Alibaba to overtake Baidu to lead China’s digital advertising market

Alibaba digital ad revenue expected to be US$12.05b in 2016, within a national spend of US$41.66b

PUBLISHED : Wednesday, 21 September, 2016, 5:07pm
UPDATED : Wednesday, 21 September, 2016, 10:39pm

E-commerce juggernaut Alibaba will top China’s digital advertising market in 2016, surpassing current leader Baidu amid tighter internet advertising regulations which will likely put a dent in overall revenues.

Alibaba’s “robust” mobile advertising growth is forecast to boost the company’s digital advertising revenues, according a report from eMarketer, the New York-based research company.

It estimates Alibaba will take a 28.9 per cent share of China’s digital advertising revenue in 2016, compared with 24.8 per cent the previous year, and predicts Albaba’s share of revenue to be US$12.05 billion, within a national spend of US$41.66 billion.

Baidu, the market leader last year with a 28 per cent share, is expected to see its revenue grow 0.3 per cent to US$8.87 billion, giving it a 21.3 per cent of the market.

Baidu’s challenging past few months are blamed partly on the high-profile death of a student suffering from cancer who tried an experimental cancer therapy he found advertised on Baidu. Baidu has come under fire for allegedly selling listings to bidders without adequately checking their claims.

Tighter internet advertising regulations issued that came into effect at the start of September by the Chinese government in a wake of the incident are expected to have an adverse impact on Baidu, said eMarketer analyst Shelleen Shum.

They now require internet advertising to be clearly marked as such, with risk warnings attached to paid results. Search engine advertising should also only take up 30 per cent of the results shown on a page.

“The heightened regulations on internet advertising are expected to weigh heavily on Baidu’s search revenues in the near term as they roll out stricter standards for all advertisers,” said Shum.

Ad spending in China continues to shift rapidly towards digital formats and in particular mobile formats as more time is spent on mobile devices
Shelleen Shum, analyst with eMarketer

While acknowledging companies such as Alibaba are also likely to be affected by the stricter rules, Shum said revenue from its mobile advertising business, however, “shows no sign of ebbing” as mobile usage continues to grow.

Alibaba, which owns the South China Morning Post, has been making a concerted push towards mobile, and last month revealed that earnings from orders placed by mobile has now surpassed those from PCs.

“Ad spending in China continues to shift rapidly towards digital formats and in particular mobile formats as more time is spent on mobile devices,” said Shum, a trend likely to continue in coming years, as more services become available online via mobile apps.

Mobile gaming giant and social networking company Tencent, third behind Alibaba and Baidu in the rankings, is forecast to grab a 12.4 per cent share of digital advertising revenue in China worth US$4.12 billion, after posting a growth of 68 per cent in ad revenue compared to last year.

In its second quarter earnings, Tencent reported a 60 per cent jump in online advertising revenues to 6.5 billion yuan, which it attributed to performance-based advertising on its mobile messaging app. Most of the revenue came from advertising on WeChat Moments’ newsfeeds and WeChat Official Accounts, both popular with businesses.

Collectively, Alibaba, Baidu and Tencent account for over 70 per cent of the digital advertising market, according to eMarketer.