Image source: @VisualChina
Text|Value Planet,Author| Zi Mo, Editor | Tang Fei
ByteDance has made another "new breakthrough".
According to the Financial Times, ByteDance once again achieved rapid growth in 2022. Among them, EBITDA reached nearly $25 billion in 2022, an increase of nearly eighty percent from $14 billion in 2021. This also means that this financial data of ByteDance has surpassed the veteran technology leaders Tencent and Ali in 2022. According to statistics, the EBITDA of these two companies in 2022 is $23.9 billion and $22.5 billion, respectively.
After entering the year 2000, China ushered in the Internet dividend period, Baidu, Alibaba, Tencent and other Internet platforms opened their own glory era, through e-commerce, social networking, etc. to accumulate users and expand their own traffic pool. As one of the important ways to monetize traffic, advertising has always been the most important business of major Internet platforms. For example, in 2005, Baidu relied on search to undertake most of the online marketing business, and advertising and marketing revenue once accounted for 90% of its total revenue.
As the tide recedes, bottlenecks follow. The demographic dividend gradually disappeared, superimposed on the slowdown in macroeconomic growth, and the increase in Internet traffic gradually peaked, just when the giants were still thinking about the way forward, the "rookies" represented by bytes found a new outlet and gradually rose.
In 2012, ByteDance was born, relying on the idea of exploring new communication methods, content innovation and user sinking, and still achieved "overtaking on a curve" with advertising revenue. According to reports, most of ByteDance's revenue growth in 2022 came from its core advertising business, and advertising revenue in 2022 increased 2.5 times from 2021 to about $10 billion.
"Algorithm recommendation has become a killer tool at the beginning", a long-term observer of the development of the Internet industry told Value Planet, the traditional Internet platform starts from the content, mainly relies on the integration and further processing of the content, belongs to the user to actively provide information or information services, but the algorithm recommendation fundamentally subverts this model, has become a user-centered idea, what users like to see, personalized to recommend what, users and content are more sinking. This plays a crucial role in increasing user stickiness.
Byte has not stopped there, the traditional communication method based on graphic information has also ushered in changes, the video and live broadcast content dissemination methods have risen, and short video platforms represented by Douyin and Kuaishou have attracted a large number of Internet users. Video-based communication is a huge benefit to commercialization, and for advertisers, short videos and live streaming are direct and efficient in conversion rate. According to reports, ByteDance's advertising revenue reached 200 billion in 2020, accounting for 77% of the total revenue.
ByteDance's growth momentum is amazing, but from the perspective of volume, compared with global advertising giants Google and Meta, it is still not comparable, and it is more important to pay attention to whether the advertising business can achieve sustained high growth, whether the profit method can be found in another way, and more blossoms may be the key to ByteDance's ability to truly achieve "corner overtaking". Because the current advertising business may face an unprecedented "difficult environment", at least from the cyclical nature of the industry, intensified competition, demand-side changes and other challenges.
The challenge of shrinking advertising markets
The advertising industry has a strong cyclicality, the economy is good, enterprises expand production, will increase advertising efforts; In the economic downturn, companies will cut back on spending, which will sharply cut advertising budgets. After the impact of the epidemic in previous years, the economic situation has experienced unprecedented pressure, the advertising revenue market has shrunk significantly, and there are endless news of advertisers in the market reducing budgets and more cautious investment.
According to the "2022 Internet Advertising Market Semi-annual Report" released by QuestMobile, in the first half of 2022, the size of China's Internet advertising market fell by 2.3% year-on-year to 290.36 billion yuan, and the number of advertising brands fell by 38.3% year-on-year.
Source: QuestMobile
Both BAT and other content-based platforms are under pressure. For example, Mengniu, a major advertising player, reduced its sales and distribution expenses by 4.86% year-on-year in 2022, and Shanghai Jahwa, a beauty company that relies heavily on marketing, also reduced its sales expenses by 13.40% in the first half of 2022. The "2022 China Advertiser Marketing Trend Survey" report released by CCTV Market Research also shows that the proportion of advertisers with rising marketing and promotion expenses in 2022 has decreased significantly compared with the previous year, and the proportion of advertisers with declining expenses has increased.
