This report examines China's digital advertising industry, with a specific focus on mobile. Our goal with this research is to grasp the many nuances of advertising technology in China – what role does programmatic play, who are the key vendors in the space, what challenges do these vendors face, and how do we expect the market to evolve over the next several years?
2. About Thomvest Ventures
2
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opportunities in Silicon Valley with early stage B2B startups in the fields of advertising & marketing technology,
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decade have either gone public, been acquired, or continue to grow as independent businesses.
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3. Use of mobile devices is
extensive & sophisticated;
most digital ad spend is
flowing to mobile
- 620M Chinese consumers have access to
internet-connected mobile devices
- Chinese consumers between ages 16-45
spend nearly 40 minutes more per day
on their devices than consumers in other
countries
- The China mobile gaming market is the
largest in the world – collectively, Chinese
gaming apps earned $6.5B in 2015
- 84% of digital ad revenue is expected to
come from mobile devices by 2020
- Baidu, Alibaba & Tencent – collectively
known as “BAT” – own & operate 16 of
the top 20 mobile apps in China
- Time spent in mobile apps is dominated by
BAT-owned properties (71% of time spent)
- As a result, these companies control much
of the available mobile ad inventory –
advertisers work directly with BAT, leaving
little room for intermediaries
- Collectively, BAT will take 73% of China’s
mobile internet ad market in 2016
- There is a lack of user-level targeting
data available to third parties to purchase
inventory on open exchanges
- Many marketers have concerns over the
quality of inventory in exchanges; most top
tier inventory is only available through
direct publisher deals
- Programmatic direct buying (PDB) is
growing in popularity, as it provides
advertisers with more control over
publisher selection & inventory quality
The mobile advertising
market is dominated by
a small set of premium
publishers
Use of programmatic
advertising remains
nascent due to unique
market dynamics
Three takeaways from this report
3
4. Agenda
China mobile advertising market size and growth
Key mobile app publishers & adtech vendors in China
The role of programmatic advertising in China
China technology M&A trends
4
5. There are 620M mobile internet users in China, which represents 90 percent of all internet users
50
118
233
303
356
420
500
557
620
24%
40%
61%
66%
69%
75%
81%
86%
90%
0%
25%
50%
75%
100%
0
200
400
600
800
2007 2008 2009 2010 2011 2012 2013 2014 2015
Mobile Internet Users (Millions) Mobile Internet users as a % of total Internet population
InternetUsers(Millions)
MobileInternetusersasa%oftotalInternetpopulation
Mobile Internet Users in China, 2007-2015
Source: Statistical Survey on Internet Development in China
90% of internet users in China
connect via mobile devices
5
6. Many Chinese internet users are mobile-first & rely primarily on apps vs. desktop services
3.2
2.4
1.9
3.9
3.0
1.5
0
1
2
3
4
5
16-30 31-45 46-65
Worldwide China
Daily Time Spent with Mobile Devices in China vs. Worldwide, by Age
Chinese consumers between ages 16-45 spend nearly
40 minutes more per day on their devices than
consumers in other countries
6 Source: TNS, “Connected Life”, 2015
7. China is the largest and fastest growing market for mobile gaming
$6.50
$6.18
$6.02
$1.85
$1.01
$0.82
$0.52 $0.52 $0.51 $0.41
$0
$2
$4
$6
$8
China Japan U.S.A. South Korea U.K. Germany France Australia Canada Taiwan
Top Countries by Mobile Gaming Revenue, 2015 (Billions, USD)
Revenue(Billions,USD)
The China mobile gaming market
grew 46.5% YoY, compared to 15.1%
growth in the U.S.
