monetization in the us and china: where to invest
TRANSCRIPT
Monetization Across the US & China: Where to InvestHany NadaManaging Partner, GGV Capital
Ad Gap ?An Investors perspective….
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
TVInternetNewspaperRadioMagazinesOutdoorOther
*McKinsey and World Bank
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
TVInternetNewspaperRadioOutdoorOther
*McKinsey and World Bank
The Ad GapUS$190BHeavy 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 SpendMix
GDP/CapitaConsumption/User
Ad Spend per User
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 SpendUrban GDP/CapitaConsumption/Cap
Ad Spend per Cap
Online?!? Ad Gap ?An Investors perspective….
US: Desktop & Mobile Ad Spend
2013 2014 2015E 2016E 2017E 2018E 2019E
$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
$65.87
US Digital Ad Spending ($ 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.
China: Ad SpendMobile ad Spend continues to accelerate, In Billions $
Source: eMarketer, March 2015.
2013 2014 2015 2016 2017 2018 2019 -
20
40
60
80
100
120
Total Ad Spend Digital Spend Mobile Spend
The Internet Ad GapUS280M (88% of pop)
203M$57B$28B$205$137
China700M (50% of pop)
680M$26B (52% of US)$14B (50% of US)$37 (18% of US)$21 (15% of US)
Internet PopulationMobile Users
Internet Ad SpendMobile Ad
$/Internet User$/Mobile user
Other Methods of Monetization
Standard Monetization
Advertising Subscriptions MicrotransactionsSubscriber 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.
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.
US: Comparing Quarterly ARPU
Advertising Subscriptions MicrotransactionsQ2 2015 Subscription
Revenue per Subscriber
Q2 2015
$0.00 $10.00 $20.00 $30.00
$15.20
$23.97
$24.21
$26.52
Spotify Total Revenue / SubscriberHulu Rev / SubscriberHulu Sub Rev / SubscriberPandora 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
Q2 2015
$0.00 $2.00 $4.00 $6.00 $8.00 $10.00
$0.61
$1.59
$2.07
$2.61
$2.91
$8.63
Facebook Ad Rev / Active User (US & Canada)Pandora Ad Rev / Active UserFacebook Ad Rev / Active User (Worldwide)Yahoo Ad Rev / Mobile Monthly ActiveTwitter Ad Rev / Monthly Active UserZynga Ad Rev / Monthly Unique User
Q2 2015 VAS Revenue per User
Q2 2015
$0.00 $1.00 $2.00 $3.00
$1.46
$2.62
Zynga VAS Rev / Monthly Unique UsersKing 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).
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
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.
1
$0.00 $1.00 $2.00 $3.00 $4.00 $5.00
$0.36
$0.43
$0.68
$0.72
$0.76
$4.03
Baidu Ad Rev / Mobile Search MAUTencent Ad Rev / QQ MAUSina Ad Rev / MAUSohu Ad Rev / MAUNetease Ad Rev / Est. Email MAUYouku Ad Rev / MAU
China: Comparing ARPU by ModelAdvertising 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.
1
$0.00 $100.00
$7.04
$7.04
$9.38
$29.17
YY Subs & Broadcasting Revenue / Paid Users in CategoryYY Quarterly Equivalent of Monthly Sub FeeYouku Quarterly Equivalent of Monthly Sub FeeIQiyi Quarterly Equivalent of Monthly Sub Fee
1
$0.00 $50.00 $100.00 $150.00
$5.94 $26.58 $26.97
$53.55 $67.00$68.90
$115.73
YY Dating VAS / SubsYY Games VAS / SubsYY Online Music & Entertainment VAS / SubsTencent MMPORG ARPUTencent Casual Games ARPUTencent Wechat/QQ Games ARPUSohu Game Rev / Changyou MAU
China: Median Yearly ARPU
Advertising Subscriptions Microtransactions
$30-$70$3-$7 $100-$400
Which would you choose
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
Kickstarter breakdownWhales- 48% of raise
949 Fans/4% of baseRange of contribution $300-$10,000Signed album+ book+ surprise gift“Veblen” Goods
Dolphins- 49% of raise13k Fans/ % of baseOffers: $25-$125“positional goods”
Minnows- 3% of raise 11k Fans/45% of base Offers: Free-$5 Facilitates Dolphins and Whales
$540k
$550k
$37k
949 Fans4%
13k Fans 51%
11k Fans 45%
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 ?