2015 US Advertising Market •
Total Ad Spend $190B • US Population 320M • 81% Urban • GDP $17.5T • GDP/capita $55k • Consumption/capita $32k $70B $53B $17B TV Internet Newspaper Radio Magazines Outdoor Other *McKinsey and World Bank
2015 China Advertising Market •
Total Ad Spend $68B • China Population 1.4B • 55% Urban • GDP $10.4T • GDP/Capita $8k • Consumption/capita $2.5k $23B $21B $9B TV Internet Newspaper Radio Outdoor Other *McKinsey and World Bank
The Ad Gap US $190B
Heavy TV and internet $55k $32k (60% of GDP) $595 per cap China $68B (36% of US) Heavy TV and internet $8k (15% of US) $2k (6% of US) $48 per cap (8% of US) Ad Spend Mix GDP/Capita Consumption/User Ad Spend per User
The Ad Gap (urban to
urban) US $190B $68k $45k $733 per cap China $71B (36% of US) $13k (20% of US) $4.5k (10% of US) $88 per cap (12% of US) Ad Spend Urban GDP/Capita Consumption/Cap Ad Spend per Cap
US: Desktop & Mobile Ad
Spend $32.44 $31.58 $29.89 $26.59 $24.96 $25.17 $25.35 $10.67 $19.15 $28.72 $40.50 $49.81 $57.78 $65.87 2013 2014 2015E 2016E 2017E 2018E 2019E US Digital Ad Spending ($ Billions) Desktop Mobile (Includes Tablet) Mobile ad spend in the US will exceed $28B and overtake desktop ad spend in 2016 as Desktop stalls and declines. Source: eMarketer, March 2015.
China: Ad Spend Mobile ad
Spend continues to accelerate, In Billions $ Source: eMarketer, March 2015. - 20 40 60 80 100 120 2013 2014 2015 2016 2017 2018 2019 Total Ad Spend Digital Spend Mobile Spend
The Internet Ad Gap US
280M (88% of pop) 203M $57B $28B $205 $137 China 700M (50% of pop) 680M $26B (52% of US) $14B (50% of US) $37 (18% of US) $21 (15% of US) Internet Population Mobile Users Internet Ad Spend Mobile Ad $/Internet User $/Mobile user
Business Models of US &
China Leaders Advertising Subscriptions Microtransactions Advertising Subscriptions Microtransactions Note (1) Value Added Services (VAS) = in-app transactions such as virtual currency/gifts and non-subscription digital transactions or fees of any kind. Note (2) Reflects dominant (>90% of revenue) business model for each company shown. Logos are shown in more than 1 category if company derives material revenue from multiple business models.
US: Comparing Quarterly ARPU Advertising
Subscriptions Microtransactions Q2 2015 Subscription Revenue per Subscriber $15.20 $23.97 $24.21 $26.52 $0.00 $20.00 $40.00 Q2 2015 Spotify Total Revenue / Subscriber Hulu Rev / Subscriber Hulu Sub Rev / Subscriber Pandora Sub Rev / Subscriber Sources: SEC Filings, Company website, press releases, GGV estimates of average subscription price (if more than 1 price). Note: Quarterly subscriber count used is average of current quarter and prior quarter (estimated mid-point of quarter). Note: Excludes Hulu in the “Advertising” section even >50% of its revenue comes from advertising because it did not report MAU figures. Q2 2015 Advertising Revenue per Active User $0.61 $1.59 $2.07 $2.61 $2.91 $8.63 $0.00 $2.00 $4.00 $6.00 $8.00 $10.00 Q2 2015 Facebook Ad Rev / Active User (US & Canada) Pandora Ad Rev / Active User Facebook Ad Rev / Active User (Worldwide) Yahoo Ad Rev / Mobile Monthly Active Twitter Ad Rev / Monthly Active User Q2 2015 VAS Revenue per User $1.46 $2.62 $0.00 $1.00 $2.00 $3.00 Q2 2015 Zynga VAS Rev / Monthly Unique Users King Rev / Monthly Unique Users In the US, not surprisingly, subscription-based models as represented by Spotify, Netflix and Hulu have the highest ARPUs, at about $100/user/year ($25/quarter). Ad ARPUs are typically <$12/user/year (<$3/quarter), with the exception of Facebook’s US/Canada user base, which is worth over $34 ($8.63/quarter).
