Baidu set to lose leading role in digital advertising to Alibaba

Baidu set to lose leading role in digital advertising to Alibaba

Online search giant Baidu Inc is set to lose its top spot in the nation's booming digital advertising market this year to its rival Alibaba Group Holding Ltd, according to a report from London-based market research firm eMarketer.

E-commerce heavyweight Alibaba has so far notched up a 28.9 per cent share of China's digital ad market, equating to $12.05 billion, said eMarketer, which researches digital marketing, media and commerce.

In previous forecasts eMarketer had predicted that Baidu, which uses search result listings to generate income from advertisers, would stay out in front. Last year, Baidu earned 28 per cent of China's digital advertising revenue, compared to Alibaba's 24.8 per cent.

But eMarketer has downgraded its outlook for Baidu this year as it has witnessed challenges in the past few months due to tighter government controls on search result advertising.

Baidu's digital ad revenue is expected to see sluggish growth this year of just 0.3 per cent to $8.87 billion. Meanwhile, Alibaba and Tencent Holdings Ltd will continue to surge ahead and report increases of 54 per cent and 68 per cent, respectively.

Baidu, Alibaba and Tencent, the top three firms in China's internet industry are estimated to take a total of 60 per cent in the country's digital ad revenue of $41.66 billion in 2016.

But the government's tightened controls on online advertising are only part of the reason for Baidu's slowing ad revenue. Analysts said that the Beijing-based Baidu's lack of strong mobile products is another factor affecting its ability to attract advertisers.

Shelleen Shum, an analyst from eMarketer, said the tighter regulation of internet advertising is expected to weigh heavily on Baidu's search revenues in the near term.

"Although also affected by the new regulations, Alibaba's ad revenue, particularly from the mobile sector, shows no sign of abating thanks to the robust growth of its e-commerce retail business," she said.

Baidu's net income for the quarter ending June 30 was 2.4 billion yuan ($359 million), down 34.1 per cent year-on-year, as the company dealt with the impact of tougher controls on internet advertising and in the healthcare sector.

"Huge traffic is the bedrock of online advertising business. But unlike Alibaba and Tencent, which have numerous successful mobile products that can attract traffic from users. Baidu still lacks a new cutting-edge to help jumpstart its slowing traditional search business," said Lyu Ronghui, an analyst with internet consultancy iResearch Consulting Group.

Apart from e-commerce, Alibaba's cloud computing business is growing rapidly to help turn enterprises user into advertisers while Tencent has been gearing up to monetise its popular app WeChat and has a thriving gaming business which can also make money on advertisement.

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