Where to find growth in 2023? 丨Douyin VS Kuaishou Advertising

Amidst the pressure and uncertainty, "tightening the belt and working hard" has become the true portrayal of most brand marketing departments. Throughout 2022, China's Internet advertising revenue has dropped sharply, but Douyin and Kuaishou's advertising revenue in 2022 showed a bucking upward trend. Let's follow the author to predict what commercial performance Douyin and Kuaishou will have in 2023.

There is not much good news for all walks of life in 2022. Amid pressure and uncertainty, "tightening the belt and working hard " has become a true portrayal of most brand marketing departments.

The "2022 China Internet Advertising Data Report" released by Zhongguancun Interactive Marketing Laboratory in conjunction with PwC, Miaozhen and other institutions shows that in 2022, China's Internet advertising revenue was 508.8 billion yuan, a year-on-year decrease of 6.38%. Among them, the advertising revenue of Baidu, Tencent and Alibaba all fell by more than 9%.

Among different advertising categories, short videos have become the only category that has shown growth in both media platforms and advertising formats, especially the representative platforms - Douyin and Kuaishou. Their advertising revenues in 2022 have shown an upward trend against the trend, but growth fatigue has already appeared.

Standing at the beginning of 2023, we might as well review the advertising commercialization performance of Douyin and Kuaishou in 2022 with Kass, and make bold predictions and judgments on the commercialization prospects of Douyin and Kuaishou in 2023.

1. Where is Douyin and Kuaishou Marketing going in 2022?

As early as the first half of 2020, media reported that ByteDance's commercialization department had determined a new direction for the department through long-term research and analysis, transforming it from an advertising sales platform to a commercial management platform. In short, it allows customers not only to advertise on Douyin, but also to do business.

To achieve this goal, the commercialization department has also identified three major areas of focus: commodity trading, in-store business from online to offline, and garages.

It has been more than two years since this goal was set. Obviously, the “commodity trading” business, which has the highest expectations and has received the most funding and resource support from Douyin, has grown the fastest, growing from a GMV of more than 100 billion to 1.5 trillion in a closed-loop ecosystem in just over two years.

The ultra-high-speed growth of e-commerce business not only effectively raised the overall valuation of ByteDance, making the outside world have more expectations and higher trust in Douyin's "live broadcast +" exploration, but also helped Douyin break through the original advertising revenue ceiling in a short period of time, proving that e-commerce business is the decisive factor in raising the advertising ceiling of short video platforms.

According to information obtained by Kas through multiple channels, ByteDance's advertising revenue will continue to grow in 2022, and is expected to exceed 300 billion, and will surpass Alibaba to become the largest advertising company in China.

The counter-cyclical growth of advertising revenue depends largely on the increased enthusiasm of e-commerce merchants, among which, Bytedance Qianchuan has the highest advertising share . Bytedance Qianchuan is an e-commerce advertising platform under the closed-loop system of Douyin. It was launched in April 2021 and supports brands, merchants and anchors to achieve multiple goals such as increasing fans and selling goods through various forms of advertising.

However, if businesses want to purchase more traffic through huge Qianchuan, it is not only considered by the "high or low bid" factor, but also by two major factors: the quality of advertising content (the core assessment of short videos is completion and likes, and the core assessment of live broadcast rooms is stay and attention) and the conversion rate (GPM) brought by thousands of exposures.

In addition to bidding, adding an assessment of "content" has invisibly raised the threshold for merchants to conduct e-commerce operations on Douyin, but it has also accumulated a large number of high-quality merchants who have a continuous willingness to pay and are more in line with Douyin's e-commerce capability model , thereby promoting the sustainable development of Douyin's e-commerce ecosystem.

According to reports, in May 2021, the month after the official launch of Massive Qianchuan, the advertising revenue contributed by Massive Qianchuan was less than 10% of ByteDance's revenue. However, by the end of 2021, this proportion reached 35%, but this does not include the placement of platform e-commerce (such as Tmall, JD.com, Pinduoduo, etc.) on Douyin. In 2022, although we still cannot clearly know the advertising contribution from Massive Qianchuan, it is likely that the proportion is still rising.

On Kuaishou, the product that competes with Bytedance Qianchuan is called "Magnetic Taurus", which was launched more than half a year later than Douyin.

Similar to Douyin: One of the core reasons for the rapid growth of Kuaishou's commercial revenue in 2022 is the continuous increase in the amount of advertising investment by e-commerce merchants. In Kuaishou, this source of advertising revenue contributed by e-commerce business is collectively referred to as "internal circulation advertising."

