Is advertising the only thing that can save Bilibili?

Based on Bilibili’s key commercialization moves, this article analyzes its advertising business. Let’s take a look.

On May 23, Bilibili released its unaudited financial report for Q1 2024: revenue in the first quarter of 2024 increased by 12% year-on-year to 5.66 billion yuan.

Among them, the advertising business increased by 31% year-on-year in the first quarter to 1.67 billion yuan, reaching a new high in the past three quarters.

Compare it to next door:

iQiyi’s online advertising service revenue in the first quarter was 1.5 billion yuan, a year-on-year increase of 6%.

As far as advertising is concerned, Bilibili can be described as coming in with great momentum, and has indeed achieved a very rare result.

After all, the first quarter has always been a low season for advertising, and many brands are still allocating and formulating their annual marketing budgets. In addition, Q1 is not traditionally a peak sales season for consumer goods, so advertising demand is not strong.

I previously wrote an article titled "In-stream Ads Are Not the Optimal Solution for Bilibili's Commercialization," which sparked quite a bit of discussion.

Today I am going to talk about the commercialization of advertising at Bilibili, which is the second installment of the special topic on Bilibili’s advertising platform.

This time, based on Bilibili’s key commercialization moves, I would like to talk about my views on the advertising business in this financial report.

1.Easy money?

For a long time, advertising business was not a P0-level business of Bilibili.

For Bilibili, advertisements will disrupt user experience and affect the healthy community atmosphere, and the community is its lifeblood.

Therefore, compared with B-side advertisers, Bilibili has always wanted to take advantage of C-side users.

By 2017, games and live streaming contributed 90% of total revenue.

It wasn't until 2018 that Bilibili, which already had 87 million monthly active users, began its de-gamification strategy and started to prioritize its advertising business internally.

At a time when the market is generally concerned about profitability, Bilibili once promised to "achieve break-even in 2024", and now there are still 7 months away from fulfilling that promise.

Among Bilibili's four businesses, the gaming business and IP derivative business are both relatively weak, the value-added service business accounts for the largest proportion, and the advertising business is growing the fastest.

Therefore, only advertising can become the engine that drives Bilibili at full speed.

There has always been a saying within Douyin that "advertising business is easy money". At Douyin, advertising is not the top priority business.

Whether it is OKR or public speeches, Zhang Yiming and current CEO Liang Rubo rarely mention the advertising business, and even if they do, it is only a sentence or two.

Easy money has two meanings:

1. Make money faster : It is very easy to exchange traffic resources for advertising fees. Just as some economies can make a lot of money just by relying on underground oil. Although oil extraction involves exploration, drilling, refining and other technologies, it is a resource-intensive rather than technology-intensive industry.

On the other hand, the advertising market is somewhat similar to oil, and is considered a " traffic-intensive " industry. Internet advertising revenue grew by 33.4% last year. (Data source: State Administration for Market Regulation), indicating that the demand for the digital advertising market is still relatively strong, and selling traffic has always been a good business.

2. Higher gross profit: Once the infrastructure of the advertising platform is completed, as more customers are provided with advertising services, its marginal cost will be lower and the gross profit will be higher.

Among the advertising-based platforms, take Baidu and Weibo as examples. Baidu's online marketing business contributes more than 70% of its revenue, with a gross profit margin of 50%; while Weibo, whose revenue relies on advertising for nearly 90%, has an even more exaggerated gross profit margin of 78.05% (data as of March 2024).

The term "easy money" is also relative to e-commerce, games, life services and other businesses.

E-commerce business needs to deal with complex issues such as supply chain, logistics, inventory and customer service. For content platforms like Bilibili, the difficulty coefficient is even higher;

Not to mention local life services, which are already a very heavy business and more difficult than e-commerce. Wang Xing of Meituan described it as "both awesome and hard";

The gaming business is not easy to do either, as it requires high content innovation, especially since mobile games have a relatively short life cycle and a low success rate.

For Bilibili, Douyin has already paved the way for the growth of Internet advertising platforms in recent years, so Bilibili advertising no longer has to grope in the dark.

Douyin's advertising has been losing weight in the past two years. From what I understand, many people have gone to Bilibili, whether it is the mid-sales desk for advertising sales or the commercial product team that works on advertising efficiency.

With a leader as a benchmark to lead the way, the path to advertising commercialization has become easier.

2.Hard job?

Although advertising fees are easy money, advertising business is a hard job. The money is easy to make, but the work is hard.

Advertisers are becoming more and more familiar with marketing, and there is no longer any information gap. Brands now not only want exposure, but also want to attract attention, not only to attract attention, but also to increase sales.

