Mediaboss Marketing

China is going to be the second largest spender on social media ads in the next five years. But, according to Forrester, it will not overtake the US anytime soon.

According to the report Chinas Social Networks Have Room to Generate Higher Advertising Revenue, the analyst firm noted significant challenges.

First, Chinas per-capita income is still relatively small. According to the report, China's 2015 GDP per capita was US$6,498 or 13% of the US figures. Meanwhile, China's social ad spending per social user was only US$3.14, a mere 6% of the social ad spending seen in the US. It means that social media growth is not bringing in the ad spend that many hoped.

Another factor is the lower advertising revenue per user for mobile messaging. While WeChat dominates the mobile social networking market in China, the platform is lagging regarding monetizing users. The report noted that WeChat's per use social ad spending is US$3, which is far below China's online display ad spending per online user of US$18. Facebook and Twitter also fare better regarding monetizing users, according to Forrester, especially in matured markets like US, Japan, and South Korea.

Sina Weibo is not doing any better. The report noted that while Weibo is one of the largest social networks in China, it only generated US$567 million in revenue from its 313 million monthly active users in 2016. While Weibos revenues grew by 41%, it was largely from a small base.

Forrester noted that it is still early days. It pointed out that China's social networks are relatively young. Facebook went live in 2004, but WeChat only went online in 2011. It could be that WeChat may be more concerned about growing its base and consolidate its market position before looking to generate more ad revenues.

Also, Tencent, WeChats owner, has other revenue streams. Unlike Facebook and Twitter, they are not under immense pressure to build ad revenues. For example, a large proportion of the firms revenues came from value-added services.

Lastly, China social networks are beginning to monetize video ads. The report noted that it would provide a "meaningful" future boost. For example, Weibo video ads, launched in only Q2 2016, "accounted for 10% of Weibo's advertising revenue in the second half of 2016," it said.

Further reading:

Online ad spend in China impacts the region

Fake news costing advertisers reputation, ad dollars

US ad market shift from mobile-first to mobile-only

More here:
Report: China set to become second largest social ad spender in 5 years - Enterprise Innovation