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Analysis

Alibaba and Baidu slug it out in elevator ad sector

Nov 26, 2018 by Yun Nie
Alibaba and Baidu slug it out in elevator ad sector

Graphics: Mengjuan Li/The Passage

China’s largest search engine conglomerate Baidu (百度) led a CNY 2.1 billion (USD 302 million) strategic round of elevator advertising startup Xinchao Media (新潮传媒) on 14 November.

As part of the strategic partnership, Baidu will provide Xinchao with big data and artificial intelligence (AI) to help the advertising startup better understand customer behavior to enable targeted advertisements. Xinchao, in turn, will enhance Baidu’s advertising presence offline.

The search engine giant, during the Baidu Create 2018 conference, said it would promote the commercialisation of AI and digitalisation of Omini Marketing to engineer offline traffic solutions for enterprises. The strategic partnership with Xinchao can be seen as a step in that direction.

Founded in Chengdu in 2007, Xinchao became the first unicorn in the city last year after its Series F round took its valuation to USD 2 billion. Currently, Xinchao runs advertisements in nearly 700,000 elevator TVs in more than 100 cities across China.

Baidu and Alibaba lock horns

On July 18, China’s e-commerce giant Alibaba (阿里巴巴) invested CNY 15 billion (USD 2.23 billion) to acquire 5.28% stake in Xinchao’s major rival, Focus Media (分众传媒), reported 36kr.com (36氪).

Focus claims a reach of 200 million middle-class consumers across 300 Chinese cities. The deal will help expand Alibaba’s advertising footprint, and, in return, Focus will profit from Alibaba’s big data.

Alibaba has a growing interest in offline advertising sector. While Alibaba targets advertisers in tier 1 and 2 cities as well as major business hubs, Baidu has a broader client scope covering tier 3 and 4 cities, suburbs and rural areas.

Baidu and Alibaba have emerged as the biggest two players in the advertising sector with their respective alliances. American online publisher TechCrunch has reported Baidu saw a boost in its offline revenue post the Xinchao deal.

What the future holds

China’s elevator advertisement segment would experience a tectonic shift as Alibaba and Baidu vie for the market share. 36kr.com predicts three major changes.

1. New battleground

Focus currently dominates tier 1 and 2 cities, but is planning to expand into tier 3, 4 cities- Xinchao’s favourite hunting grounds. Meanwhile, in the last few months, Xinchao has slashed the price of elevator advertisements in tier 3, 4 cities with a promise of “profit rate will not exceed 25%”.

2. No threat from social content platforms

Chinese population spends a lot of time on online social content platforms including WeChat (微信), Weibo (微博), Kuaishou (快手) and TikTok (抖音). However, the trend will have no bearing on elevator advertisement business. Elevator advertisements are built into the city’s infrastructure and have a unique "mandatory" attribute. In elevators, few Chinese people watch online content in smartphones as the signal is weak and, as a result, elevator advertisements get more attention.

3. More integration on the cards

Focus integrated with Alibaba’s big data to build a new ecosystem of intelligent marketing and offline media. The data integration will increase brands offline exposure with better targeted advertisements. In future, offline advertising would also benefit from IoT (The Internet of Things), AI and smart hardware, among other things.

Yun Nie

Yun Nie is a New York-based tech reporter. She focuses on India-China financial market, global IT giants and technology-centric market trends. She can be reached at Yunnie@thepassage.cc.

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