Analysys Insight:

In Q3, China’s Internet advertising market reached RMB67.25 billion, a rise of 6% over the previous quarter or 15.4% year on year, shows the Quarterly Monitoring Report on China’s Internet Advertising Market 2016 Q3 published by Analysys. Affected by the macroeconomic situation and further maturity of the market, the growth rate of the overall market size slowed down. 

Judging from advertising form, in 2016 Q3, the share of the keyword advertising market contracted to 33.7%, the shares of the video advertising, brand text/image advertising and other advertising forms rose somewhat to 27.5%, 25.1% and 13% respectively, and the share of email advertising basically remained stable at 0.7%. 

In Q3, Baidu, Alibaba and Tencent ranked top three with a market share of 25.2%, 24.2% and 11.2% by revenue in the Internet advertising market, according to the Quarterly Monitoring Report on China’s Internet Advertising Market 2016 Q3 published by Analysys. 

In the opinion of Analysys, the recent dynamics of the advertising market are worth attention: 

1. Buoyant supply and demand helped Internet advertising channels move downward and accelerated the conversion of local long tail streams into cash values. 

In 2016, traditional advertising further contracted, constituting a stark contrast with further expansion of the Internet advertising market. In tier-3/4 cities, the advertising industry experienced profound changes, and advertisers tilted their budgets in large amount in favor of Internet media, particularly mobile Internet media. At the same time, advertising agents accelerated the pace towards digital marketing. All these changes created a favorable climate for large Internet advertising carriers to further extend their channels. In Q3, Tencent launched the local pay circle advertising service and signed an agreement with China Post to strengthen the cooperation in social advertising. Traditional regional advertising agents face a big threshold in developing Internet advertising systems on their own. Therefore, they can sell advertising products of Internet advertising carriers and further develop existing advertiser resources by bypassing the constraint of technology and resource and quickly going to the Internet. Internet advertising carriers need powerful channel partners to help expand local discrete long-tail markets, and regional advertising agents have rich local resources and are therefore ideal partners. 

The localization of Internet advertising was put forward a long time ago but always made slow progress, mainly restricted by the following factors: First, media have relatively limited stream available for local advertisement launch, and large Internet advertising carriers with rich flow have the ability to explore localization at an early date. Second, the business model of advertising localization is gradually taking shape, the interest distribution mode is continuously changing, and regional agents seek to maximize their commercial interests. At the same time, regional advertisers are relatively slow in understanding marketing values and forms of Internet advertising, which has affected the transfer of budgets. At present, these factors are now getting weaker and weaker amid the maturity of the market and changes in objective conditions, and the market is evolving in the positive direction. 

2. The OTT marketing forms are now under exploration, and marketing values of customers are marching towards diversification 

Smart TV, as the smart big screen terminal under the sitting room scenario, always attracts much attention in terms of marketing value. At present, the advertising form mainly through open screen doesn’t differ from traditional TV advertising, except for visual impact. Therefore, exploring unique advertising forms for smart TV is now an important task for OTT advertising at the startup stage. In August 2016, Letv.com launched six marketing products, which have provided the new large screen marketing modes for the market in terms of conversion of advertising effect, content connection and brand building. In the opinion of Analysys, the rise of emerging terminals means not only more eyeballs and user streams, but also represent the update and upgrade of marketing forms and concepts. The marketing values of smart TV will never be restricted to the one-way experience from the visual impact. Instead, the marketing values of OTT advertising are to focus on scenarios, integrate behaviors of users and bring advertisements closer to users with rich interaction technologies. At present, the market is actively attempting and continuously applying these new forms, which will require further test of market and time as to final landing effect.   

3. Opening the stream supply and demand channels, media enhanced the capacity to convert stream into cash values and market brands 

As the Internet dividend diminishes, brands and media will contend for stream and users more violent. Different industry players effectively integrate media resources and brands to improve the overall efficiency of the advertising industry and turn Internet advertising into normal. In September 2016, JD.com and the Headlines Today announced a strategic partnership plan, and both parties would fuse the need to convert information streams into cash values and marketing demand of mobile shopping. Compared to the past, Internet enterprises are now more familiar with streams: They no longer pursue the stream size only but pay more attention to values of users behind streams. JD.com and the Headlines Today overlap in terms of users to a small extent, so the cooperation between both parties will help JD.com win more new user groups and mean more than the purchase of advertising streams. 

Analysys data show that of e-commerce groups of 39,728,300, 16,864,600 were active users of comprehensive information services with a behavioral TGI of 1.23, which was higher than the average level in the Internet industry. Therefore, the channel cooperation between e-commerce and information service providers will be of great significance for cash value realization of media, stream guide of e-commerce sites and consumption experience of users.
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