China-based internet conglomerate Alibaba has acquired internet advertising company AdChina, for an undisclosed fee. The acquisition of AdChina is Alibaba’s first acquisition in the ad tech space. With this acquisition, Alibaba is looking to further exploit its advertising potential. In 2014, the USD 25 billion New York listed company spent USD 6.2 billion on multiple investments in the online space, including fashion and clothing retailers, TV entertainment, mobile, social network and gaming companies.
Alibaba reported total revenues of USD 2,742 million for the quarter ended 30 September 2014, mainly driven by online advertising revenue.
AdChina will continue to operate independently after the buyout. The Shanghai-based advertising company was founded in 2007. It operates a data management platform, a demand-side platform for advertising agencies and advertisers and a supply-side platform for publishers that operate in online or mobile channels. It filed for a USD 100 million initial public offering in 2012 after generating USD52 million in sales, but withdrew a year later due to poor market conditions.
A multilayered company known for its online marketplaces Taobao and Tmall.com, Alibaba diversified its business last year when it invested in other initiatives including digital entertainment (Youku Tudou and Huayi Brothers), social network and gaming platforms (Tango, Mom and KTPlay). These portfolios generate ad inventory for Alibaba, which is currently under-utilized. With AdChina’s online ad capabilities and existing clientele, Alibaba can now further monetize its existing and new online assets.
Alibaba owns vast amounts of transactional data, as it dominates the Chinese online shopping market. These data allow Alibaba to trace consumer behavior, which then improves the efficiency of ad serving and potentially generate more revenue. Currently, Alibaba’s ads are mainly served by its advertising arm Alimama. It launched a data management platform (DMP) on Alimama in October 2014 to allow targeted advertising. The acquisition of AdChina is expected to further boost Alibaba’s data-driven digital advertising capability and efficiency. Also founded in 2007 but unlike Alibaba, AdChina’s business is online ad-focused and thus, its expertise will add value to Alimama’s fairly new DMP.
Furthermore, the AdChina offering includes mobile ad technology capabilities, a strategic priority of Alibaba. Alibaba reported USD 606 million in mobile ad revenue in Q3 2014, which translated into over 1000% year-on-year growth. Taobao and Tmall.com also experienced a doubling in year-on-year mobile gross merchandise volume (GMV) growth, from 14.7% to 35.8% in September 2014. AdChina is continuously investing in expanding its mobile offering with the company most recently launching a mobile data management platform in May 2014 to complement its mobile ad network.
In return, Alibaba provides AdChina with a stronger financial backing and existing cloud computing infrastructure, which is beneficial for ad tech, as it needs advanced infrastructure to be sustainable. China is a new, but lucrative market. According to IHS, in 2013 China’s online and mobile ad revenues (EUR 13.1 billion) were nearly double of that in the UK (EUR 7.5 billion), mainly due to the huge user base. With a cash-rich parent company like Alibaba, AdChina is able to continue invest in programmatic buying innovation, an area in which it still lags behind compared to more mature online advertising markets. Moreover, by collaborating with Alibaba’s cloud computing system Aliyun, AdChina will be able to collect data and serve ads to a greater scale and wider geographical span.
The acquisition will form synergy between the two companies as Alibaba and AdChina will draw from each other’s resources to boost revenue. While providing financial backing to AdChina, Alibaba is able to exploit AdChina’s new and existing ad technologies to monetize its current assets. This is likely to continue in the long-term as the companies share the same business vision to develop mobile ad innovation jointly moving forward.