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Text | Swordsman

Following the closure of Chinese Media, the third largest media outlet in China, a few days ago, the long-dormant media advertising market has once again seen big news.

On July 11, a media report said that Meituan was going to enter the elevator advertising market. "Meituan plans to recruit elevator media advertising franchisees (video elevator media) in lower-tier cities. Meituan will provide equipment and business support; franchisees will be responsible for laying out equipment, sales and making advertisements, etc." Meituan also listed the specific requirements for video elevator media advertising franchisees:

Jiang Nanchun explained in a circle of friends: "We are working with Meituan to promote cooperation in elevator video media operations in low-tier cities. We hope to leverage the advantages of both parties to provide more comprehensive and high-quality services to small and medium-sized enterprises in the sinking market." Focus Media then issued an announcement stating that the cooperation between the two parties is limited to third- and fourth-tier cities, and no further cooperation in first- and second-tier cities is being considered.

From this reply, it is not difficult to see the three key points of Meituan's entry into the elevator media advertising market: small and medium-sized businesses, sinking markets, and offline traffic. In fact, let's talk about Meituan's opportunities and challenges in detail.

01 Offline traffic can quench thirst, but it is difficult to integrate online and offline data

Although the advertising budgets of Meituan merchants began to flow back since the end of last year, in the game with Douyin, the revenue of the core local business division increased by 28.7% year-on-year, and Meituan has managed to maintain its basic position.

However, Meituan’s disadvantage in traffic has not been fundamentally improved, and it has always been hungry for traffic. And traffic is crucial to the local life business.

Meituan's advertising and marketing business is based on shelves, and has established a strong search mentality on the user side. Relying on the search bidding model, Meituan has increased its advertising revenue with promotion bidding advertising and merchant communication, and the total revenue accounts for more than 70%.

However, the search advertising model has a core problem: users search only after they have a need, and user needs are relatively fixed, which means that the opening of the front link will never grow. In order to generate revenue, they can only either increase the unit price, causing merchants to rebound; or continue to buy volume to expand the marketing opening, but this also increases marketing costs accordingly.

In recent years, Meituan has been buying traffic, and related marketing expenses have been increasing. The financial report shows that the promotion, advertising and user incentive expenses in 2022 were 20.57 billion yuan, and surged to 36.47 billion yuan in 2023, an increase of 77.3%.

Seeing that online traffic is saturated and becoming increasingly expensive, Meituan has turned its attention to offline media, which is an opportunity to pick up a bargain.

On the one hand, with the recovery of the offline economy, especially the cultural tourism industry in various places, offline traffic has once again surged. On the other hand, after experiencing the impact of the epidemic, the cost of outdoor advertising sites has been reduced again and again. According to a simple calculation based on the financial report data, Focus Media's site costs will drop by 12.2%, 7.8% and 7.6% from 2021 to 2023 respectively.

However, the offline traffic market is also thriving, and it is not easy to get involved.

Starting in 2018, a two-year battle for offline traffic launched by major Chinese Internet companies basically defined the market structure of elevator media.

In 2018, Alibaba invested in Focus Media. In 2018 and 2019, Baidu and JD.com invested in Xinchao Media. In 2019, Tencent invested in Tiying Media. In the same year, Tongzhong Media received tens of millions of investment from 58.com. Large companies have cut into the offline traffic cake, but their motivations for entering the market are different: some are for business ecosystem cooperation, some are for pure capital investment, and some are for strategic defense considerations.

In fact, outdoor advertising has never been a strategic focus for large companies, so they have not been able to help much with the digitalization of elevator media. In particular, the attribution of elevator media advertising is not well integrated between large companies’ data and elevator media operators’ data, and the revenue that advertisers receive after placing elevator media ads is still a black box.

To activate offline traffic in low-tier cities, we must rely on online traffic data. Meituan has its own unique advantages in this regard. Online and offline data can be connected to achieve more accurate communication coverage.

However, the difficulty lies in: integrating data from different sources and realizing the linkage processing of product data, store data, city data, etc., which is technically difficult. One of the difficulties is the delay in data synchronization. It usually takes several days to synchronize offline data, so advertisers do not use the latest data to target consumers.

What are the consequences? After a user has purchased a product, they will be surrounded by advertisements of the product for a few days. Such a disconnected experience is precisely because the data integration speed is too slow. Meituan must solve the problem of offline traffic data delay in order to truly complete the effective integration of online and offline data.

02 Small and medium-sized merchants trust offline media more, but pay more attention to conversion and ROI

Local life covers multiple service scenarios such as catering, hotel travel, leisure and entertainment, weddings and parenting, and is scattered with a large number of small and medium-sized merchants, which constitute Meituan's basic plate. In October 2022, Meituan's mid- and low-end merchants accounted for 95% and GTV accounted for 91%.

I communicated with a restaurant owner in Tai'an City and found that although traditional small and medium-sized businesses recognize online traffic, they have a sense of insecurity about online media.

"It's too difficult to generate traffic because we are not very professional. We hired a professional company before and fell into many traps. Many operators said they would detonate your account in a few days, which cost us a lot of money. We lost about 20,000 to 30,000 yuan by taking such detours."

In short, for these businesses, online means a more advanced operating method; content production is difficult, the cost of influencers is high, and the traffic investment cannot compare with big KAs.

This is not an isolated case. Similar phenomena are particularly common in third- and fourth-tier cities. I also found that it is impossible for these merchants to set up professional market operation and promotion personnel. The bosses make decisions and launch them directly. However, the owner of a store has to manage the supply chain, in-store services, and promotion at the same time. The traffic operation ability is still at a very early stage.

