Tencent surpasses Baidu as the No. 2 ad player in China
June 30, 2020 – Despite a downgrade to our ad forecast in China, digital ad spending will still grow 5.0% this year. But there will be a power swap among the major platforms, as Tencent becomes the No. 2 publisher, displacing Baidu. And top player Alibaba will remain No. 1, but with lowered expectations.
Alibaba’s ad revenue is almost three times Tencent’s, but its growth story will not be as rosy in 2020. In recent years Alibaba has successfully leveraged its ecommerce platforms to generate a whole new line of search ad revenue, akin to the Amazon model in the US. In 2016 and 2017 Alibaba saw 40+% growth rates in digital ad revenues across its various properties, and last year that rate was still 24.3%.
This year, however, with online customers pulling back on spending and searching more for basic staples and less for high-end consumer products, we forecast Alibaba’s net ad revenue will grow by only 6.5% (down from the pre-pandemic estimate of 19.3%). This decline will be driven by a dramatic deceleration in Alibaba’s search ad business, which grew by 41.2% last year but will grow by only 8.9% this year. Still, Alibaba’s combined ad revenue of $27.05 billion will easily lead the pack, and represents 35.9% of all digital ad dollars spent in China. We also forecast a strong rebound for Alibaba next year, to the tune of 16.8% growth, as China’s macroeconomic conditions return to relative normalcy.
Baidu will bring up the rear among the BATs, in terms of 2020 performance, growth, aggregate revenue, and long-term outlook. Although Baidu still towers over niche players like Sina and Sohu, we forecast that Baidu’s net ad revenue this year will drop to its lowest point since 2016. Baidu’s $7.85 billion will represent a 14.3% drop year-over-year, coming after a 2019 that also saw an 8.0% decline.
“Baidu has had trouble attracting search ad dollars, despite being free of competition from Google,” said eMarketer forecasting analyst Ethan Cramer-Flood. “Advertisers are showing that they increasingly prefer the reliability of Alibaba’s platforms for their search spend.”
Baidu’s decline means that, for the first time ever, Tencent will move into the No. 2 position for net digital ad revenues, claiming 12.6% of China’s total spend, to Baidu’s 10.4%.
OVERALL DIGITAL AD SPENDING
Although we forecast that digital ad spending in China will be $5.73 billion less this year than anticipated, the $75.33 billion total will still easily rank China as the second-largest market for digital advertising in the world (behind only the US at $134.66 billion). Also, China’s 5.0% growth rate in digital ad spending still ranks among the fastest in the world, despite the rapid slow down.
China will be one of only two countries where advertisers grow their digital ad spending at double-digit rates every year from 2021 through 2024, leaving China with $120.90 billion in digital ad spending by 2024. (India is the other such country.) This will put China far ahead of the No. 3 market (the UK with $29.18 billion), but far behind the US at No. 1 ($225.66 billion).
eMarketer’s forecasts and estimates are based on an analysis of quantitative and qualitative data from research firms, government agencies, media firms and public companies, plus interviews with top executives at publishers, ad buyers and agencies. Data is weighted based on methodology and soundness. Each eMarketer forecast fits within the larger matrix of all its forecasts, with the same assumptions and general framework used to project figures in a wide variety of areas. Regular re-evaluation of available data means the forecasts reflect the latest business developments, technology trends and economic changes.
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