Even the world's two advertising giants, Meta and Google, are not immune, and the advertising business is exhausted and the pressure is unprecedented.
In the fourth quarter of 2022, Google's revenue was lower than expected, net profit fell again, and advertising revenue fell for the second time since listing. Data show that Google's revenue in the fourth quarter of 2022 was $76.048 billion, up 1% year-on-year, lower than analysts' expectations of $76.53 billion; net profit was $13.624 billion, down 34% year-on-year, and net profit has declined for three consecutive quarters. YouTube advertising revenue was $7.963 billion, down 7.8% year-on-year, also below analysts' expectations.
Meta's life is also difficult. According to the latest financial report, Meta's advertising revenue in 2022 was US$113.64 billion, accounting for 97% of the company's total revenue, down US$1.21 billion from 2021.
It is not difficult to find that the current advertising business is facing the most challenging market environment, and it is not easy for Byte to maintain the continuous rapid growth of the advertising business.
Competitive challenges
The gap between bytes and international giants is still huge.
In 2017, Byte, which was not satisfied with its domestic business, officially went overseas and launched the overseas version of TikTok on Douyin. Since 2018, TikTok has risen strongly in Japan, the United States, India and other places. In October 2022, Tiktok's global daily active users (DAU) exceeded 1 billion. As of March 2023, TikTok reached 150 million monthly active users in the United States, but it is still a huge gap with international giants.
Google data shows that Google Maps has an average of 278.6 million monthly logins, Google Play has 274.6 million logins, Google Search has 332 million logins, Google Shopping has 74.9 million logins, and YouTube has an average of 401.7 million monthly logged-in users. In the second half of 2022, Meta's Facebook app averaged 255 million monthly active users in the EU, and its Instagram average monthly active users were about 250 million.
Of course, there is also a large gap in the corresponding advertising revenue. Byte advertising revenue in 2022 is around $10 billion. Meta's advertising revenue in 2022 was $113.64 billion, and Google's advertising revenue in the fourth quarter of 2022 alone reached $59.04 billion.
Although the gap is still large, TikTok's rapid growth still makes the giants feel "uneasy". In order to combat TikTok, Meta launched the short video app Lasso in November 2018, although it failed, but did not stop there, and then let Instagram take the trick and bring a new service called Reels. Meta has opened Reels to other products. Facebook has also gradually opened Reels to users in more than 150 countries and regions around the world, trying to gradually "cultivate" Reels in the field of short videos to develop and grow to counter TikTok.
Previously, Google also hoped to acquire FireWork, a short video application platform similar to TikTok, to compete with TikTok. In the end, Google decided to "practice" and launch a short video service with YouTube as the position. In 2020, YouTube's short video app "Shorts" was officially launched. Like TikTok, users can upload short videos of their own clips and add licensed music. In April 2022, Google revealed that YouTube Shortcuts received more than 30 billion views per day, four times more than in 2021. In June 2022, Google revealed that YouTube Shorts has exceeded 1.5 billion monthly views.
Back in China, the darkest moment of Internet advertising is beginning to see the light of day.
With the gradual release of the results in 2022, the domestic Internet advertising market has finally ushered in some gratifying changes, and the revenue of many platforms has returned to growth.
Tencent's advertising revenue in the first three quarters of 2022 continued to have negative year-on-year growth, but it reversed its decline in the fourth quarter, with a growth rate of 14.60%. Among the three giants of e-commerce, Pinduoduo's revenue growth rate in the four quarters of 2022 is at the double-digit level, and it is also the only large factory other than Alibaba with annual advertising revenue exceeding 100 billion.
