Internet advertising is not afraid of short-termism
At the beginning of 2020, when Jiang Nanchun was asked in public about the poor operating data of Focus Media in the previous year, he explained it as "opening a new expansion period", and then led the topic to "the most important thing is to create value for customers". In 2019, Focus Media, whose main business is offline advertising, saw a sharp drop in operating income of 16.6% and a drop in net profit by nearly 70%.
In fact, this year was a watershed for the domestic advertising industry. Judging from the composition of operating income disclosed in Focus's report for the year, the sharp reduction in marketing expenses from the Internet industry was the biggest load that overwhelmed the company's performance. The year before, Focus Media took 5.6 billion advertising fees from Internet customers, but in 2019, this part of the revenue dropped to less than 2.5 billion.
Braking, steering, and the rapid adjustment of business strategies of domestic Internet companies in response to environmental changes has caused Focus to suffer. After switching from incremental to stock and even shrinking markets, superimposed on the epidemic era that started at the end of the year, the macroeconomic fundamentals have been swaying between pressure and recovery, and Internet companies have begun to emphasize cost reduction and efficiency enhancement.
The reduction in offline advertising is because many Internet companies that rely on online advertising as their pillar business have also affected their own business. All of a sudden, the bad news is overwhelming, is Internet advertising really going to go downhill? This is not necessarily the case.
- BAT: Sacrifice yourself to fulfill others
Judging from the financial report, in the first two quarters of this year, Tencent's advertising business experienced a sharp decline year-on-year, with a ratio of 18%. In fact, apart from the fact that the advertising business recorded a growth of more than 20% in the first half of last year due to the impact of the previous low base, the revenue of Tencent's advertising business has been declining for several consecutive quarters: the growth rate of Q3 last year was higher than that of the first half of the year. It dropped to 5%, and Q4 experienced a negative growth of 13% for the first time in history.
Ali's customer management service, which accounts for the largest proportion of revenue and contributes the most profit, is almost in sync with Tencent's. After the first negative growth in history in Q4 last year, this part of advertising revenue remains in decline this year: Q1 remained unchanged, while Q2 customer management revenue dropped by 10%.
If Baidu's situation is included in the discussion, the situation will become clearer. Baidu's online marketing revenue in Q1 this year fell by 4% year-on-year, and the decline in Q2 further dropped to 10%. Therefore, an intuitive conclusion is that if you follow the habit of looking at the overall situation from the head, the bleak advertising business data of BAT seems to have confirmed the cold winter of Internet advertising.
However, if we intercept the data of the top companies in the Internet advertising industry in more detail, we will find that the above conclusion is not correct. And it is obvious that some important changes are taking place in the Internet advertising industry, that is, its internal structural adjustment.
"New Position" intercepted the advertising business revenue data of several major domestic Internet companies. It can be seen that the advertising revenue BAT in the first half of this year fell by 9.59%, 5.53%, and 18.37% year-on-year, respectively. But the overall revenue of the domestic internet advertising industry is expected to fall by 2.3% in the first half of the year, according to QuestMobile. A comparison of the two shows that the impact of the three advertising performances of BAT is significantly higher than the overall decline in the market.
However, contrary to BAT, companies such as Pinduoduo, JD.com, and Kuaishou achieved double-digit growth in advertising and marketing revenue in the first half of the year. In addition, although Douyin has not disclosed data in this regard, from the data disclosed by the media that "ByteDance's advertising revenue as of August this year was 1830", it is obvious that thanks to the rapid expansion of the platform's e-commerce business, Douyin is in advertising. Revenue growth in marketing will also be considerable.
Therefore, if you give a brief evaluation of the Internet advertising industry in the first half of the year, it is that the head BAT is gloomy, and the tail players are also bleak, but other big companies are still unsatisfactory.
The aggregated data shows that even after offsetting the sharp decline in the advertising revenue of the three BAT companies, the overall revenue of the top eight companies still has an increase of 1.58%. This shows that those leading companies that have actually achieved additional growth have not only grabbed shares from BAT, but also took over the business of other small and medium players.
Considering the market share growth of the Douyin platform, the crowding out effect will be more obvious, and the advertising business of these small and medium players is estimated to be more difficult to maintain. For example, in the most recent quarter, Sohu’s advertising revenue dropped by 32%, Weibo dropped by 23%, and iQiyi dropped by 35%. The advertising revenue of other platforms such as Autohome, Zhihu, Huya and Douyu are also different. percentage decline.