7 Source: Newzoo Global games Market Report, 2015
8. In 2015, Chinese consumers spent nearly 3x on mobile commerce than consumers in the U.S.
$75
$104
$135
$316
$0
$100
$200
$300
$400
2014 2015
U.S. China
Mobile Commerce Sales in U.S. & China (Billions, USD)
25% 30%
Mobile as a % of all
e-commerce sales 34% 56%
8 Source: Internet Retailer (U.S.) & iResearch Global (China)
9. Mobile ad spend in China will grow to $70B by 2020, representing 84% of total digital ad spend
$8
$17
$27
$38
$49
$60
$70
35%
55%
68%
74%
79%
82%
84%
0%
25%
50%
75%
100%
$0
$25
$50
$75
$100
2014 2015 2016 2017 2018 2019 2020
Mobile advertising revenue (Billions, USD) Mobile ad spend as a % of total digital ad spend
Mobileadvertisingrevenue(Billions,USD)
Mobileadspendasa%oftotaldigitaladspend
China Mobile Advertising Spend (Billions, USD)
43%
CAGR
84% of digital ad revenue is
expected to come from
mobile devices by 2020
9 Source: eMarketer, March 2016
10. China is the fastest growing mobile advertising market, by both impression volume & ad spend
Mobile Ad Impression Growth in Select Countries
Q4 2015 vs. Q4 2014
Mobile Ad Spend Growth in Select Countries
Q4 2015 vs. Q4 2014
15%
45%
46%
55%
101%
105%
127%
203%
0% 50% 100% 150% 200% 250%
Australia
Mexico
U.S.A
Japan
Indonesia
Philippines
Canada
China
31%
47%
69%
77%
110%
174%
308%
1246%
0% 250% 500% 750% 1000% 1250%
Mexico
Australia
Russia
Germany
Indonesia
U.S.A
Canada
China
10 Source: Smaato, Global Trends in Mobile Advertising, Q4 2015
11. Agenda
China mobile advertising market size and growth
Key mobile app publishers & adtech vendors in China
The role of programmatic advertising in China
China technology M&A trends
11
12. The mobile ecosystem in China is dominated by three walled gardens – Baidu, Tencent & Alibaba
$7.1B mobile ad revenue
$56B market cap
$9.2B mobile ad revenue
$240B market cap*
$2.7B mobile ad revenue
$250B market cap
“Collectively, Baidu, Alibaba and Tencent will take 72.8%
of China’s mobile internet ad market in 2016”
12 Source: eMarketer estimates & company filings; *Note: Includes market capitalization of Alibaba Group Holding Ltd (NYSE:BABA)
13. Baidu, Alibaba & Tencent (collectively known as “BAT”) have built full-stack consumer experiences
“If you think of Alibaba, their apps are preinstalled on local Chinese phones. They
produce content through Alibaba Pictures. They broadcast advertising on Youku [Tudou],
which they’ve now bought. They sell products on Taobao and pay online through Alipay.
They’re very, very connected, and they’re very close to the big Chinese phone
manufacturers, Xiaomi and Huawei, and it’s a fully integrated system, much more
than probably you would see in the West.”
Doug Pearce
CEO, Greater China
Omnicom Media Group
13 Source: eMarketer
14. Mobile revenues for BAT rival the scale of large U.S. internet companies
Domestic Mobile Advertising Revenue by Company, 2015-2016 (Billions, USD)
Collectively make up 73% of the mobile
advertising market in China
Collectively make up 55% of the mobile
advertising market in the U.S.
$4.5
$5.9
$1.5
$10.0
$5.9
$1.2
$7.1
$9.2
$2.7
$13.3
$8.1
$1.7
$0
$5
$10
$15
Baidu Alibaba Tencent Google Facebook Twitter
2015 2016 (E)
14 Source: eMarketer estimates & company filings; Note: Google, Facebook & Twitter revenue figures are for the U.S. only
15. Of the top 20 mobile apps in China, 16 are owned by Baidu, Alibaba & Tencent
80%
74%
46%
41%
34% 33% 32%
29% 29% 29% 28% 27% 26% 25% 25% 24% 24% 22% 22% 21%
0%
25%
50%
75%
100%
WeChat
QQ
Taobao
Alipay
Baidu
BaiduMap
iQiyi
KugouMusic
Weibo
TencentVideo
SougouPinyin
WiFiMasterKey
Youku
MyApp(Tencent)
QQBrowser
UCBrowser
Meituan
QQMusic
360MobileAssistant
TencentIMSecure
Top 20 Mobile Apps in China by User Coverage, December 2015
Tencent Apps Alibaba Apps Baidu Apps
Top social apps
in the U.S.
