In this weekly series, How Chinese Tech Builds Trust, CCI aims to demystify the fundamentals that drive Chinese e-commerce, explaining why critical practices have evolved the way they have and helping brands predict what comes next. From the triggers behind Baidu’s downfall to the rise of social commerce, we’ve got you covered. And if you missed previous installments, check them out here.
Something nobody really talks about: targeted advertising in China is … terrible. Low performance. Low conversion. Expensive. Most people want nothing to do with it.
Once upon a time, there was traditional advertising: TV, print, outdoor. Targeting was minimal, and brand awareness was everything. It mainly succeeds at showing one thing: You’ve built a brand, and you have the war chest to prove it. A prime example is Super Bowl ads, which cost $5.6 million for a 30-second spot this year. Compared to high-conversion Facebook and Google ads, targeting in traditional advertising is just a little bit better than screaming into the void.
Facebook pundits joke (not really a joke) that the platform is creepy. In June, Mark Zuckerberg said “I am not a lizard,” referring to a zany conspiracy theory that he’s using Facebook to collect information on humans in order to become a human himself (bear with me here). The reason is this: spend any amount of time on Facebook and you start to feel watched. Ads are oddly specific and hyper-targeted. It can feel disturbing or even unreal, but that hyper-targeting works, converting to around $70 billion in very real revenue.
Advertising is essentially Facebook’s sole source of income. Whether or not he’s a lizard, Zuckerberg’s business model is basically: 1) collect data from humans, 2) sell data to other humans, and 3) profit. Apple’s iOS 14 privacy controls took a stance, leading Facebook to warn that “Apple’s updates may render Audience Network so ineffective on iOS 14 that it may not make sense to offer it.” Translation: hyper-targeting is so essential to Facebook that it would rather not offer any ads than offer non-targeted ads.
And that is basically where China finds itself. What does that mean?
Tencent’s Business Model
Alphabet (Google) and Facebook earn, respectively, 83% and 98% of their total revenue from advertising. They are adtech companies. Tencent is best known for WeChat, China’s biggest app, which has evolved from messaging into a do-it-all “super app” that is the envy of the American tech giants. Look more closely, and you’ll note that Tencent’s bread and butter is actually in gaming (35% of revenues) and fintech (25%). WeChat works to drive traffic to those services. Tencent’s flagship mobile game (Honor of Kings) goes hand in hand with WeChat, and so does its fintech service, WeChat Wallet. Tencent’s ad revenue (16%) is derived more from its streaming platform Tencent Video, not WeChat. This is not adtech.
Imagine you’re targeting university students who like rain. On Facebook, you just plug those two interests into the ad service backend and boom — fifteen minutes and twenty bucks later you’ll find out what that target demographic has in common with Netflix’s Umbrella Academy and Seattle University
On WeChat, ads are notoriously challenging, bureaucratic (sometimes requiring Chinese government approval), and low performance. Not to mention expensive, starting at around $8,000. Cost per follow (cost of acquiring a new follower) for WeChat pages generally starts at $2.87 (depending on who you ask), nearly triple the Facebook average of $1.07. WeChat also makes a point of showing no more than three ads, per user, per day. Imagine not seeing 30 ads within the first ten seconds of using Facebook or Google.
Hyper-targeted adtech single-handedly decimated traditional advertising. Its equivalent does not yet exist in China. Whereas Facebook allows you to target any interest imaginable, WeChat has just 18 categories and 122 sub-categories on offer. Good luck tracking down a niche audience — where would you even begin?
There Is No Alternative: Influencers, Livestreaming, Product Placement
In China, hyper-targeted advertising has been substituted with greater complexity, and there is never a straightforward answer to the question, “How do we reach our target audience?” Moreover, building an audience on most platforms requires pay-to-play marketing. Taobao store owners and Weibo influencers all know that the algorithms prioritize users who spend money. Without hyper-targeted advertising, digital spending can disappear into a black box of big budgets and low ROI. That doesn’t mean it’s impossible, but it’s harder and brands have to get creative. It also means that content is everything, with brand positioning through influencers playing a critical role.
An influencer basically builds up an audience with specific interests. Let’s say you’re a fishing brand getting into the Chinese market. Where can you advertise that will allow you to target for “fishing”? Correct me if I’m wrong, but if WeChat has just 122 subcategories, I doubt that’s going to be one of them. Consumers don’t trust search. You might try native ads on Weibo, which is expensive, or Taobao, but the audience there is mostly female. Given the very limited targeting options, your best bet might be to search for a KOL (key opinion leader, i.e., influencer) in the fishing space. For example, the angling influencer known as Kexue, who netted $150,000 in sales from the revenue stream of his Douyin followers.
Outside of China, targeted ads work because of Facebook. Inside China, not so much.
How to get rich in China:
Be an influencer with a very targeted niche audience. Get in touch with brands. Boom.
Create a model for targeted advertising in China.
Beyond influencers, livestreaming, and product placement, what other marketing strategies show the greatest potential for growth?
With Apple starting to block Facebook ads, do you think Google might do the same? Could brand marketers turn to the Chinese model of non-hyper-targeted advertising in the future?