Therefore, we can draw a conclusion that the overall concentration of Internet advertising has an increasing trend in the sluggish industry market, but it has not flowed to BAT.
- Only short videos are the real variable
Then, in the adjustment of the internal structure of the Internet advertising industry, which group is more likely to benefit? At present, it is generally believed that platforms with shorter conversion links and higher conversion efficiency will benefit from it.
The logic of this view is that when economic fundamentals are under pressure, short-term revenue pressure will make brands more "short-term" when considering marketing budgets, that is, they will pay more attention to performance-based advertising. After all, as Keynes said of the economic crisis, "in the long run, we are all dead".
And performance ads are naturally more suitable to be placed on platforms with shorter conversion paths. For example, when it comes to conversion efficiency, no one can compare to e-commerce platforms. From the results, this conclusion has also been confirmed to a certain extent: Pinduoduo and JD.com have occupied the top 3 in the industry together with Ali after the rapid growth of advertising revenue and surpassed Baidu.
However, Alibaba's decline in advertising revenue is the biggest paradox of this view, and the growth in advertising revenue of Pinduoduo and JD.com can also be explained by other logics.
As far as Pinduoduo is concerned, as a trading platform with the same positioning as Taobao, the number of users of Pinduoduo has reached 869 million, but compared with Alibaba JD.com, it has not been profitable. Under the pressure of the secondary market, Pinduoduo's subjective willingness and business strategy adjustment to be eager to realize its own profitability and commercial potential may be the fundamental explanation for its source of growth, rather than achieving such natural growth because of a short conversion path.
As for JD.com, the year-on-year changes in its advertising revenue in the last four quarters were 26.01%, 21.39%, 20.12%, and 8.47%, respectively. This shows that the growth rate of this part of JD.com's revenue is declining, but it is a relatively bright positive growth data compared to other platforms, which may mask the additional negative impact on JD.com's advertising business.
In fact, for JD.com, it is normal for this part of the income to have to grow. For example, after Ali was fined by the General Administration of Markets for "choose one" monopoly, the number of apparel brands in JD.com increased, and these new brands will obviously contribute to a part of the marketing growth. At the same time, whether it is emerging marketing channels such as live streaming, or the small and medium-sized merchant groups introduced by Jingxi to enter the sinking market, they will also increase advertising revenue.
Perhaps whether it is Pinduoduo or JD.com, after excluding the growth achieved by actively adjusting its business strategy, the fundamentals of the company's financial report will not be stronger than Ali. This can also explain a paradox of the conversion path theory. If an e-commerce platform can benefit from a short conversion path, how can Ali, the largest e-commerce platform, experience negative growth?
Therefore, instead of focusing on the conversion path, it is better to return to the essence of Internet advertising traffic: short video is the real variable.
In the end, advertising is still a traffic business. Where the traffic is and where the customer is, the advertiser will follow. While short videos grab user time from other apps, they also grab Party A’s marketing budget. Take Byte as an example, its share in the Internet advertising market has soared from about 14% to 25% in two years, and it is still growing rapidly.
This growth is still under the premise that Byte is also an e-commerce business, and the advertising and e-commerce revenue are separately accounted for. Assuming that the short video platform does not engage in e-commerce, but simply diverts traffic to the e-commerce platform, how much advertising fees will it need to exchange for the trillion-level e-commerce GMV?
Additionally, New Stand noted an interesting detail:
Similar to many other industries, the advertising industry also has the practice of year-end performance redemption. Every year, Q4 is often the time period when the advertising platform gives the highest percentage of rebates to agents. However, this year’s Q1 Byte made an unusual move, maintaining the high rebate ratio of the previous year’s Q4, and raising the overall game difficulty level of the industry.
WeChat video account is also a force that is pressing the top. Tencent has repeatedly emphasized the commercialization potential of video accounts in its previous financial report guidelines. After the first introduction of feed stream native advertising in late July, the boots were officially launched. WeChat has always been cautious in its decision to invade the user experience, so the current advertising density of video accounts is still significantly lower than that of Doukuai. However, in the Q2 financial report released last month, Tencent mentioned that the total user usage time of the video account has reached 80% of the time in the circle of friends. It can be expected that in the future, video account advertisements will continue to increase in volume, and Tencent's advertising revenue will also take the lead in BAT to get rid of the original decline.