US: Median Yearly ARPU Advertising
Subscriptions Microtransactions $100-$150$12-$15 $10-$50 The most predictable revenue per user is Subscription but its hard to get subscribers
In China, ARPU of paid
users for commerce or value-added services on content platforms is very high, ranging from about $24/user/year ($6/quarter) to over $400/year ($116/quarter) for YY’s dating subscription product, far exceeding the same monetization model in the US. Advertising ARPU, except on Baidu, lags significantly behind US platforms. Subscription ARPU is also understandably lower given the lower price points vs. US online video platforms. $0.36 $0.43 $0.68 $0.72 $0.76 $4.03 $0.00 $2.00 $4.00 $6.00 1 Baidu Ad Rev / Mobile Search MAU Tencent Ad Rev / QQ MAU Sina Ad Rev / MAU Sohu Ad Rev / MAU Netease Ad Rev / Est. Email MAU Youku Ad Rev / MAU China: Comparing ARPU by Model Advertising Subscriptions Microtransactions Q2 2015 Subscription Revenue per Subscriber Q2 2015 Advertising Revenue per Active User Q2 2015 VAS Revenue per User (1) Source: SEC, Company reports, Comscore, GGV traffic estimates based on historical performance. Note: Value Added Services (VAS) = in-app transactions such as virtual currency/gifts and non-subscription digital transactions or fees of any kind. Note: Quarterly subscriber count used is average of current quarter and prior quarter (estimated mid-point of quarter. Note: (1) Figures are from Q4 2014 as email registration figures have not been reported for 2015. $7.04 $7.04 $9.38 $29.17 $0.00 $100.00 1 YY Subs & Broadcasting Revenue / Paid Users in Category YY Quarterly Equivalent of Monthly Sub Fee Youku Quarterly Equivalent of Monthly Sub Fee IQiyi Quarterly Equivalent of Monthly Sub Fee $5.94 $26.58 $26.97 $53.55 $67.00 $68.90 $115.7 3 $0.00 $50.00 $100.00 $150.00 1 YY Dating VAS / Subs YY Games VAS / Subs YY Online Music & Entertainment VAS / Subs Tencent MMPORG ARPU Tencent Casual Games ARPU Tencent Wechat/QQ Games ARPU Sohu Game Rev / Changyou MAU
A Monetization Eco-System 18 Minnows
Segmentation + Tools = Data you can act on to maximize your revenue potential DolphinsWhales Give Whales special Access Reward Dolphins to keep them engaged and loyal Monetize Minnows by allowing them to extend fan base
Kickstarter breakdown Whales- 48% of
raise 949 Fans/4% of base Range of contribution $300-$10,000 Signed album+ book+ surprise gift “Veblen” Goods Dolphins- 49% of raise 13k Fans/ % of base Offers: $25-$125 “positional goods” Minnows- 3% of raise 11k Fans/45% of base Offers: Free-$5 Facilitates Dolphins and Whales $540k $550k $37k 949 Fans 4% 13k Fans 51% 11k Fans 45%
Questions • Does E-commerce have
a negative effect on advertising? • Does data make brand advertisers behave like direct marketers? • What is the effect of RTB platforms on CPMs? • In an ROI world, do we need humans? • If you are starting a digital media company today, what monetization method would you choose ?
When I was asked to present about the Advertising market in china… I thought, what advertising market ? Its not very good. Many Chinese companies don’t view that an advertising models work and hard to scale. So I am going to present that debate with some comparisons between the US and China. The micro-economic view and company and sector specific examples. I think there may be challenges to the Ad model in china given the rising costs of content and alternative methods of monetization, but we are still early and the industry still has plenty room to grow.
The US ad market has a rich and long history. It’s the largest ad marketing in the world, in fact if you combine all of Europe its still only about half the size of the ad market in the US. Its well developed and many of its practices are still old school. But its rapidly changing because of the use of Data for fine targeting and segmentation.
Population is 4.5x bigger And GDP is 60% of US So the per capital figures are significantly smaller than the US Does this create an ad gap, proportionally is the ad spend right ?
Closer look at the numbers Ad spend is 36% of US vs GDP closer to 60% GDP per capita is 15% of us and consumption and ad spend is only single digit % of US. So wait a minute, that’s a huge gap caused by consumption, right ?
Well lets look at urban folks. About half the population of china… US is north of 80% of population GDP/Cap is a bit closer but again spending is only 10% of US a lower proportion than of GDP per capita And advertisers spend $733/year on a person in the US versus $88 on a Chinese so based on consumption,
So manybe the difference is more stark in the internet world.
Internet Ad spending in the us is about $60 Billion and growing nicely, however, in the worlds most mature desktop market, advertising is dropping… Thank you mobile….
In china, The digital spend is higher as a % of total advertising (nearly half). And mobile growth is accelerating at a faster rate than all advertising..
So lets look at the gap analysis. China has 2 ½ times as many people on the internet and more than 3 times as many people on mobile as the US. So 2 ½ times but only half of the digital spend, mobile 3 times but again, half the spend. One has to assume that the 680m people on mobile are top 50% of the demographics of the country. Should the gap be smaller? From an advertiser perspective, they are spending mid teens of the US rates. This looks like a gap worth investigating.
We have invested in over 2 dozen digital media companies in the last 15 years. These companies have high quality content that generate a community of users who are highly engaged with the content (music, video, text, pictures etc). So how do you generate enough revenue to pay for the content, the site or app, the bandwidth, staff etc ? Three basic ways….
Ad: pay to get access to my users Subs: pay to get access to my content Microtransactions: pay for fun and exclusivity.
Advertising model in the US is the most popular, cause it was easy! And money was already flowing… Google is the king of ARPU with quarterly ad rates per user toping $45 Most sights average $2-$3 per user per quarter
Again, intent based reach does best with Baidu leading the pack but most publishers get under $1 per user per quarter Subscription services in china are relatively new and enjoying some early success but under around $10 per quarter for access Dating, games, and social generate the greatest ARPU in china, its both cultural and entrepreneurs had to innovate here because for a very long time the other models didn’t pay out.
But the most important aspect of monetization is customer segmentation. Figuring out a consumer’s willingness to spend and optimizing his or her path for each specific situation. Each segments behavior is different and has a vastly different revenue path. The best example is Las Vegas. I will simplify.