Investopedia/Donna Fuscaldo: Chinese Rivals Move on Facebook, Google Ad Revenue

Chinese Rivals Move on Facebook, Google Ad Revenue

By Donna Fuscaldo | August 17, 2017 — 12:42 PM EDT

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When it comes to the digital advertising market, Alphabet Inc.’s (GOOG) Google and Facebook Inc. (FB) have long been the dominate players, commanding the lion’s share of marketing dollars targeted at the internet. But three of China’s largest technology companies—Baidu Inc. (BIDU), Alibaba Group (BABA) and Tencent (TCEHY)—are chipping away at that spending, with their platforms expected to grow even more.

Market research firm eMarketer estimates that by 2019 the three Chinese companies combined will receive close to a fifth of online spending by advertisers and marketers, reported Bloomberg. It will still be a far cry from Google’s market share, which is projected to be around 32% by 2019, but it does show there are other alternatives to the social media and internet heavy hitters. (See also: Google, Facebook Dominate Digital Ads in 2017.)
China's Big 3

According to eMarketer, among Baidu, which is the leading online search company in China, Alibaba, which is China’s e-commerce giant, and Tencent, which operates the widely popular WeChat messaging app, Tencent is expected to see the fastest growth in terms of luring advertisers to its platform. Currently, Baidu attracts the most advertising dollars of the three, but eMarketer predicts the messaging app and entertainment company will surpass it thanks to WeChat.

Earlier this week, Tencent was able to report second-quarter results that surpassed Wall Street views, marking its best ever three-month period. Driving sales in the quarter was smartphone games, digital payments and online advertising. During the quarter online advertising revenue jumped 55% aided by a 61% increase in social media advertising thanks to WeChat. The messaging app hit a record of 963 million users in the June-ending quarter. Meanwhile, Alibaba reported fiscal first-quarter earnings earlier Thursday that showed a 56% jump in revenue thanks in large part to its e-commerce business. Sales for e-commerce accounted for 86% of the company’s revenue in the quarter. In the year-ago fiscal first quarter, it accounted for 73% of total revenue. (See also: Alibaba, Tencent Rise Faster Than Real Earnings.)

While the U.S. is still a huge market for online advertising it is becoming more mature, prompting the likes of Google and Facebook to launch new services to get an even larger piece of the online advertising market. It’s the reason the social media giant unveiled Watch earlier this month, which bears a resemblance to YouTube and has been designed to make it easier for users to discover videos from outside of their feed, create watchlists and follow shows created by artists, brands and publishers. According to Wall Street firm SunTrust Robinson Humphrey, China's internet population stands at 721 million, increasing 40% from 513 million in 2011. While it is now two-and-a-half times the U.S.'s market size SunTrust said internet penetration in China is just 52%. That compares to more than 80% in developed countries, underscoring the huge opportunity in that region.