49%
24%
16%
Facebook
Instagram
Twitter
15 Source: TalkingData Mobile Data Research Center’s Android platform data
16. Similarly, time spent in mobile apps is dominated by BAT-owned properties (71% of time spent)
35%
10%
8%
11%
7%
29%
WeChat (Tencent)
QQ (Tencent)
Other Tencent-owned apps
Alibaba-owned apps
Baidu-owned apps
All others
Collectively, Tencent-owned
apps represent over half of
time spent on mobile devices
by Chinese users
Share of Mobile Time Spent, April 2016
Alibaba & Baidu-owned
properties make up nearly
one-fifth of time spent in
mobile apps
16 Source: QuestMobile,Trustdata & Hillhouse estimates
17. Baidu’s advertising products
Ad Product Description
Paid
Search
- For paid search, sponsored ads are purchased based on keyword bids and rank higher than
organic search results (very similar to Google’s AdWords model)
- Because of government regulations, marketers need to file a business license and a deposit (if
a foreign company) that can be used towards the bids
Baidu Union
- Baidu Union is like Google’s Display Network. It shows ads across Baidu-owned-and-operated
search products, music players and desktop apps as well as Baidu’s business partners
- Baidu’s algorithms determine where and how ads are shown based on the target audience’s
demographics, location and browsing history
- Ad formats include banners, text links, videos, full-screen and rich media
- The Union includes Wangmeng, a publisher network comprising 600,000+ websites
Baidu
Brand Zone
- Baidu Brand Zone is located on the top of Baidu’s search results that features a specific brand
- This mini branding section shows basic company information, new products and websites
where viewers can make purchases
- Brands that purchased a Brand Zone will have a better chance to direct visitors to its official
site
China’s dominant search engine,
modeled after Google’s business
- Baidu is the biggest Chinese search
engine, often referred to as the “Google
of China”
- Each month, over 90% of China's
internet users use Baidu search, with
the daily query number reaching the
hundreds of millions.
- Earlier this year, the company’s
advertising practices came under scrutiny
after a user undertook an ineffective
cancer treatment he found through a
Baidu online ad
- Shares in the company have fallen nearly
15% YTD, and Baidu lowered its revenue
forecast by nearly 10%
17
18. Alibaba’s advertising products
Ad Product Description
Alimama
- Alibaba’s online marketing technology provides merchants on its platform with marketing
services on desktop and mobile.
- “Alimama accesses the large Taobao Marketplace merchant base as customers for online
marketing services without the need to rely on a field sales team.”
Taobao
Affiliate Network
- Taobao Marketplace is one piece of Alibaba’s e-commerce properties with 100 million visitors
a day. The affiliate network lets Taobao sellers advertise on partner properties like Weibo
- “Sellers place marketing displays on our marketing affiliates’ websites and mobile apps, and
sellers pay us a performance-based marketing fee primarily based on cost-per-click, or CPC,
and cost-per-sale, or CPS, models.”
Taobao Ad Network &
Exchange (TANX)
- Alibaba’s real time bidding ad exchange is powered by its cloud computing platform and
handles billions of impressions a day.
Data Management
Platform
- Alibaba’s data arm plugs into its ad exchange, providing better targeting capabilities
- For example, Mercedes Benz used its own data on store visitors to influence its online ad
buying through Alibaba’s Taobao Marketplace
AdChina
- Alibaba acquired digital ad platform AdChina in January 2015
- The company launched a marketing platform within Alimama called “Dharma Sword”, designed
to serve brand advertisers and leverage Alibaba’s valuable shopper intent and transactional
data
Rich e-commerce data powers
advertiser solutions
- Alimama says it has customer profiles
for 630 million consumers, representing
nearly every Internet user in China, for
which it’s created more than 8,000
audience segments
- The account information housed within
Alimama is derived from Alibaba account
profiles, which include consumer details
such as name, email address, home
address & purchase history
- The company leveraged this account
information to develop a “super ID” that
powers cross-screen campaigns both
inside and outside of Alibaba’s properties
18
19. Tencent’s advertising products
Ad Product Description
Social Advertising
- Tencent last year started placing brand ads in WeChat’s Moments section, where users post
photos and updates.
- In June, announced a partnership with WPP to create the “China Social Marketing Lab”, which
develops enhanced solutions that cater to brand clients and their target audiences
- Recently struck partnerships with Dentsu, Publicis, Omnicom & others to make inventory &
data available to brand advertisers programmatically
Tencent Ad Exchange &
DSP (Tango)
- Exchange allows for inventory access across social apps & gaming titles
- Launched a DSP called Tango in 2013 to better leverage user data across its exchange
inventory
- "Tango’s revenue is still small compared to our traditional display ad and content partnership
revenue. However, on the Tencent Ad Exchange, Tango accounts for a good portion of the
ADX revenue.”
