and live broadcasts to advertisers, the development of video numbers has become a living chess piece for Tencent advertising in the future, and Tencent also clearly pointed out in its financial report that "I believe that video numbers will provide important commercialization opportunities, including short video streaming advertising, live rewards and live e-commerce".

In terms of private domains, tools such as Mini Programs, Public Accounts, and Enterprise WeChat can improve the backlink capabilities of Tencent advertising, such as the direct connection of Circle of Friends ads to Mini Programs, which make the conversion of public and private domain traffic very natural.

Therefore, Tencent's financial report also mentioned that "WeChat Mini Programs help independent merchants prosper in their private domains, and the total amount of merchants' self-operated physical goods transactions will double year-on-year in 2021". As more advertisers begin to actively try private domains in Tencent's advertising domain, more than one-third of the advertising revenue of the circle of friends currently comes from "ads with Mini Programs as the landing page and advertisements that connect users and customer service representatives through enterprise WeChat".

03 Rising stars are actively unleashing their commercialization capabilities

It is worth noting that although all of them have achieved higher growth rates in advertising business, the traffic monetization strategies of the three companies are also different:

The advertising revenue statistics of zhihu financial report are relatively special, and are divided into two parts: "advertising" and "commercial content solutions". Among them, "advertising" is more hard and wide, while "commercial content solutions" are more inclined to soft and wide with stronger implantability and relatively less interference. Looking at the data changes in these two segments, it can be seen that almost all of the growth in advertising revenue was contributed by "commercial content solutions", which increased by more than 600% year-on-year last year. High-quality user-generated content and problem-based precision circles make Zhihu's "commercial content solutions" attractive to advertisers, but the relationship between business monetization and platform credibility may become a trade-off issue this year.

04 Four hidden dangers in the development of advertising business

According to QuestMobile's forecast, China's Internet advertising market may slow down this year and next year, and the year-on-year growth rate will gradually slow down to about 10%.

If you focus on specific companies, you will find that platforms such as iQiyi, Autohome, Sohu and Douyu have already felt the cold winter in advance, such as Douyu, which has a rare situation in which advertising revenue has declined in four quarters. If you look at the challenges facing the development of the advertising business of Internet companies, we can find four major hidden dangers:

First, the hidden danger of user attention loss. When some users' attention began to shift from long videos to short videos, the dilemma of weak advertising growth on long video platforms began to become prominent; when users no longer relied on portals to consume news and information, Sohu's advertising revenue also experienced an 8% year-on-year decline. In Tencent, the "media advertising revenue" covering Tencent Video, Tencent News and other platforms also fell by 7%. Advertising is built on the attention economy, so the direction of advertiser budget allocation is often driven by the flow of attention from users.

Second, the hidden danger of the loss of advertisers' investment funds. Last year, autohome advertising revenue fell 42% year-on-year, largely due to the relative sluggishness of the auto market, which mentioned in its earnings report that "the decline in advertising revenue is mainly due to the decline in the average revenue of advertisers in the automotive industry"; in addition to the automotive industry, platforms that rely on online education, games or financial advertisers also faced greater pressure last year. Conversely, Weibo's advertising revenue rose by 33% last year, partly due to the relatively stable industries on which beauty and consumption rely, and it mentioned in its earnings report that "in the face of macro and regulatory headwinds, the advertising needs of customers in key industries are relatively elastic".

Fourth, the hidden dangers of regulatory policy impact. The obvious tightening of regulatory policies has also impacted the foundation of the development of Internet advertising, such as the supervision of open-screen advertising is the focus of the work of ministries and commissions such as the Ministry of Industry and Information Technology last year, which requires enterprises to set a clear and clear "skip" button on open-screen advertising, which will naturally bring about a decline in advertising revenue, Tencent mentioned in the financial report "the online advertising industry's own regulatory measures" brought about by various impacts. In addition, privacy policy changes such as the "Personal Insurance Law" and Apple's ATT framework have also reduced the accuracy of advertising delivery, thus affecting the growth of platform advertising revenue; this year's centralized rectification of live broadcasting by the regulatory authorities is expected to impact the traffic monetization efficiency of Internet companies.

05 Where will Internet advertising go in 2022?

From a quarterly perspective, China's Internet advertising market as a whole has experienced gratifying changes in the first half of the year and slowed down in the second half of the year.

From the beginning of the year to the end of the year, the year-on-year growth rates in the four quarters were 48%, 28%, 15% and 6%, respectively, and the downward momentum was obvious. Judging from the information available in various parts of the industry, the inertia of this round of decline will continue at least in the first half of this year, and Tencent's estimated business repair time point in the financial report is "late 2022".

In the past few years, the Internet advertising industry has ridden the east wind of rapid economic development, relying on "data", "technology" and "precision"; but now, the "honeymoon period" has passed, and more severe tests are in front of us, such as when user behavior data is becoming more and more difficult to obtain, the technology represented by algorithms is strictly controlled by policies and regulations, and consumers' fear of precision is not alleviated, Internet advertising needs to start thinking about how to expand its own space in the wave of privacy protection.

Fortunately, we can see the traces of positive adjustments in the industry, such as the exploration of models that do not rely heavily on behavioral data such as "search advertising" and "contextual advertising", privacy computing and data security have gradually become the mainstream topics in the industry, and Internet companies have a clearer understanding of the term "compliance" than ever before.

"Winter is coming, will spring be far away?"

The slowdown may be frustrating, but it also gives the industry a chance to slow down and rethink where it's going. And surprises are always inseparable from the "big break".