Should luxury brands be excited about Tencent’s advertising claims?

Tencent has been not so subtle about wanting to make its Moments ads appealing to marketers and advertisers. Earlier this year, the company rolled out an improved format giving brands more flexibility when it comes to posting multimedia ads, just months after lowering their cost from 200,000 RMB, or about US$30,000, to 50,000 RMB. Now, according to a recent interview in Bloomberg with Tencent ad chief Lau Seng Yee, the company is making investments in building upon a social advertising model that is much more recognizable to users of Facebook.

Facebook ads are generated using an algorithm that takes into account an advanced database on its users, targeting consumers based on how they use the Internet. This social advertising model, which is now prevalent in the United States and generates the majority of Facebook’s total revenue, is much less common in China. It makes up only 10 percent of digital marketing revenue, with search-based advertising and e-commerce making up the bulk of it, according to Bloomberg. If Tencent capitalizes on this potential for growth, it would ideally boost its revenue in digital advertising, which currently makes up just 17 percent of its total revenue.

In theory, an ad model like Facebook’s would not only benefit Tencent, but could mean more precise consumer targeting for luxury brands on WeChat. Facebook already has a leg up in leveraging its advanced data system to try to sell ad space to high-end labels—which have generally been conservative about trading in exclusivity for marketing to the masses. The option to do so is nevertheless becoming more appealing as mobile shopping increases in popularity, and the same logic could apply for brands on WeChat Moments, which is similar to Facebook’s newsfeed.

Lau tells Bloomberg that Tencent is already working with luxury brands like BMW to test out this model, using data points like the user’s location and who the user’s friends are to more precisely target potential clients with ads about booking test drives. There are many other luxury brands that have already tested out the service, which relies on data like the user’s age and gender being factored into how the ads are targeted. Tencent hopes to expand on this based on information they’ve collected from its 960 million users, but while striking a balance: they don’t want to deliver so many ads or ask for too much private information that it scares its users away.

However, some WeChat marketing experts are less optimistic and think Moments ads still have many areas for improvement. Co-founder of WeChat marketing agency Walk the Chat, Thomas Graziani, says he’s been long holding out hope that Moments ads would deliver a high ROI for his clients. But on the whole, he says, they are much more expensive than Facebook ads and don’t have the support of an advanced data system that’s “consistently updating and optimizing” its algorithm. “We hope to see this changing [for WeChat] in the near future,” he says.

“When it comes to conversions, Moments ads don’t really bring the returns I would expect,” Graziani continues. “If we’re talking about a Fortune 500 client looking for branding visibility, Moments ads can be a good choice. But for smaller clients with stronger ROI expectations, we would recommend Key Opinion Leader (KOL) campagins.”

Graziani says a few things are necessary in order for WeChat to make Moments ads more competitive: enabling re-targeting of users who visited a brand’s website or even its JD.com store, use of lookalike audiences (where the ad targets similar profiles of existing customers or website visitors), and a more affordable and dynamic pricing.

Brands that actually want to achieve the ROI in China that the Facebook model offers elsewhere requires a bit more legwork using people on the ground, Graziani says. “It’s about doing very few, very targeted campaigns … it’s much more handmade and artisanal compared to Facebook. On Facebook you can literally have many thousands of ad variations to segment and work with based on users’ behavioral data.”

He cites a recent KOL-driven campaign his company conducted on WeChat with a New York fashion brand that in the end brought the brand more than $50,000 in sales. “We couldn’t even get close to that with Moments ads,” he said. “We get five to seven times the ROI using KOLs.”

Still, based on recent amendments in WeChat Moments ad rules, Tencent seems determined to broaden its potential for revenue growth in digital advertising. Last month, the company officially allowed advertisers based in the United States to buy Moments ads to target WeChat users traveling abroad or using U.S. products.

Graziani says he’s not completely certain the tides won’t change for Moments ads. “Yet, even if Moments ads became more like Facebook ads, luxury brands tend to be more conservative, so I don’t see how this would be a game changer for them,” he says. “Once they get better, large luxury brands would be the last to really embrace the potential of Moments ads, with SME’s and startups likely being the ones pioneering this new form of WeChat promotion.”