Advertising was lucrative for Chinese search engines
e-Advertising in China
According to Emarketer’s forecasting report, total advertising spending in China will reach 78 billion USD for 2016. This includes all kinds of media such as Digital, TV, out-of-home, print and radio. By 2020, they expect this number to reach 122 billion USD.
With the increase of TV advertising prices, the number of Chinese netizens and mobile phone users, the advertising market in China is drifting towards digitalization.
About half of the total advertising spending are allocated to digital platforms, according to Emarketer. It is estimated that the digital share in the advertising market will grow year after year.
Overview of search engines in China
As you may already know, Google, World’s biggest search engine, is forbidden and blocked by the Great Firewall of China. China didn’t wait long to develop its own alternatives. Please note that in the graph below Google China is included because its takes into account not only China Mainland but also presumably Hong Kong and Macao. The main players in the search engine market in Mainland China are in order: Baidu with almost 80% of market share in 2015 and Sogou.
Source: China Internet Watch
Baidu is by far the leader in the market and is the most used search engine in China. It was founded by Li Yan Hong, 47 years old and his partner back in 2000.
Lately, Baidu has been facing a thorough governmental investigation after a young man of 21 years died of Cancer. Apparently his death was mainly due to a misleading ad on Baidu about medical treatments that were supposed to cure him (more than 30 000 USD) . Its competitor from Qihoo 360 accused Baidu in 2012 to receive at least 30% of its revenue from fake medical treatments product ads.
According to Fortune, Baidu will do its best to respect the government restrictions as soon as possible and even opened a 1 billion fund for potential fake medical treatments ads victims.
Besides this setback for Baidu, search engines are earning high revenues. According to Iresearch, search engine companies in China have generated more than 12.4 billion USD of revenue in 2015 which is a 34.7% increase compared to 2014.
Advertising revenue for Chinese search engine companies is going wild …
This amount of revenue is expected to exceed 150 billion Yuan by 2018. Why such an important growth? The main reason for that is the expansion of mobile phone search engines. As you can see on China Internet Watch graph, in 2015, about 89% of search engine users are mobile search engine users in China.
Source: China Internet Watch
If we take Baidu for example, for the first quarter of 2016, 60% of Baidu’s total revenue was generated by mobile phones. As of March 2016, Baidu has 663 million mobile search engine active users which are 9% more than the previous year.
Needless to say, marketers saw the opportunity in search engines growth by spending more on search engine advertising. Search engines companies advertising revenues increased by 32.2% and reached 68.26 billion RMB (10.5 billion USD) last year in 2015. It is expected to grow even further to attain almost 20 billion USD in two years in 2018.
In terms of advertising revenue, the same main players are present plus one: Baidu with 81% of market share, Qihoo 360 (4.9%) and Sogou (4%).
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— Olivier VEROT (@Olivierverot) 22 mai 2016