Thomvest Research: Understand the Chinese Mobile Advertising Ecosystem

by Nima Wedlake on December 1, 2016

It’s no secret that the Chinese advertising market – much like the broader Chinese economy – is large and growing rapidly. As investors in advertising technology, we’ve seen many of our portfolio companies rapidly scale their businesses in China over the last several years.

In order to better understand the Chinese advertising market we kicked off a research project earlier this year, which included a trip to China in July. Our goal with this research is to grasp the many nuances of advertising technology in China – what role does programmatic play, who are the key vendors in the space, what challenges do these vendors face, and how do we expect the market to evolve over the next several years? This report is a culmination of those efforts.

The full presentation is available on Slideshare, and below we’ve included some highlights from our research:

Fueled by mobile adoption, the advertising ecosystem in China is flourishing

china-mobile-advertising-spend

There are more than 620 million Chinese consumers with access to internet-connected mobile devices. These consumers have come to rely on mobile devices for commerce, communication & entertainment – Chinese mobile users between ages 16 and 45 spend nearly 40 minutes more per day on their devices than consumers in other countries.

As such, advertising spend on mobile devices has ballooned over the last several years, from $8B USD in 2014 to more than $27B USD in 2016. China is far and away the fastest growing digital advertising market globally, by both impression volume & ad spend.

However, most digital ad spend is being captured by a small set of premium publishers

bat-properties

As Chinese consumers have come to embrace mobile connectivity, we’ve seen the rise of three dominant technology companies – Baidu, Alibaba & Tencent (collectively known as “BAT”). Through both innovation & acquisition, these companies have developed full-stack consumer experiences, including messaging, commerce, gaming, entertainment, and payments. Chinese consumers are constantly using apps owned and operating by either Baidu, Alibaba, or Tencent – 71% of time spent on mobile devices is within a BAT-owned application.

Because these companies capture so much consumer attention, they’ve become advertisers’ primary destination for deploying ad dollars. According to eMarketer, Baidu, Alibaba and Tencent will nearly 73% of China’s mobile internet ad market in 2016.

Cross-border M&A is driving competition & innovation in the advertising sector

cross-border-ma

In spite of BAT’s dominance, the broader advertising ecosystem continues to thrive, evidenced by the uptick in M&A over the last year. In particular, we’ve seen a number of acquisitions of US and Europe-based companies by Chinese buyers, including the $1.4B acquisition of AppLovin by Orient Hontai Capital & the $900M acquisition of Media.net by Miteno Communication Technology. While these acquisitions are often driven by financial arbitrage opportunities, they are also a sign of the growing role of digital advertising in China. We expect these acquisitions to continue into 2017, especially among western companies with a strong presence in the China market.

China Mobile Advertising Landscape Report (Thomvest Ventures) from Thomvest Ventures