Social media

China’s Tencent taps US for advertising to boost WeChat revenue growth

Tencent is lagging behind rivals Alibaba and Baidu in the domestic digital advertising market, according to eMarketer

PUBLISHED : Tuesday, 03 October, 2017, 3:52pm
UPDATED : Tuesday, 03 October, 2017, 10:41pm

Tencent Holdings, the company behind China’s behemoth WeChat app, is expanding to the US – not to add overseas users but to find advertisers – as it looks beyond the competitive domestic digital advertising market for growth.

The Shenzhen-headquartered tech giant will allow US brands to directly market to Chinese consumers and tourists on its platforms, including the widely popular social media app WeChat and messaging service QQ, opening a new advertising bureau based in the US two weeks ago.

This signals the latest attempt by Tencent, which lags behind Baidu and Alibaba in the domestic digital advertising market, to capitalise on WeChat and move away from its reliance on online games to generate profits.

“For the first time, we are making it possible for US brands to directly reach this audience through sophisticated targeting,” Poshu Yeung, the company’s vice-president of international business, said in a statement.

Speaking at a conference in New York last week, Benny Ho, senior director of Tencent’s international business, said the company aims to attract US firms wanting to build brand awareness and increase sales among consumers in mainland China and those who travel to the US to shop.

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“Globally, Chinese consumers on average spend about US$2,000 for every trip abroad,” Ho said. “However, in the US it is above US$12,000 and roughly half of that is shopping.”

With more than 960 million monthly active users covering 93 per cent of first-tier city residents, WeChat is arguably the most popular social media app in China. It has grown into a mega app, offering functions as diverse as gaming and mobile payments to travel bookings and taxi hailing.

Tencent has seen rapid growth in its ad business in recent quarters, with online advertising revenue surging 55 per cent year on year in the second quarter and 47 per cent in the first quarter.

But it doesn’t make anywhere near as much money from WeChat ads as it does from gaming. Revenue from its value added services, which include online games, stood at 37 billion yuan (US$5.5 billion) in the second quarter of this year, while advertising revenue from social media apps including WeChat was only 6 billion yuan.

In comparison, Facebook’s advertising revenue accounted for 98 per cent of its US$9.3 billion in total revenue for the second quarter.

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Tencent lags behind major mainland Chinese rivals including Baidu, the country’s top search engine, and Alibaba, operator of the world’s largest online shopping platform, in the domestic digital advertising market.

The trio of China’s top tech firms - collectively referred to as BAT – are likely to occupy over 60 per cent of the domestic market this year, according to a June report by eMarketer.

While the advertising market share of Tencent is likely to rise from 10 per cent in 2016 to 12 per cent this year, Alibaba is projected to own 32 per cent of the market this year while Baidu will account for 19 per cent, data from eMarketer shows.

“Ad revenue from Tencent is still quite small compared with Alibaba, Baidu and Toutiao,” said Zhang Yi, chief executive of Guangdong-based consultancy iiMedia Research. Toutiao is a popular news aggregation app backed by Sequoia Capital and CCB International.

One of the biggest disadvantages for WeChat when it comes to selling advertising is the limited space for ads in the app, Zheng said.

Ads can be placed in users’ Moments feed, similar to Facebook’s Timeline, and on official accounts , akin to verified pages on Facebook.

“But you can’t put too many ads in the feed. People don’t go to WeChat for shopping,” Zheng said.

It is also not financially attractive for small to medium sized enterprises to place ads on WeChat, whereas these businesses make up the vast majority of digital marketers on Baidu, Alibaba and Toutiao.

Unlike big brands, smaller firms want immediate return on investment and are more interested in whether people will buy their product after seeing the ads. Alibaba’s online shopping site and Baidu’s search engine are more suitable platforms for them to attract consumers because consumers visit those sites when they want to purchase items, Zheng said.

However, the unique strength of Tencent is the information and data generated from its 960 million users. Kitty Fok, managing director of IDC China, said because people use WeChat for all types of activities, not just shopping, Tencent can better understand and predict their behaviour.

“Alibaba only has data transactions, but WeChat owns a lot more information than that,” she said, adding that the extra data is crucial to advertisers because they can target potential users in a more precise and efficient way.

Alibaba owns the South China Morning Post