This document compares advertising markets and monetization strategies between the US and China. It finds that while the US leads in total ad spending, China's market is growing rapidly, especially for mobile. Subscription models have the highest revenue per user in the US, followed by advertising then microtransactions. In China, microtransactions for games and services can generate much higher revenue per user than other models. The document also discusses segmenting audiences into high, mid, and low value users and tailoring monetization strategies accordingly across different models. It suggests starting a new media company with a balanced approach combining advertising, subscriptions, and microtransactions.
3. 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
4. 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
5. 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
6. 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
8. 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.
9. 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
10. 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
12. Standard Monetization
Advertising Subscriptions Microtransactions
Subscriber for serviceBrand or Direct Marketing Virtual Item or service
micro pay per item
Advertising has had a long rich history in the US while Microtransactions models were perfected by Chinese game companies.
13. 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.
14. 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).
15. 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
16. 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
17. China: Median Yearly ARPU
Advertising Subscriptions Microtransactions
$30-$70$3-$7 $100-$400
Which would you choose
18. 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
19. 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%
20. 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 ?
Hinweis der Redaktion
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.