Not only data, but also big manufacturers are more optimistic about their business in 2023. Baidu CEO Robin Li said on the earnings call that Baidu's advertising business revenue has improved greatly, and in the long run, the business growth rate will be higher than China's overall GDP growth rate. Li Ni, vice chairman and COO of Bilibili, also emphasized at the earnings call that the market share of station B advertising business has continued to increase in the past year, and this year is also confident that the growth rate of the entire advertising industry is higher.
From a macro perspective, Internet advertising has also shown some resilience. According to the QuestMobile report, the overall advertising market experienced a decline of 9.4% in 2022, but with the steady recovery of traffic and the increase in users' online time, the Internet advertising market still grew by 1.4%, exceeding 660 billion.
It is not difficult to see that under the gradual recovery of the economy after the epidemic is released, the major domestic technology platforms are ready to develop, and for Byte, the pressure of domestic competition will gradually increase.
The challenge for advertisers to become "demanding"
Today, the consensus in the industry is that the incremental dividend of the Internet has basically peaked. The Internet dividend has receded, and it is necessary to retain customers even more.
In the past, the brand value of the platform was important, and now, this trend is changing. Advertisers are starting to pay more and more attention to performance, hoping that the faster the ad conversion, the better, and the clearer the performance. This is also the reason why performance advertising has developed well in the past two years.
Yang Huaiyuan, general manager of Ali Super Huichuan advertising platform, recently said that for the marketing industry, customers used to need to add new users, but today in addition to expanding new users, they also need more demands such as user retention, activity, and paid conversion, and the overall marketing focus has begun to shift from the front end to the back end. For brand manufacturers, the earliest advertising demand is exposure and click-through rate, and today it has become indicators such as activation, registration, payment, and repurchase, which has become the development trend of the industry. Under the situation of the peak of mobile Internet traffic dividends, the competition in the Internet marketing industry began to turn to the competition for the length of stock.
Zhang Chengliang, PwC China Brand Marketing Consulting Partner, also believes that in the future, brand competition will gradually enter a deeper "brand value driven" stage from "traffic dividend driven".
In general, unlike the previous only traffic trading, the complexity and difficulty of doing Internet advertising are greater, and domestic manufacturers will enter a more competitive and refined deep water area.
Regulatory challenges
Some industry insiders told Value Planet that for Byte, the uncertainty from regulation in the development of TikTok is the biggest challenge.
In recent years, the United States has repeatedly suppressed TikTok on the grounds of "national security", including requiring US agencies to remove TikTok from all government equipment and asking Chinese owners to sell TikTok shares. Recently, there has even been an attempt by a US state to ban TikTok altogether. On April 13, local time, the second reading of the House of Representatives of Montana passed the "ban on TikTok bill". Under Montana law, the bill would then require a third vote and the governor's signature to take effect. According to an analysis by the Associated Press, "Montana is close to becoming the first state to ban TikTok entirely."
In fact, whether it is Internet advertising or offline advertising, its core driving force is user traffic and the accuracy of advertising. When the increment faces a bottleneck, it is important to increase the use of data, through which the precise needs of users can be obtained, and then accurate distribution and service can be achieved.
"Byte is now facing a serious data segmentation problem," the above-mentioned industry insider said, Byte needs to meet the relevant regulatory requirements of foreign countries, especially for the purpose of data privacy protection, TikTok will put forward many restrictions, which will greatly weaken its own control and utilization efficiency of data, and more seriously, it may directly stifle the development of related businesses.
summary
In 2022, ByteDance will "overtake on a curve" with advertising revenue, but the road ahead is still obstructed and long.
Compared with global advertising giants, there is still a gap between ByteDance, and the current advertising business is facing the most challenging market environment, at least from the cyclical nature of the industry, intensified competition, demand-side changes and other challenges.
How to maintain the high growth momentum of advertising revenue, whether the profit method can blossom more, and explore more ways to generate revenue are all must-answer questions left to bytes.
Reference materials:
[1] "Many Platforms Revenue Returns to Growth, But Is the Darkest Moment of Internet Advertising Really Passed?" , deep ringing
[2] "Dividends bottomed out, Internet giants bid farewell to the traffic era", E-commerce News