Big U.S. tech companies profit from Chinese ad spending spree

Big U.S. tech companies profit from Chinese ad spending spree

Big U.S. tech companies profit from Chinese ad spending spree

Trade relations between China and the United States are subject to many frictions. But at least one area is booming: Chinese startups looking to establish a presence in the West are spending billions of dollars on ads on services owned by some of Silicon Valley’s biggest tech companies.

Temu, the international arm of Chinese e-commerce giant Pinduoduo, is flooding Google with ads for absurdly cheap products. As an IPO approaches, fast fashion retailer Shein is flooding Instagram with ads for clothing and accessories at rock-bottom prices. Developers of Chinese video streaming and gaming apps are investing their marketing dollars in Facebook, X and YouTube to attract potential users.

Meta, the parent company of Facebook and Instagram, said on a call with analysts that China-based advertisers account for 10% of its revenue, nearly double what it was two years ago. Over the past year, Temu served approximately 1.4 million ads globally on Google services and at least 26,000 different versions of ads on Meta, according to Meta’s ad library.

“What companies like Temu have done is really just opened a fire hose to pump money into advertising,” said Sky Canaves, senior retail analyst at eMarketer. “You can’t escape their ads on Facebook, Instagram and Google Search.”

The increased spending highlights how interconnected China and the United States remain, despite each country’s vigorous efforts to become more self-reliant. Chinese companies have access to a large consumer audience, and Silicon Valley companies make money in a market they wouldn’t otherwise do business in.

The marketing blitz is fueled by the global ambitions of Chinese start-ups. In our country, the economy is no longer booming as it has for years, and businesses are subject to a set of government rules that have stunted their growth.

The crackdown on companies like e-commerce giant Alibaba and high-flying ride-hailing provider Didi has underlined the message that a company, no matter how successful, can be brought to its knees if it clashes with the Chinese Communist Party and to its leaders. leader, Xi Jinping.

“There is a limit to how much a business can grow in China,” said Andrew Collier, founder of Orient Capital, a Hong Kong economic research firm. “Xi Jinping is perfectly happy for Chinese companies to make money overseas as long as they follow the finish line in China.”

But globalization has a cost. It’s difficult to attract significant digital attention without paying Google’s parent company, Alphabet, and Meta. Together, the two companies sell the majority of advertising on the Internet, largely through their online properties such as Google Search, YouTube, Google Play App Store, Facebook, Instagram, WhatsApp and Messenger.

For the most part, Alphabet and Meta products are not available in China. Efforts to offer their services in China meant complying with Chinese government censors, leading to protests from employees of both companies.

Alphabet and Meta have such reach in the rest of the world that Chinese companies are now turning to them.

The rush to spend on Temu and Shein has “single-handedly” driven up the cost of digital advertising, Josh Silverman, Etsy’s chief executive, said on a call with analysts in November.

Discount Chinese e-commerce companies have attracted increasing attention in the United States in recent years, tempting shoppers with low-cost products as inflation drives up prices.

Temu opened its U.S. location in September 2022. It sold items like a garlic press for $2 or a cotton swab dispenser for $1.50. Temu is now available in 50 countries.

With the slogan “Shop like a billionaire,” Temu is a voracious buyer of all forms of advertising, from low-cost Facebook ads to expensive spots during the Super Bowl. Temu has the deep pockets of PDD Holdings, which operates Pinduoduo.

Bernstein Research estimates that Temu spent $3 billion on marketing last year. In a lawsuit filed against Shein in December, Temu said it serves about 30 million daily users in the United States. Temu’s app is the most downloaded on the Apple and Google app stores, according to Sensor Tower, an app analytics company.

Shein, which entered the U.S. market about seven years ago, also continues to invest aggressively in marketing. It does not sell products in China, although it was founded in Nanjing and relies heavily on Chinese sellers and the country’s supply chain.

It served about 80,000 ads on Google in the past year alone, including product ads that appear alongside search results. On Meta, Shein has more than 7,000 active ads, according to Meta’s ad library.

For Temu and Shein, spending heavily on Facebook won’t guarantee success. Nearly a decade ago, Wish, another popular e-commerce app focused on low-cost goods from China, spent hundreds of millions of dollars on Facebook ads. But the retail app failed to keep shoppers interested. Last month, Wish was sold to Singapore’s Qoo10, another e-commerce platform, for $173 million, a hundredth of its 2020 public valuation.

Shein and Temu allow third-party sellers to upload product images directly to Meta’s advertising systems and feature those products in their ads on Instagram and Facebook. These ads, which target user interests based on Meta’s vast amounts of data, are generally more effective at attracting buyers.

Advertising spending is not limited to retailers. In recent months, Instagram has been flooded with previews of addictive short dramas – soap operas aimed at users with short attention spans. Each episode is usually a minute long, with the series having around 80 to 100 episodes.

The shows tend to be overly dramatic, with catchy titles like “The double life of my billionaire husband” Or “30 days until I marry my husband’s sworn enemy.”

These short drama series are popular in China, and a handful of companies – apps like Reelshort, DramaBox and FlexTV – are competing to export this form of entertainment. Instead of selling monthly subscriptions like, say, Netflix, short-form apps use a model similar to online games, requiring users to purchase so-called coins that can be used to pay for episodes. A viewer can also earn coins by watching advertisements.

Similar to games, these apps require a constant stream of users to become addicted to sample programs and feel compelled to keep spending to see how the show ends. On Meta, DramaBox runs more than 1,000 active ads, according to Meta’s ad library, while Reelshort and Flex TV run hundreds of ads.

Another major Chinese advertiser on Meta is a Hong Kong-based game developer called First.Fun. The developer appears to be showering Facebook, Instagram, and even X with ads to promote its flagship game, Last War: Survival, with hundreds of paid previews.

Previews encouraged players to download the app. It is the fifth most downloaded app on Google Play and the 12th most downloaded app on the Apple App Store.

Sensor Tower estimated that the game generated $22 million in revenue last month.

Marketing on platforms like Meta has given game developers a lifeline to customers outside the country as the Chinese government has made it difficult to do business. The most recent example occurred in December, when Chinese regulators announced plans to limit the amount people could spend on online video games. The agency that drafted the plans backtracked on its initial proposals in the face of protests, but Beijing has taken an increasingly tough stance toward the video game industry.

The message was not lost on game developers. On its website, Beijing Yuanqu Entertainment, the parent company of First.Fun, said it was only focusing on overseas markets because it “firmly believes that China’s Internet industry will continue to internationalize.”

Claire Fu reports contributed.