If China’s online retail sales increased by 30 percent, does that mean the revenue growth for e-commerce platforms would also be about 30 percent?
If online sales growth decelerates, does that mean e-commerce platforms will also face slower growth?
That’s because shopping websites get most of their revenue from advertisements placed by online vendors. As long as online sales continue to be a main source of growth, and rivalry intensifies in the online shopping space, the need to increase online advertising spending will go up.
A decade ago, China’s online shopping market boom had just started. There weren’t too many online shops, so making money was relatively easy for e-vendors and they don’t even have to spend much to promote themselves.
The booming business has lured more and more brands to migrate online, which in turn has stimulated online shopping. China now has 500 million to 600 million online shoppers.
With thousands of e-shops competing for customers, a bigger advertising budget becomes necessary. Major e-commerce platforms are the big winners amid such a trend.
The same is happening to social media platforms.
Brands used to hire advertising firms to design an ad for broadcast or print media. Now, they’ve shifted to online celebrities, or Key Opinion Leaders (KOLs), who get paid in cash or in kind to help promote their products online, and it cost KOLs almost nothing to tap into the huge user base of social media.
But if social media sites start to charge KOLs to prioritize their postings, that will translate into fresh income streams for these platforms.
Shopping online and visiting social media sites have become part of daily life, and it is hard to change that.
So with their massive user base, leading online shopping and social media platforms will continue to enjoy good business.
This article appeared in the Hong Kong Economic Journal on Jan 31
Translation by Julie Zhu
[Chinese version 中文版]
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