- Exchange is also open to third-party DSPs and buying platforms
Tencent Network
- Mobile ad network similar to Facebook’s Audience Network; targeted towards app publishers
distributing through its app store; ad formats include banner, native, interstitial & app wall
Tencent Smart Data
- Profiles created based on user data such as consumer demographic attributes, interests, and
other online data
- In March, Tencent announced a partnership with Omnicom Media Group to create target
audience (TA) portraits for OMGs clients using Tencent Smart Data
Mobile internet giant with many
popular social & gaming apps
- Tencent owns & operates many of
China’s most popular mobile
applications, including WeChat, QQ, and
several gaming titles
- About 80% of the company’s ad revenue
is generated by mobile platforms
- As of March 2016, WeChat had 762
million monthly active users, up from
697 million in December 2015
- Active users of QQ’s mobile app rose to
658 million in March 2016
19
20. Unlike the U.S., the app ecosystem in China is distributed across many app stores
5%
5%
6%
6%
10%
15%
16%
16%
22%
25%
0% 10% 20% 30%
Pea Pods (Wandoujia)
BBK-Vivo App Store
HiMarket
Oppo App Store
Huawei App Store
Xiaomi Game Center
Baidu Mobile Assistant
MIUI App Store (Xiaiomi)
360 Mobile Assistant
MyApp (Tencent)
Top 10 Android App Stores by User Coverage, December 2015
Third-party app store App store run by hardware producers
App store revenue from
Android devices represents
61% of Chinese mobile app
revenue (with the remaining
39% coming from iOS)
20 Source: TalkingData Mobile Data Research Center
21. Chinese app stores rival the scale of Google and Apple’s app stores
20%
17% 17%
16%
11%
7%
5%
2% 2%
1%
0%
5%
10%
15%
20%
25%
Google Play iOS* Baidu Tencent Qihoo 360 Wandoujia AppChina D.cn HiAPK Anzhi
Global App Download Share by App Store, 2015
Chinese App Stores Non-Chinese App Stores
21 Source: Digi-Capital (2015); * Note: iOS App Store download share includes downloads made in China
22. There are many mobile ad networks active in China; most are focused on driving app installs
Top 20 Mobile Advertising Networks by Number of Activations
Chinese Ad Networks Non-Chinese Ad Networks
Other notable mobile adtech vendors operating in China: Vungle, Unity, AdColony & TapJoy
22 Source: TalkingData Mobile Data Research Center
23. Most mobile app advertising dollars are allocated to gaming apps
Gaming
60%
E-commerce
12%
New media
12%
Travel &
transport
8%
Other
5%
0% 25% 50% 75% 100%
1
In-App Advertising Split by App Category, 2015
(As a percentage of total number of mobile ads served)
Social
3%
Chinese consumers spend more
33.8 minutes per day using
gaming apps
E-commerce apps are used for
nearly 10 minutes per day, on
average
23 Source: TalkingData Mobile Data Research Center
24. 27%
18%
7%4%
4%
4%
4%
3%
3%
3%
23%
Tencent Games
NetEase Games
OurPalm
Shanda Group
Skymoons
Lilithgame
Zeus Interactive
Duoyi
Happy Elements
Feiyu Technology
Others
The mobile gaming sector in China is large & diverse – which is beneficial to ad networks
Market Share of Chinese Mobile Gaming Companies, 2015
Tencent is the market leader in
mobile gaming, commanding
about one-quarter of the market
Unlike other app categories, there
are many large, independent gaming
companies operating in China
24 Source: GamesInAsia
25. Other notable Chinese internet companies
Company Logo Market Cap Company Description
JD.com $33.5B
JD.com is a Chinese electronic commerce company headquartered in Beijing. It is the largest B2C
online retailers in China by transaction volume and revenue, and a major competitor to Alibaba-run
Tmall.
LeEco $12.0B
LeEco (Formerly Letv), is a Chinese technology company, and one of the largest online video
companies in China.
Qihoo 360 $10.4B
Qihoo 360 is a Chinese internet security company known for its antivirus software, Web Browser, and
Mobile Application Store.
NetEase $27.7B
NetEase provides online services centered on content, community, communications and commerce.
The company has a strong focus on gaming, as well as social messaging, news, reference, email,
search & e-commerce.
Sina $3.8B
Sina is a Chinese media company. Sina operates four major business lines: Sina Weibo, Sina Mobile,
Sina Online, and Sinonline a.net.
Sohu $1.5B
Sohu is a Chinese Internet company that offers advertising, a search engine, on-line multiplayer gaming
and other services.