According to a previous report by LatePost, in the first quarter of 2021, Kuaishou's advertising revenue contributed by internal circulation was less than 25%, but a year later, this proportion reached 35%. Especially in the second quarter of 2022, affected by the multiple outbreaks of the epidemic, when external circulation advertising was uncontrollable, the proportion of advertising contributed by internal circulation advertising reached 45% of advertising revenue.

But what is different from Douyin is that the growth rate of Kuaishou’s internal circulation advertising benefits from Kuaishou’s e-commerce strategy of “developing fast brands”.

The so-called fast brands? In layman's terms, they are new merchants active in the Kuaishou ecosystem, most of which are white-label products from industrial belts. Kuaishou hopes to guide the high-quality white-label products among them to upgrade to "fast brands" so that they can increase their investment in the site after making profits in the ecosystem.

The “big push for fast brands” has indeed accelerated the commercialization of Kuaishou advertising. However, compared with mature brands, fast brands are still in their infancy, with most of them being small and medium-sized businesses, and their investment strength and sustainability are far inferior to mature brands.

Clues can be seen from the financial report for the first three quarters of 2022 that Kuaishou has already released: Although the number of monthly active advertisers in the Kuaishou ecosystem increased by 60%, 90% and 65% in the first, second and third quarters respectively, the year-on-year growth rate of advertising revenue was only 32.6%, 10.5% and 6.2%.

Customer structure is certainly not the only reason for the slowdown in Kuaishou’s advertising growth.

Kuaishou's daily active users are only half of Douyin's; Kuaishou's deep-line active users account for a higher proportion, and its limited spending power has also affected advertisers' enthusiasm for advertising. Not only that, the efficiency of Kuaishou's algorithm distribution, the accuracy and conversion rate of algorithm recommendations, the high-quality content filling rate, and the brand's awareness of the Kuaishou platform and energy allocation have all affected their embrace of Kuaishou.

Earlier media reports said that Kuaishou's commercial revenue target for 2022 is 59 billion yuan, but judging from the data released for the first three quarters, this goal may be difficult to achieve.

In general, from the perspective of advertising, growth is still the main theme of the commercialization of Douyin and Kuaishou, but the growth rate has declined significantly.

According to LatePost, ByteDance's advertising revenue in China grew by 40% and 80% in 2021 and 2020 respectively, while in the first three quarters of this year, ByteDance's advertising revenue in China grew by only about 15% year-on-year. Looking at Kuaishou, although the financial report for Q4 2022 has not yet been released, it is unlikely to be much more optimistic.

2. Where will Douyin and Kuaishou find growth in advertising in 2023?

Will the advertising revenue of Douyin and Kuaishou continue to grow in 2023? How can Douyin and Kuaishou find the ballast stone for advertising revenue growth?

Let’s look at Douyin first. According to Kas’s observation, there are two visible paths, and Douyin, which has always focused on “nipping problems in the bud”, has also been “vigorously” planning around these two paths.

The first path is naturally to look for incremental advertising revenue from mature businesses, among which e-commerce will still be given high expectations.

Li Hao, the founder of Mars Culture and Kas Academy, once mentioned in his personal public account (@李浩新业务思考) that by 2023, Douyin's e-commerce GMV is expected to reach 2.5 trillion.

Ideally, the increase in e-commerce GMV will also lead to year-on-year growth in advertising revenue, but the problem facing Douyin is that the loading rate of Douyin's commercial content (including advertising, e-commerce, life services, etc.) is close to the upper limit (15%), and according to Douyin insiders, at some important nodes, especially Double Eleven, Douyin's commercial content filling rate can reach 30%. This means that if Douyin wants to continue to break through the ceiling of advertising revenue, it must optimize the efficiency of algorithm distribution and the accuracy of algorithm recommendations to the extreme, so as to sell the price of a single flow to the highest level without affecting user activity.

In addition, the increase in advertising revenue also depends on Douyin's refined exploration of existing customers and traffic.

For example, in addition to KA customers, we can continue to tap the advertising potential of small and medium-sized customers, stimulate their enthusiasm for advertising and further increase their advertising budget on Douyin; for another example, in addition to information flow advertising, we can improve the sales conversion rate of search advertising and mall advertising, and further increase advertising revenue through the development of new marketing scenarios and the creation of benchmark customers.

It is worth mentioning that on the data-driven algorithm distribution platform, it is also very important to continuously improve advertisers' willingness and confidence in placing ads.

In 2022, in Kas's view, the reason why Douyin advertising can achieve rapid growth is also due to the improvement of data tool products. Through the iteration of data, technology, products, etc., the effect of advertisers' advertising on Douyin has become traceable, measurable and trustworthy.

