Chinese ecommerce giant Alibaba Group is experiencing growing pains as it introduces mobile ad formats and weans itself from its pay-for-performance model toward one involving algorithmic-based advertising.
On the company’s earnings call Thursday, COO Daniel Zhang called pay for performance a “great discovery mechanism,” but said focus on mobile monetization could have a short-term negative growth impact on its core marketing services business.
Although it did not break out specifics, Alibaba (which missed some analysts’ Q3 expectations of $4.5 billion when it posted $4.2 billion in total revenue, $1 billion of which was mobile) conceded “continued efforts to improve the mobile user experience” hurt cost per clicks on desktops.
Subsequently, its dominant pay-for-performance model didn’t perform as well as Alibaba had hoped.
Zhang said Alibaba will focus on delivering ROI for advertisers through better optimization, improvements in its “algorithms” and shopper personalization. It’s also hoping to get brand dollars – a big reason it acquired a majority stake in programmatic ad platform AdChina.
Despite these growing pains, Alibaba is optimistic its mobile investments will pay off.
“We’ve seen sustained progress in how we monetize mobile and a greater proportion of gross merchandise volume now being facilitated on mobile,” said Joe Tsai, executive vice chairman of Alibaba Group, on the earnings call. “Our mobile Taobao app is a strong driver of commercial intent and has helped introduce a large number of new users to our retail platforms.”
Alibaba has a steady increase in its total number of monthly active users (MAUs). Its Chinese retail marketplaces drew 334 million monthly active users, a 45% increase year over year. Mobile MAUs reached 265 million total, a staggering 95% increase year over year.
“When you consider our total number of monthly active users, it surpasses the number of US residents, yet it only represents about half of Chinese Internet users,” said Tsai. “This highlights the significant growth opportunities we have in front of us.”
Alibaba made further headlines this week when Yahoo CEO Marissa Mayer announced plans to sink its Alibaba Group stock stake into a separate publicly traded endeavor, SpinCo. This gives Yahoo stakeholders a tax-free safety net on Alibaba holdings.