Cheetah $1.4B
Cheetah Mobile is the second largest internet security software provider in China by monthly active
users, according to iResearch. In 2015, Cheetah acquired ad tech startup MobPartner and launched its
online advertising platform
25
26. Agenda
China mobile advertising market size and growth
Key mobile app publishers & adtech vendors in China
The role of programmatic advertising in China
China technology M&A trends
26
27. There are four primary models by which advertisers buy media on publisher sites
Advertiser Publisher
Supply-Side
Platforms (SSP)
Ad networks aggregate
publisher inventory; advertisers
work with networks to buy
audiences across many sites
Advertisers negotiate directly with individual publishers; inventory is sold in large blocks
1. Direct
2. Ad Network
3. Ad Exchange
4. Demand-Side
Platform (DSP)
Methods for Buying & Selling Digital Media
Ad inventory sold via
exchanges is
typically considered
“programmatic”
In China, advertisers
typically work directly
with large publishers
to buy media
Exchanges aggregate publisher
inventory, but auction individual
ad impressions in real-time;
targeting is at the user-level
DSPs allow buyers to
bid across multiple ad
exchanges through
one interface
SSPs allow publishers
to manage their
relationships with
multiple ad partners
27
28. The Chinese programmatic advertising is still nascent relative to western markets
Publishers
- Both premium & long-tail publishers have
adopted programmatic for some or all available
inventory
- Most available inventory is controlled by three
dominant publishers; only remnant inventory is
available programmatically
Advertisers
- Large brand advertisers are increasingly allocating
their digital ad spend to programmatic channels
- Advertisers are hesitant to spend programmatically
due to ad fraud & quality concerns
- Opt instead for direct deals with large publishers
Intermediaries
- There are many large, independent adtech
vendors serving different parts of the ecosystem –
DSPs, SSPs, exchanges, etc.
- A robust ecosystem of intermediaries has yet to
form; there are few independent adtech
companies at scale in China
Standards &
Regulatory
Environment
- The IAB establishes cross-industry standards
around ad formats, sizes & communication
protocols between ad buyers & sellers
- The Chinese government closely controls the
content of online advertisements
- Cross-industry standards around ad formats are
nascent
United States China
Comparing the programmatic advertising landscape in the U.S. & China
China resembles the
U.S. programmatic
market 3-4 years ago
28
29. Programmatic advertising represents a small but growing portion of total mobile ad spend in China
12 58
504
1,299
2,421
3,759
3% 5% 6% 8%
0%
25%
50%
75%
100%
0
1,000
2,000
3,000
4,000
2013 2014 2015 2016 2017 2018
Mobile Programmatic Ad Spend Programmatic as a % of total mobile ad spend
Adspend(Millions,USD)
Programmaticasa%oftotalmobileadspend
Spending on Programmatic Mobile Ad Buying in China, 2013-2018 (Millions, USD)
Programmatic will
make up 8% of
mobile ad spend
29 Source: iResearch Global Group, July 2016
30. Most desirable ad inventory is sold directly to advertisers, as opposed to via ad exchanges
If you look at Tier 1 cities—Beijing, Shanghai, Guangzhou—that type of inventory is
not available through the exchanges. That inventory gets booked up every month. You
have to book in advance or there won’t be enough inventory because so many
advertisers target these Tier 1 cities.
Most of the remnant inventory goes to their private exchange, which consists of
second- and third-tier city inventory, and also more of your long-tail content inventory.
Charlie Wang
Chief Operating Officer
ReachMax
30 Source: eMarketer
31. Several factors inhibit broader programmatic advertising adoption in China
Primary Challenges to Programmatic Adoption in China
1. Large publishers control most
supply
- The largest internet players such as
Baidu, Alibaba and Tencent have
leveraged their data from search, e-
commerce and social to create closed
advertising ecosystems
- These companies operate closed
exchanges and private marketplaces
focus on premium inventory
2. Inventory and data
quality concerns
- Because the large internet companies
operate closed exchanges, there is a
lack of user-level targeting data
available to third parties to purchase
inventory on the open web
- Concerns over the quality of
inventory in exchanges cause
marketers to be reluctant to execute on
open exchange platforms; most top tier
inventory is only available through direct
publisher deals
3. Lack of experience and
industry standards
- Although Chinese advertisers and
publishers are starting to embrace
programmatic, most are still
accustomed to buying and selling on
a cost-per-day (CPD) rather than a
CPM basis
- Marketers, agencies and publishers
lack deep experience in
programmatic and RTB advertising
- Lack of unified standards create
disparate buying practices across
publishers & networks
31
32. We expect more brand dollars on mobile to be shifted towards “programmatic direct”
Long-tail inventory on open exchanges (usually
ad inventory from lesser known publishing
sources & traffic outside of Tier 1 cities). This
carries a higher risk of brand safety and
viewability issues.
Advertisers negotiate a fixed CPM and pass-
back ratio with the publisher, and then use a
third-party buying platform to pick out the
impressions. Provides control & transparency
for brands.
