Potential ad sales revenue huge for Tencent

Social media giant Tencent Holdings Ltd is sitting on an advertising gold mine by monetizing its blockbuster WeChat app.

The messaging software, through which more than 1 billion users consume games, watch videos, make payments and conduct an array of real-life transactions, generated 40.4 billion yuan ($6.4 billion) last year thanks to paid ads, a stellar 49 percent rise from a year earlier.

Still, just 17 percent of its total revenue in 2017 came from advertising, compared with Facebook's roughly 98 percent, leaving huge potential for growth, experts said.

"Tencent has developed a social ID for users within its ecosystem," said Shi Jialong, a technology and media analyst at Nomura Securities.

"Such huge amount of proprietary user data in different aspects provide advertisers enhanced targeting abilities for their marketing campaigns, and their targeting capabilities could be further improved with the data from Tencent and its partners," he said.

To be more specific, the company uses data points such as the user's location and who the user's friends are to more precisely target potential clients with ads that could be to their interests.

The company has leveraged its data system to try to sell ad space to high-end labels, from BMW to Bulgari, which have generally been conservative about trading in exclusivity for marketing to the masses.

"Carrying massive customer data, mobile ads (tailored to each and every customer) can capture demand better than traditional ads, increasing the media investment efficiency," said Leo Chiang, principal with consultancy PwC Strategy&.

Tencent's ad revenue could more than double to $11.4 billion by 2019, according to researcher eMarketer.

Meanwhile, it so far has exercised careful control over the number of ads on people's feeds to ensure they won't have an adverse effect on user experience.

Internet companies are trying to develop a more nuanced, personalized product/service suggestion style of advertising that is not as intrusive and blunt as traditional advertising, said Matthew Crabbe, Asia Pacific research director of consultancy Mintel.

Other similar initiatives include Alibaba's Brand Data Bank, a database that serves to help merchants enhance the effectiveness of ads and translate into higher spending from them, Crabbe noted.

"The data bank is actually at the core of the uni-marketing, where brands and merchants can analyze customer behavior data collected across platforms," said Shi from Nomura.

"And it's not just e-commerce platforms like Taobao and Tmall, but also platforms in local services like Koubei and Alitrip, as well as Alipay, the financial service app," he said.