Tencent operates the popular Chinese messaging app WeChat. The company has a short video feature in the app and has started monetizing it with in-feed video ads. Tencent said such ads could become a “big” source of income in the future.
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Tencent The announcement said its nascent short video platform could become a “big” source of income in the future, even as other areas of its business – such as gaming – face pressure.
Focusing on this advertising product from one of China’s biggest tech giants puts it in direct competition with two of the country’s leading short video operators: ByteDance’s Douyin, TikTok’s Chinese cousin as well as Queshu.
Wednesday, Tencent reported its first-ever quarterly decline The gaming business faced headwinds. Tightening of technology regulation, the resurgence of Covid and the subsequent economic weakness in China have taken their toll on the company as a whole.
Tencent runs the most popular messaging app in China called WeChat which has more than one billion users. There is a short video platform built inside WeChat. Users can scroll through different videos. In July, Tencent first started serving ads to users in that service it calls Video Accounts.
The company said it will launch more video ad inventory this month.
On Wednesday, Tencent spent much of its earnings call opening explaining the potential of video advertising, underscoring how important the revenue stream is.
“Video accounts have become one of the most popular short video services in China with huge user interaction,” Martin Lau, President of Tencent, told analysts.
“Strategically speaking, it allows us to expand our ad market share. With advertisers already spending aggressively on many short video platforms, we should be able to get more ad budgets.”
It took five-quarters of WeChat Moments, a social feature where users can post photos, videos and status updates, to reach 1 billion yuan ($147.42 million) in quarterly ad revenue, Lau said. He said video accounts will reach that goal more quickly given “the current volume of traffic and the advertiser’s already strong demand for short video ads”.
“Video ads will eventually grow into a huge revenue stream for us over time,” Lau said.
Tencent’s online advertising revenue in the second quarter fell 18% y/y to CNY18.6 billion as macroeconomic problems in China drove brands to cut budgets.
The Shenzhen-based company hopes that video ads will help boost segmentation over the coming quarters.
Tencent’s entry into the short video is relatively new and they are now looking to step up the challenge for the Chinese version of TikTok Douyin as well as Kuaishou.
The market potential can be great.
Revenue from short videos accounts for about 39% of all digital advertising revenue in China, according to data from QuestMobile. It is the largest category for individual ad revenue before categories such as social networking and news.
Many tech giants in China Turn to short videos and live streams to unlock new revenue streams.
James Mitchell, Tencent’s chief strategy officer, said the potential revenue “per minute of time spent” on video accounts would be higher than that of Moments.
Companies like Ali Baba She tried using live streaming and short video as a way to generate sales on her e-commerce platform. An Influencer may advertise products via video and users may click on items in the video to purchase them.
When asked by an analyst if Tencent will move in this direction, Lau said that streaming e-commerce is an “opportunity” but “it will take some time.”
Lau said Tencent will need to raise awareness of the video product, and then onboard merchants and advertisers.
“We’ll try to do it on a stage by stage basis,” Lau said, referring to the development of the video accounts.
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