Real-time bidding (RTB)
Programmatic direct buying (PDB)
99%
88%
69%
63%
1%
12%
31%
38%
0%
25%
50%
75%
100%
Q1 2015 Q2 2015 Q3 2015 Q4 2015
Real-time Bidding (RTB) Programmatic Direct Buying (PDB)
Available Mobile Impressions – RTB vs. PDB, 2015
More brands
are opting for
PDB
Most RTB spend
today is from e-
commerce
32 Source: iPinYou
36. iPinYou has a strong presence among brand advertisers in ChinaDemand-side
platforms
iPinYou
60%
AdChina
12%
Yoyi
10%
Google
DBM
7%
Others
9%
0% 25% 50% 75% 100%
1
Demand-Side Platform Market Share in China, 2015
(Among brand advertisers)
hdtMedia
2%
36 Source: EnfoDesk, Analysys International
37. Demand-side
platforms Many of the DSPs in China were originally traditional ad networks
DSPANs reflect advertiser buying
preferences, but lack transparency
- Many DSPANs started as ad networks
and later integrated demand-side
platform capabilities
- With DSPANs, ad network inventory is
mixed with programmatic exchange
inventory
- Brand buyers expect to buy named
inventories; vendors must provide the
ability to choose publishers within
programmatic buying platforms
- Many advertisers are accustomed to the
cost-per-day (CPD) system that allows
them to clearly see where an ad is placed
- However, this model lacks neutrality;
typically, DSPANs prioritize the sales of
their network inventory first, above that of
other publishers
37
38. Exchange Company Capabilities Type
Owned
Inventory
Third-Party
Inventory
Device(s) Notes
TANX Alibaba
ADX, DSP,
SSP, DMP
Private
Taobao online
shops
Alimama alliance PC & Mobile
- Aggregates inventory from its e-
commerce websites
Baidu Exchange Service Baidu
ADX,
DMP
Private
Owned
properties &
partner sites
Baidu alliance;
news partners
PC & Mobile
- Works with 600K+ partner sites
(similar to Google’s Display
Network)
Tencent Ad Exchange Tencent
ADX, DSP,
DMP
Private
Owned
properties &
partner sites
Mobile alliance;
Discuz alliance
Mobile
- Also launched a DSP named
Tango in May 2013
Youku Tudou ADX Alibaba ADX Private Owned video - PC & Mobile
- One of China’s largest video
sites, referred to as the
“YouTube of China”
Sina Ad Exchange (SAX) Sina
ADX,
DMP
Private
Sina properties,
including Weibo
- PC & Mobile
- SAX is used for traffic across
Sina-owned sites outside of Tier
1 cities
Doubleclick Ad
Exchange
Google
ADX,
DMP
Open -
AdMob,
AdSense
PC & Mobile
- Launched in 2012; considered
to have access to premium
inventory compared to other
open exchanges
Inmobi ADX Inmobi ADX Open - Network of apps Mobile
- Primarily focused on driving app
installs for gaming companies
Private exchanges operated by Baidu, Alibaba & Tencent are the largest in ChinaAdvertising
Exchanges
38
39. Advertising
Agencies Role of agencies in the China advertising market
1. Large global agencies with a
large and mature local presence
- Digital agencies operating under the
umbrella of large global agency groups
like IPG, Omnicom, Publicis, and
WPP have been present in China for
several years and have strong
experience in serving both international
and local clients
- All of these agencies have set up
agency trading desks in China and are
ramping up programmatic ad spend
2. Global agencies that still need
time to develop a presence in China
- Other global agencies have a much
shorter history in China
- For example, Possible China has only
been in the market for three years; the
majority of its business comes from
global contracts
- These agencies typically lack
programmatic buying expertise &
haven’t set up trading desks
3. Local agencies that are
more vertically focused
- Few local digital agencies provide full
digital services (BlueDigital is a notable
exception)
- Most focus more on one or a few
particular services (such as social
marketing agency Social Touch and
mobile marketing agency Domob)
- Steadily increasing online media spends
but lack deep understanding of digital
technologies; mostly come from offline
media buying
Source: Gartner
Types of Agencies Operating in China
39
40. Advertising
Agencies Role of trading desks in the China advertising market
As in the U.S., agency trading desks are
the centralized organizations that drive
programmatic spending within agencies
Holding Company Trading Desk
Publicis Vivaki
Omnicom Group
IPG
The major global agency
holding companies have
established trading
desks in China
Trading desks have struggled to
gain broad adoption in China
- Trading desks in China remain under
utilized compared to their U.S.