Except for short video platforms such as Douyin, Kuaishou, and Video Accounts, almost all APPs are trying to integrate short video content into their own products, hoping to take a share of the internal structure adjustment of the Internet advertising industry and increase protection. disk capacity.
- With the money from advertising, the Internet can continue to pick up
A new order is emerging from the ruins of the old order.
From the banner HotWired sold to AT&T, advertising has become the most revolutionary feature of the Internet business model. Before this, no commercial organization established its long-term profitability on the basis of free main business. The Internet can do this because the marginal cost of copying and disseminating information tends to be free. When something is free, whether it is out of a simple desire to share between people or from the perspective of maximizing utility, you want it to reach an infinite number of users.
Of course, many older cyber gamers might complain that the advent of advertising has changed the Internet, making it hideous and ugly. Because from the time of ARPANET, the Internet has always been free and open source and full of geeky spirit. These early geeks sometimes thought that ads on the Internet were like psoriasis on the door, and it wasn't cool if it was dirty.
However, it was not so much advertising that changed the Internet that it was advertising that saved the Internet. The Internet became the Internet because of the huge ecosystem built by content and tools. Although the content side is mainly completed by ordinary netizens in the form of crowdsourcing, tools and platforms often need to be done by commercial organizations, and commercial organizations need to obtain revenue as their disposable cost for completing network construction.
We need search engines, communication software, social networking sites and video platforms. Without Internet advertising, there would be no such free infrastructure, and the Internet would not be so inclusive and rich. Of course, today's situation is different. Users have become accustomed to these relatively complete and free-to-use network infrastructures and start to worry that Internet companies are making too much money.
This kind of unfriendly atmosphere, combined with the downturn of the external environment in recent years, people began to wonder: how long can Internet companies eat this bowl of online advertising?
A simple formula: online advertising prospects = advertising industry prospects * the proportion of online advertising. For now, both aspects seem promising.
The first is the outlook for the advertising industry as a whole, which may not be a cause for concern at all. Most of the current discussions on the advertising industry refer to the fact that the proportion of the advertising industry in GDP remains basically stable. But in reality, this view is only applicable in the short to medium term.
A more comprehensive understanding of the connection between the advertising industry and the fundamentals of the national economy should be: in the short term, the economic downturn will put additional pressure on the advertising industry, because the bad economic situation will hit the budget and confidence of advertisers; but in the long run, the advertising industry The proportion of GDP will increase with the improvement of the economic level; even when the GDP growth rate tends to stabilize or even decline slowly, the proportion of the advertising industry to GDP will continue to increase.
Because faster economic growth means an incremental market, it will be easier to sell goods under such conditions. However, the GDP growth rate is declining, and the competition is becoming more and more fierce. In the competition for the stock market, the expenses of sales expenses will become larger. The GDP growth rate of the UK and the US, and the trend of advertising spending as a percentage of GDP given by the consulting agency, prove the above point of view.
As for the prospects of the online advertising industry, there is no need to worry too much. First, according to the "2021 China Internet Advertising Data Report", online advertising revenue already accounts for more than half of the total advertising industry. In the future, this proportion will continue to expand, because from the perspective of business logic, online advertising is more efficient. According to Marx, advanced productivity will definitely eliminate backward ones.
The purpose of advertising is that advertisers want to reach as many users as possible at the lowest possible cost. As far as online advertising is concerned, whether users are willing to accept it or not, it cannot be denied that the content pushed by Douyin is faster and more accurate than the flyers on the street. So since Facebook launched news feed ads, advances in big data and algorithms have made personalized advertising systems a standard feature on all Internet platforms.
In fact, after discussing the great prospects of big data for so many years, the advertising recommendation system is the first and largest field of big data technology. In the future, the degree of informatization of life will become higher and higher, and the interaction between people and data will become more common. The efficiency of Internet advertising will continue to improve at the technical level, and the future will naturally be bright.
write at the end
In general, the favor of performance advertising under the "short-termism" thinking will at most only bring about the adjustment of the internal structure of the online advertising industry, and there is no absolute data support for the correlation between the two.
In contrast, the vitality injected by the variable short video into the online advertising industry, and the increase in the proportion of the advertising industry in GDP from the perspective of "long-termism", are more worth looking forward to.