Here, we have to emphasize a concept - A3 people.

In the Big Data Cloud Map, based on the closeness of the relationship between users and brands, brand populations are divided into five levels, namely O opportunity population, A1 understanding population, A2 attraction population, A3 seeding population, A4 purchase population and A5 repurchase population, representing the user's behavioral journey from understanding to advocating for a brand. Among them, the A3 population, as the population with the highest brand recognition and the greatest conversion potential, was highlighted by Big Data Engine and became a major "killer weapon" for Big Data Engine to win customer budgets.

On the one hand, brands can "quantitatively" evaluate each marketing communication activity based on the accumulation of A3 population assets on the huge cloud map, especially the concrete effects brought about by brand-type delivery (such as influencers, Topview); on the other hand, during major promotional events, they can deliver to targeted A3 populations such as Huliang Qianchuan to accelerate the flow of A3 (planting grass) population to A4 (purchase) and A5 (repeat purchase) population.

To a certain extent, this is also a reflection of the closed-loop traffic management capabilities of Douyin's commercialization team, transforming Douyin from a marketing platform to a business management platform.

However, all the above mentioned are Douyin’s methods to break the ceiling of advertising revenue around mature businesses. The second path we are going to mention next is to find incremental advertising revenue from incremental businesses . Among them, in 2023, the "online to offline business" that Douyin has high hopes for - that is, the life service business plays an extremely important role. Local life is expected to become the second trillion-dollar track "grown" in the Douyin ecosystem after e-commerce.

36Kr reported that in 2022, ByteDance has basically achieved the goal of 50 billion yuan for its life service business. In order to allow life service merchants to promote their stores and products through short videos and live broadcasts, in June, ByteDance also launched a marketing platform specifically for life service merchants - Local Push, and through in-depth cooperation with Ele.me, it quickly entered the home delivery business. In 2023, Douyin's life service goal is 150 billion yuan, which will obviously also bring an increase in advertising revenue.

However, due to the characteristics of life service merchants: there are more small and medium-sized long-tail merchants, low awareness of new traffic platforms such as Douyin, and overall low willingness and strength to invest, the incremental contribution of life services to Douyin advertising in 2023 will be relatively limited. But in the long run, the refined development of local traffic will obviously help improve Douyin's overall traffic monetization capabilities and efficiency, and bring more incremental growth to Douyin's commercialization.

Switching our focus to Kuaishou in 2023, we will find that the pressure on Kuaishou to increase advertising revenue may be much greater than that of Douyin .

Although Kuaishou’s “big brand” strategy has accelerated brands’ enthusiasm for entering Kuaishou, due to the influence of brand energy allocation, perception of Kuaishou, and Kuaishou’s strong private domain, there are not many brand customers who actually take action on Kuaishou.

Taking store live streaming as an example, many brands usually start live streaming to sell goods on Kuaishou during major promotional events, but the number of merchants who actually invest in flat live streaming is relatively small compared to Douyin. This is clearly a pain point in Kuaishou's commercialization - it is impossible to truly earn stable profits from brand merchants with advertising budgets . In addition, as mentioned earlier, although Kuaishou's internal circulation advertising strategy has brought visible revenue growth to Kuaishou's commercialization in 2022, judging from the growth rate, bottlenecks have already appeared.

In mid-October 2022, in order to cope with the challenges of slowing growth, Kuaishou also adjusted the management of some businesses. For example, founder Cheng Yixiao personally led the e-commerce business, and the former head of the main site business Wang Jianwei began to lead the commercialization business. However, such adjustments do not seem to have brought significant help to Kuaishou's commercialization.

Let's look at Kuaishou's incremental new business segments, such as life services. Although Kuaishou reached in-depth cooperation with Meituan at the end of 2021 and has successively piloted group buying business in multiple cities. However, the same problem as the advertising business is that Kuaishou's group buying product recommendations are not well matched with user interests, resulting in a low conversion rate from traffic exposure to actual transactions.

In 2023, if Kuaishou wants to increase its commercial revenue, it must work on the effectiveness and efficiency of algorithm matching, the breadth and depth of customer development, and continue to increase the price of single traffic. Only in this way can it further improve the commercial content fill rate while increasing advertisers' confidence in continuing to place orders.

In addition, the continued layout of tracks that are loved by old friends and have Kuaishou characteristics, including customized short dramas, sponsored/customized IP variety shows, etc., is also expected to increase the commercial revenue of the Kuaishou platform.

Author: Call me Sister Na

Source: WeChat public account "CaasData" (ID: caasdata6)