counterparts
- Less than 20% of exchange buys come
from agency trading desks (Thomvest
estimate)
- Trading desks are being held back by
the following:
1) Lack of trust in inventory sources
available via exchanges,
2) Lack of third-party data for audience-
level targeting,
3) Lack of local talent specializing in
programmatic media buying
40
41. Measurement
& verification Ad measurement & verification critical components of a viable programmatic market
High rates of click and impression fraud
- According to RTBAsia, between 15 to 20 percent of China’s
advertising impressions that are traded in ad exchanges are
non-human
- This high ad fraud rate can be attributed to Chinese computers
running old versions of Windows which are infected with
malware and allow bots to run in the background
Ad verification is difficult against closed BAT systems
- Currently traditional ad verification can only measure consumer
demographics based on offline panels
- Companies like Miaozhen Systems and AdMaster have used
this methodology to roughly calculate advertisers’ target
audience percentages
- Companies like Nielsen are partnering with Tencent for its digital
ad rating (DAR) product, which uses Tencent’s behavioral data
in conjunction with traditional panels to measure advertising
effectiveness
41
42. Government
Intervention
In July, the Chinese government issued new regulations on online advertising,
which lay out guidelines to guard against false or misleading practices
Background
- The regulations follow public uproar due to the death of a student who tried a
cancer treatment he found advertised on Chinese internet search giant Baidu Inc.’s
platform
- The ensuing criticism took aim at the murky online environment for health
information
Major
Changes
- Prohibits online ads for prescription medication and tobacco
- Requires prior government approval for ads for medical supplies, pesticides,
veterinary medicine and other health products
- All paid advertising must be clearly identified in search results
- Adequate options must be provided for users to close an ad (such as a popup)
Expected
Impact
- These are expected to impact all digital marketing channels from search,
ecommerce, email, social media and some elements of programmatic buying
- Search giant Baidu and e-commerce giant Alibaba will take the biggest revenue hit
(IHS estimate)
- In the long run, tougher regulations will help online advertising to become a more
credible advertising medium
The Chinese government closely controls the content & creative included in ads
“The government is trying to get
a hold of a fast-moving segment
of the internet. This new move
will create a more transparent
business environment for major
players and will lead to a more
favorable development of the
industry,”
Faith Gao
Programmatic Director
Performics
42
43. Agenda
China mobile advertising market size and growth
Key mobile app publishers & adtech vendors in China
The role of programmatic advertising in China
China technology M&A trends
43
44. Notable advertising technology acquisitions in China
Date Company Logo Acquirer Price
Price / TTM
Rev
Company Description
Q3 2016 AppLovin Orient Hontai Capital $1.4B
6x
(2015 rev)
- Mobile app advertising platform
Q3 2016 Media.net
Miteno Communication
Technology
$900M
3.9x
(2015 rev)
- Contextual advertising network
Q3 2016 GameAnlaytics Mobvista - -
- Free app analytics platform for game
developers
Q2 2016 Smaato Smaato
Spearhead Integrated
Marketing Comm.
$148M 1.6x - Global mobile SSP & advertising exchange
Q1 2016 Opera* Qihoo 360 & Kunlun $1.2B 2x
- Browser & security software; mobile
advertising platform
Q1 2016 NativeX Mobvista $25M - - Native mobile app advertising network
Q2 2015 Domob
BlueFocus
Communication Group
$289M - - China-based mobile advertising network
Q1 2015 MobPartner Cheetah Mobile $58M 3.7x - Mobile app advertising platform
Q1 2015 AdChina Alibaba - -
- Chinese advertising platform with a focus
on brand advertisers
Source: 451 Research M&A Knowledgebase
* Note: In July 2016, Qihoo & Kunlun announced that its consortium would acquire only Opera’s browser and security software (Opera’s Mediaworks group will be sold in a separate process)44
45. Notable advertising technology companies listed on Chinese stock exchanges
Company Logo IPO Date
Market
Cap
Gross Revenue
Company Description
2014 2015 2016 (E)
Mobvista
Nov. 2016;
NEEQ Index
$1B $100M $200M N/A
- Hong Kong-based mobile advertising network with
a large presence across Asia (10B daily ad
impressions in more than 230 countries)
- Recently acquired NativeX & GameAnalytics
PapayaMobile
(aka AppFlood)
May 2016;
NEEQ Index
$335M $35M $51M $150M
- Mobile ad platform focused on driving app installs;
offerings include DSP & Facebook ad buying tool
- Projected revenue of $150M & net profit of $15M
in 2016
Spearhead
Integrated
Marketing
Comm. Group
Apr. 2010;
Shenzen
Stock
Exchange
$1.2B $234M $486M $656M
- Offline marketing services provider, including
terminal marketing services, event marketing
services, & media communication services
- Acquired Smaato in Q2 2016 for $148M
BlueFocus
Comm. Group
Feb. 2010;
Shenzen
Stock
Exchange
$3.2B $895M $1.25B $1.96B
- Large branding agency with services including ad
planning, brand communications, product
promotion & crisis management
- Acquired Domob in Q2 2015 for ($289M)
Source: Thomson One & company filings45
46. Chinese companies are increasingly active buyers of American & European digital media vendors
Western digital media companies acquired by China-based buyers, 2011-2016
(Includes adtech, martech, gaming & media companies)
Source: 451 Research M&A Knowledgebase
* Note: ”Total Deal Value” only includes deals where acquisition price was disclosed
** Opera acquisition not included because deal has yet to close
4
0
2
3
5
12
0
5
10
15
2011 2012 2013 2014 2015 2016 YTD
NumberofDeals
$452M N/A N/A $79M $94M $11.7B
Cloud Data Corp
Cryptic Studios
KAX Media
Riot Games Inc.
