You probably know Alibaba very well, but have you ever heard of Alimama?
Probably not.
In fact, even most people in China would have no idea what Alimama is.
Although, Alimama – the advertising platform of Alibaba – plays a significant role in Alibaba’s business. In a presentation delivered at the investor conference, Alibaba CFO Maggie Wu said 60% of the company’s revenues are now derived from Alimama.
With $12.05 billion in ad sales in 2016, Alibaba has become the market leader in digital advertising industry in China. In comparison, its counterpart Amazon has only generated $1.12 billion in ad revenue in US in 2016. More specifically, being the market leader in China, Alibaba accounted for 30.1% of the total net digital Ad revenue in this market in 2016, followed by Baidu(20.5%) and Tencent(9.6%).
Why is Alimama so successful in China?
Alimama has the ability to track users across Alibaba’s multitude of digital platforms— Taobao, Tmall, AliPay, UCWeb, AliExpress, GaoDeMap – developing a deeper understanding of user’ journey and buying behaviour. This enables brands selling through the ecosystem to offer personalized products to its users.
You may be curious about why Amazon generates much less Ads revenue in a bigger Ecommerce market with even more advanced Ads Algorithms.
Because Amazon is experiencing much more competition in digital Ads industry in US.
Let’s consider the path of a typical internet session, from the user to some revenue-generating action, and then (in some cases) back again to the user:
Maybe it seems counterintuitive that Google’s search business is a major threat to Amazon. But you can see this by following the money through the loop: a significant portion of Google’s revenue comes from search queries for things that can be bought on Amazon. If the brands can acquire users from Google at a cheaper price, they don’t need to spend money for advertising in Amazon.
More specifically, tech giants like Google and Facebook took 29.43 billion and 12.37 billion dollars respectively in the 71.6 billion dollar digital ad market in US in 2016, meanwhile, Amazon only took 1.6% of the pie.
In contrast, mobile ads revenue in Ecommerce industry took the biggest share in the total mobile digital ads revenue in China, accounting for 30% in 2017 by estimate. Neither Google’s counterpart in China – Baidu – nor Facebook’ counterpart in some degree in China – Tencent – can challenge Alibaba’s dominance in digital advertising industry in China. In other words, Alibaba is taking the biggest pie in the loop.
What’s next?
(1) Continuous growth
A couple of reasons:
- We estimate Alimama will continue to grow its revenue along with the growth of the total pie. Emarketer estimate that there will be more than 10 billion USD growth each year in Media Ad Spending in China from 2017 to 2020.
- Alimama is transitioning from a Performance based ads platform to an Integrated Advertising Platform – consisting both Performance based advertising and Brand advertisement. Beside gaining revenue from its traditional CPC mode, it starts to explore a new area in digital Ads industry – brand advertisement. We assume it will take some share of the brand advertisement revenue from traditional medias like TV or Radio.
- With around 500 million users and 4.5 million advertisers across Alibaba’s multitude of digital platforms, Alimama could optimize its ads algorithm and be more intelligent time after time.
(2) Challenge from Tencent in the long run
After launching Ads service in its main mobile platforms – Wechat, Mobile QQ, and QQ zone – Tencent has seen rapid growth in its ad business in recent years. In 2017, its online advertising revenue surges 55 per cent year on year in the second quarter and 47 per cent in the first quarter. Tencent’s ad revenue could more than double to $11.4 billion by 2019, according to researcher eMarketer.
The company is estimated to increase its market share in China’s digital ad space to 17.2 percent in 2019 from about 9.6 percent in 2016 (from 2.2 percent to 4.9 percent in global digital Ad industry in the same period).
What’s more, by acquiring tons of users through Wechat at a extreme low price, Wei Shang (a C2C ecommerce platform in Wechat) could be a substitute to TaoBao and Tmall owned by Alibaba in ecommerce industry in China, threatening the whole ecosystem of Alibaba. 
Will anyone still remember Baidu?
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Thanks for reading The Low Down, insight and inside knowledge from the team at Momentum Works. If you’d like to get in touch with us about any issues discussed in our blog, please drop us an email at [email protected] and let us know how we can help.