Advertising platforms are doing everything they can to divert advertising revenue.

Today's digital advertising market has entered the "full map" mode.

If you have played real-time strategy games such as Age of Empires, you will know that when the map is fully open, it means that all advertising modes have been explored and all resources have been divided up.

There is no undeveloped virgin land, no sudden treasure chest, and advertising fields such as information flow, search, short videos, e-commerce advertising, expert business orders, etc. Every mine is heavily guarded.

How does Bilibili exploit this traffic? In the first quarter, it did four main things, all of which centered around one core: improving efficiency.

We can first look at the revenue formula of an advertising platform to understand the growth strategy of Bilibili's advertising business. There are many factors that affect advertising revenue. I chose to look at advertising revenue from the perspective of advertising inventory:

Advertising revenue = advertising inventory x advertising loading rate x CPM (cost per thousand)

• In terms of advertising inventory, except for pre-roll ads, other advertising styles have begun to fill up. Many users have observed that there are more ads on the homepage.
• In terms of ad loading rate, Bilibili has not yet opened the ad tap to its maximum, with adload only 5%-8%. Compared with other platforms with loading rates of over 10%, there is still room for improvement.
• In terms of advertising unit price, the core of Bilibili is the content of up-masters and the extremely high concentration of young people. Compared with other advertising platforms, the CPM unit price of brand advertising on Bilibili is very high. According to a late report, "the difference is at least 10 times, and sometimes it may be 100 times." There is not much room for growth. Future growth will mainly rely on the CPM price increase of long-tail traffic, which mainly depends on the improvement of advertising efficiency.

I believe that e-commerce is the best whetstone for advertising platforms to improve advertising efficiency.

First, e-commerce advertising has an immediate conversion rate. The ROI of the advertising can be clearly measured, and real-time sales data and user feedback can be quickly fed back, which forces the advertising platform of Bilibili to continuously optimize algorithms and delivery strategies to improve efficiency.

Secondly, e-commerce advertising can fill the data loop. Alibaba, JD.com, and Pinduoduo have rich user behavior data, such as browsing, searching, and purchasing history, which can be used for precise targeting and personalized recommendations to improve the relevance and conversion rate of advertising.

Third, e-commerce advertisers are more willing to try new technologies and innovative advertising formats , such as AR/VR, video ads, live streaming, etc., to attract user attention. A/B testing can also be used to test different advertising ideas, copywriting, designs, etc. to quickly find the most effective advertising version.

Fourth, e-commerce advertising can also create a good consumer atmosphere for Bilibili . This is very important. The closer the platform is to the user's consumption behavior, the easier it is to grab the advertiser's performance advertising budget. Although e-commerce promotions such as 618 and Double 11 have not reached their peak in recent years, they are indeed a good trick to establish a community consumption atmosphere and cultivate user consumption mentality.

Coincidentally, popular advertising platforms such as Douyin, Kuaishou, and Xiaohongshu have upgraded their equipment and started to build their own closed-loop e-commerce models, strategically giving up the gold mine of attracting e-commerce advertising.

Pure e-commerce platforms such as Taobao Tmall, JD.com, and Pinduoduo were eagerly looking for new traffic. At this time, Bilibili opened its doors to welcome customers and became an open-loop e-commerce platform.

I have the traffic and you have the money, so we hit it off immediately.

E-commerce platforms not only bring abundant marketing budgets, but also new business opportunities : E-commerce platforms have a large number of brand owners, which are a large number of new customers for Bilibili. Some customers have cooperated with us before, but after opening up e-commerce, brands will try new marketing models, and Bilibili can attract more advertising budgets. During the 618 period this year, Bilibili received 30% more budget from external e-commerce platforms.

This following strategy is very clever, so some people say that Bilibili has picked up a big bargain.

I don't think it's necessary to say that. When many countries were extremely poor, they relied on cheap labor to achieve primitive accumulation. There is nothing to laugh at.

When I was having dinner with a friend a few days ago, he expressed a concern: With Bilibili’s open-loop strategy and its close links with e-commerce, will it become the next Weibo?

Weibo and Bilibili have the same commercialization problem. Even though the number of users is increasing, commercialization has not improved due to the limitations of the platform context. He said:

Alibaba, JD.com and other e-commerce platforms are like pumps running at full capacity, continuously extracting high-quality traffic from Bilibili to irrigate their own markets. Will Bilibili one day dry up the pond and catch all the fish?

As of now, Bilibili’s commercialization engine has only been launched for a short time, and its future development needs further observation.