We Are Social Ltd.
Longshot Interactive
Digital Extremes Ltd.
Semp.com
GetJar
Rumble Entertainment
WPT Enterprises
Piraeus Consulting
MobPartner
Miniclip SA
Supercell
Smaato
OpenJaw
Bigpoint
NativeX
Corbis Entertainment
Blue Fountain Media
GameAnalytics
News Republic
Media.net
AppLovin
Total Deal
Value (USD)*
**
46
47. This uptick in cross-boarder M&A has been spurred by high valuations in Chinese stock markets
“China's stock markets are running hot. Businesses trading there get
relatively higher multiples, creating an arbitrage opportunity for a
disciplined buyer. That provides an impetus for East-to-West deals, in
addition to cost synergies, opening up new avenues of growth and other
considerations that typically drive M&A."
Scott Denne
Analyst
451 Research
47
48. Recent mobile acquisitions by Baidu
Date Company Logo Price Company Description
Q4 2013
PW Literature
(Zongheng.com)
$31.2M - Online literature & e-reading platform
Q3 2013 Nuomi Holdings $160M - Online coupon services provider
Q3 2013
91 Wireless
Websoft Limited
$1.85B - China-based Android app store
Q2 2013 PPStream $370M
- Peer-to-peer streaming video network
software
Q4 2012 iQiyi N/A - China-based video-sharing website
Q2 2011 Qunar.com $306M - Online travel search and reservations service
Recent Investments:
2016: ZestFinance, Circle, Exands
2015: Womai.com, Bai An, Bolo.me, CloudFlare, Mia.com, Uber China, Edaixi, Taboola, Qianhai Mobile, VisionChina, Uxin,
2014: Pixellot, SmartStudy, IndoorAtlas, Wanda, UUCun
48
49. Date Company Logo Price Company Description
Q2 2016 Wandoujia $200M - China-based Android app store
Q2 2016 AGTech Holdings $307M - Lottery and gaming systems
Q4 2015 Youku Todou $3.7B - China-based video-sharing website
Q1 2015 AdChina N/A
- Chinese advertising platform with a focus on
brand advertisers
Q3 2014 UCWeb >$1.9B - Mobile browser software provider
Q2 2014 AutoNavi Holdings $1.58B
- Mapping data and location-based services
software
Recent mobile acquisitions by Alibaba
Recent Investments:
2016: Didi Chuxing, Yiguo, Magic Leap
2015: Jet, Meituan-Dianping, One97 Communications, Snapdeal, OpenJet, Koubei.com, Quixey, Yazuo, Lazada Group, ThetaRay
2014: Peel, Lyft, Tango, TutorGroup, Baicheng, Myfriday.cn, Huxiu.com, Kabam, MomentCam, WiTown, ByeCity, Momo
49
50. Recent mobile acquisitions by Tencent
Date Company Logo Price Company Description
Q3 2016
China Music
Corporation
$2.7B for a 60%
stake
- Mobile music streaming services (Kugou and
Kuwo)
Q2 2016 Supercell $8.6B
- Mobile gaming developer (“Clash of Clans” is
its most popular title)
Q1 2016
Radiant
Entertainment
N/A - Online gaming developer
Q1 2015 Miniclip SA N/A - Online & mobile gaming developer
Q1 2012 ZAM Network N/A - Videogame enthusiast website operator
Recent Investments:
2016: Baobao, Pinduoduo, Future Mobility, Payoff, Meta, Ningmeng Pictures, Diffbot, iCarbonX, Paradox Interactive, Yuanfudao
2015: Watsi, AltSpaceVR, Wuxi Maimaibao, QuizUp, VC Mobile Entertainment, Cyanogen, Satellogic, Lyft, Scanadu, Didi Chuxing
2014: Breadtrip, Playdots, Kamcord, WiWide, Amplitude, WhisperText, Garena, Domob, Weebly, Dianping.com
2013: Snapchat, Daum KaKao, QuizUp, Kamcord, JiaThis, Uxin
50