Sea: The next advertising powerhouse?

In its financial results for the second quarter of 2021, internet giant Sea Group gave a preview of what could become a huge money maker for the company.

Ecommerce arm Shopee’s GAAP (generally accepted accounting principles) revenue as a percentage of gross merchandise value (GMV) extended to 7.7%. This was up from 7.3% in the previous quarter.

This “deepening monetization was driven mainly by growing merchant investments in marketing and advertisement on the Shopee platform,” according to Forrest Li, Sea’s chairman and chief executive officer.

In its typical understated manner, Sea said this business was “still [at a] very early stage for us.” However, its “advertisement take rate is still low, and we have much more inventory to be rolled out and to be adopted,” noted chief corporate officer Yanjun Wang in the Q2 earnings call. In this context, inventory refers to the amount of space available for advertisements.

A playbook from Amazon and Alibaba

Simply put, Shopee’s ads business could turn out to be massive. To see its potential, there’s no need to look too far. Shopee’s ecommerce peers Amazon and Alibaba have been steadily growing their share of ad revenue in recent years, challenging the Google-Facebook duopoly.

In particular, Amazon’s share of global digital ad spend is expected to multiply 9x from 0.8% to 7.1% between 2016 to 2023. Some ad buyers also ranked Amazon as having the second-highest return on investment out of all platforms, while Google was at first place.

What makes advertising on ecommerce platforms attractive to brands?

First, these platforms possess large amounts of data about consumers, such as the brand of detergent you buy and the last time you placed an order. Advertisers can use such data to target you when you are running low on laundry supplies, for example.

Second, people who visit ecommerce platforms are more likely to be serious buyers. “The audience is already self-selected. If you open the Lazada app and look for a brand, the intention to purchase is already clearer,” says a former Lazada employee who spoke to Tech in Asia but didn’t want to be identified.

The convergence of gaming and ecommerce

All this also applies to Shopee, which facilitated 1.4 billion transactions in the last quarter alone. As the brand has become more recognizable, many consumers visit Shopee’s page directly, bypassing search engines altogether.

But Shopee has something that even Amazon doesn’t: a sister company in the gaming space, which is emerging as another big ads opportunity.

Garena, Sea’s gaming arm, has 725 million quarterly active users. Free Fire, its self-developed battle royale game, had peak daily active users of 150 million in the most recent quarter.

Killer margins

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