“I didn’t understand the rules of Douyin in the first two or three months. It was only after two or three months that I realized I had to make vertical content. Before the beginning of last year, I didn’t even know the concept of GMV.”

Due to limited financial resources and generally lower gross profit than the top merchants, they can afford a limited advertising and group buying budget, and the manpower they can devote is even more limited. At the same time, they generally have a strong business mindset and have extremely high requirements for conversion rate and ROI. They are willing to spend money on promotion rather than saving money, but hope to spend money wisely. If after a few times of investment, the wrong method leads to no profit, they will never invest again.

"I think it can be made very watery. It may get some friends to click on it and charge me money. I think this is not cost-effective. I would rather choose some offline traditional media. Offline media is more real."

Merchants believe that "seeing is believing" and have a natural trust in offline media, which is an opportunity to develop elevator media.

03 The sinking market is very attractive, but elevator media requires strong strategic determination

Meituan and Douyin are still competing fiercely in the local life battlefield. From the current competitive situation, Douyin and Meituan are engaged in a misaligned competition: Douyin focuses on large customers in mid- and high-tier cities, while Meituan sticks to the basic market of small and medium-sized merchants.

According to a report by Jingxuan Pro in July, Pu Yanzi instructed internally that Douyin Life Service should not focus on small local stores, and let them develop their own content capabilities. In the future, Douyin Life Service will focus on NKA and CKA customers, and Douyin plans to increase the GMV share of NKA (national chain brand) to 50%.

Obviously, Douyin wants to cut into the budgets of large chain enterprises. According to the China Chain Store Association, the chain rate of the catering industry has increased from 12% in 2015 to 17% in 2020, and will further increase to 21% in 2023.

Compared with small and medium-sized businesses, these chain restaurants and brand merchants are larger in scale, have stronger brand awareness and willingness to advertise, and are equipped with professional market operation teams, who can keep up with the latest policies and gameplay of the platform in a timely manner and complete large-scale system delivery. This kind of delivery often brings a certain conversion effect. The better the effect, the larger the size of the enterprise will be, so it can further expand the chain and then advertise on Douyin. This is a positive closed loop in business.

Douyin does not have enough energy to operate small stores in the sinking market. After all, its live service team only has 5,000 people. In comparison, Meituan’s in-store hotel and travel team already has more than 10,000 people.

Meituan is better at doing these "capillary" businesses. In Meituan's new business segment, Meituan Youxuan, as a community group buying platform, covers more than 3,000 cities and counties across the country; in 2023, the transaction scale of users in Meituan's third-tier and below cities will increase by more than 80% compared with 2021.

According to 36Kr, the strategic cooperation between Meituan and Kuaishou will be fully upgraded. According to the agreement, the scope of the cooperation between Kuaishou and Meituan will be expanded to "100 cities and 10,000 stores" across the country in the next three years, targeting the sinking market and old iron users.

The cooperation between Meituan and Focus Media is also aimed at the lower-tier markets. However, Focus Media has experience in elevator media operations, but it does not have much advantage in the lower-tier markets. Its self-operated advertising spots in first- and second-tier cities total 825,000, while its self-operated elevator TV media in third-tier and lower-tier cities only number 72,000, less than one-tenth, and its penetration rate in the lower-tier markets is not high. From this point of view, the cooperation between Meituan and Focus Media is a kind of complementary advantages.

The premise of digitalization is scale, and the premise of scale is strong operation.

But the challenge is that elevator media is an industry with a long investment cycle and requires strong operations. According to media reports, if Meituan provides the equipment, the agent will be responsible for operation and advertising sales. The capabilities of the agents vary, so how much motivation do they have to deploy manpower to operate?

Some of the advertising spots of the media in low-tier cities have become franchisees of Focus Media and Xinchao. As of the first quarter of this year, Focus Media had 64,000 TV media franchise spots, a 27% increase from the end of 2023. Therefore, Meituan is taking the route of "surrounding the city with the town", and still has to rely on agents to do the hard work.

According to reports from outdoor media insiders, a large company had previously invested in the "Jingping Store" project, investing billions of yuan in more than 300,000 outdoor advertising terminal devices. In the end, its operational capacity could not keep up and it failed to take off. It even had to transfer the equipment in a certain area to an agent.

Ultimately, the best way to operate the elevator media business is to operate it directly, which depends on the patience and determination of Meituan’s management towards the elevator media business.

Therefore, there are doubts in the market that the current agency model may be just a stopgap measure for Meituan, and they are worried that Meituan will kick out franchisees directly after it becomes bigger and start direct sales. Franchisees are just pawns in the early stage. There is indeed a precedent for this. Since the second half of last year, Meituan's store business in the sinking market has changed from an agency model to a direct operation. This may affect the enthusiasm of agents to join.

In addition, Meituan actually doesn't care about the advertising fees of elevator media. Even if it gets 2 billion in elevator media advertising revenue, it is too low compared with Meituan's advertising market. It wants to be an elevator media from the perspective of life services and use elevator media to empower its business. In the near future, it is hard to say whether Douyin will follow suit. Douyin is the largest advertising platform and hopes to siphon all traffic to its own platform instead of offline traffic.

Finally, it seems that Meituan is not trying to compete head-on with Focus Media and Xintiao. The small and medium-sized merchants it targets are new customers and new models for the entire market. If it succeeds, it can become the next generation of ladder media and change the entire ladder media advertising.