The China Vortex

Alibaba has chosen Google China as its main advertising platform partner for its online advertising service Alimama over Baidu.
Alimama provides roughly the same advertising campaign targeting and service delivery capabilities to advertisers as Google’s Adword service worldwide, with the biggest difference being that Alimama is targeted at the Chinese domestic audience.

Alibaba had been in secret discussions with both Google China and Baidu. The discussions with Baidu broke down for undisclosed reasons, and soon after, Alibaba announced its partnership with Google. This agreement is important because Alibaba is the owner of the largest B2B platform, Alibaba.com, and also China’s leading online auction firm, Taobao. Taobao has successfully defended its online auction presence in China, forcing eBay China to hand over its operations to Tom Online while it rethinks its China strategy.

This is a major blow for Baidu since Alibaba has the capability to spend a significant amount of revenue targeting search users and publishing networks with ads. In the US, eBay is one of Google’s biggest Adword’s clients, but the relationship has recently become rocky because the two companie’s have competing online payment systems. While online payment systems are not the most sexy online products, they are highly profitable since they usually operate on a commission system, taking a cut of the total transaction, instead of a flat fee.

Google has introduced Google Checkout in China, and Alibaba has its own payment system, Alipay. It is likely that in the advertising agreement both payment options will be offered to campaign buyers. For observers, it will be interesting to note whether Google Checkout or Alipay will achieve “preferred service provider” in future revs of the service. This will obviously be a source of major competition between Google China and Alibaba even though they are cooperating on this advertising solution.

Baidu has 62% search marketshare in China and is the market leader, while Google has only 20%. Baidu, even though it is widely seen as China’s native son in the search market, has significant problems which I have discussed at some length in an earlier article on the Chinese advertising market.

Baidu’s single greatest challenge is coming clean about click fraud. A major reason for its inability to tackle the problem is that as a public company, any attempt to clean up the problem would hit its earnings, and may even lead to litigation about past performance. It would naturally avoid coming clean about the issue and push it off to future management to tackle. The trouble with this approach is that click fraud becomes a slow rot, and advertising clients will choose to shift their adspend to competing search engines which have more effective anti-click fraud mechanisms in place.

Click fraud has become a major drag on the development of the Chinese online advertising market, which is poised to pass 90 billion yuan this year.

This may well be the background to Alibaba’s decision to partner with Google China. Alibaba is planning for an IPO listing later this year.

Popularity: 43% [?]

Technorati Tags: advertising, adwords, alibaba, alimama, alipay, baidu, checkout, China, google, online

The China products’ quality scandal has continued to snowball, gathering momentum in both the US and China.

In China, Wu Yi, the Chinese government’s main fixer, has been appointed consumer safety head. Wu Yi has had an excellent reputation as a tough negotiator, representing China in the WTO negotiations, and later took over as health minister during the SARS crisis in 2003. Originally trained as an engineer, she is widely seen as a no-nonsense individual who is willing to put politics aside to get things done.

Even though, there are some questions for this new consumer safety head.

• How many people will be part of this new State Council level commission, and what enforcement powers will they have?
• Will it have its own budget, and where will this money come from?
• Will it have the power to enforce quality inspections on the provincial, municipal and village levels?

The last question is particularly important since exports are mainly supported on the local government levels, who derive their tax revenues from local manufacturers. For this reason, local governments would resist any efforts to slow down or hurt exports. How will the Chinese government in Beijing resolve conflicts between the product safety commission and local governments? This decision will affect whether the Chinese government’s new safety commission has teeth or not.

In contrast to the US, Europe and Japan have been less affected by product safety issues from China. The main reason for this is because Japan and the EU have government-funded organizations to test and check new products and imports on a much more frequent basis. Since these organizations are testing and regulatory agencies with no independent sources of revenue, they are funded by citizens’ taxes.

In the US, taxes are generally considered bad, and low taxes and “no new taxes” are a rallying call for those on the right-wing of the political spectrum. Most Americans though, fail to make the connection between taxes, infrastructure investment and development, and regulatory safety and consumer protection.

As America’s infrastructure ages, and less is invested, the inevitable result is more tragedies like the recent Minnesota bridge collapse. On the consumer regulation and protection side, budgets for consumer protection agencies funded by the government have been largely cut back, even while global trade has increased.

Does it make any sense that the American government would cut back the budgets of the regulatory agencies which are there to protect American consumers from defective foods and products, while imports into the US are surging?

These safety and quality problems are very important issues which WTO did not cover, and have fallen between the cracks on national levels. Now these issues are coming back, and with a bite for the US and Chinese governments.

Earlier on, China’s toy industry manufacturers’ association had asked its members to sign a public quality pledge. While the motivation is noble, this can be interpreted as a desperate measure to show change. The overall effectiveness of such a move is dubious, even from a public relations point of view.

This whole episode shows the dangers of increased globalization and trade when governments cut corners, even though the Chinese and US governments have acted for very different reasons. The US government has a very well-developed regulatory and service infrastructure which it has chosen not to invest in and enforce; China has a largely undeveloped regulatory and service infrastructure which it is quickly learning it needs to have. Put simply, the US is dismantling its own regulatory infrastructure; China is learning that it needs to build its own.

If there is a hero in this whole sad episode, it is Cheung Shu-hong, the Foshan factory owner and supplier to Mattel. This article, Death of the Toy King, explores his management style, and overall care for his factory workers. Even though his factory margins were very thin (as are most factory margins in China), he insisted on always paying his workers on time. When he found out that he had been betrayed by his paint supplier, who had supplied him with leaded paint, and that his factory faced shutdown because of the Mattel recall, he chose take his own life.

So the hero in this story is the dead guy.

Popularity: 22% [?]

The consulting industry in China is flourishing. After all, it is the largest potential single market in the world, and everyone is flocking to it. New companies need information and advice about how to tackle the unique challenges of this market. For any MBA who is fluent in Chinese, or who has grown up in China, and is familiar with the tools of the trade, such as financial modeling, business negotiations and company valuations, China represents an “iron rice bowl” which will make their careers for years to come.

Or is it? My experience is that there are errors which are repeated over and over again. It gets like being condemned to watch a single Broadway show, over and over again, where the only things which change are the sets and the actors; the lines are the same.

I have covered one of the major fallacies in a previous posting, Getting Past the China Market Hype, which covered their initial reasons for entering China. This posting will cover some of the reasons for failing post-entry.

Since most of my experience has been with technology/media/startups from the US, I am naturally biased towards those companies in my evaluation. There have been many success stories from the financial sectors, engineering and consumer goods. These areas, unlike hi-tech, have had decades, and in some cases even more than a century of experience, building their China presence, and understanding the challenges involved. They have the money, and have built up a knowledge base of experience which they can draw from, and because of the large scale of their businesses, even if they cannot draw from in-house experience, they know how and where to get it when needed.

Some of the US technology companies which have come to China and have failed to succeed in the Chinese market are eBay, which basically had to hand over its operations in China after running into the strong local player, Taobao.com, in the auction field. Yahoo! had to basically pay a China partner, Alibaba.com, US1B to take over its China operations. More recently, Google, the US search advertising firm, has had to fight an uphill battle against the largest Chinese search firm, Baidu.com. Online gaming is a new area which does not exist in nearly as large a form as the US, with Shanda being the granddaddy in China, while newer players such as Perfect World (PWRD) have sprung up with new and different business models, and successfully going public on the Nasdaq. In instant messaging, Tencent’s QQ has been able to rack up 600M registered users, and unlike any US IM clients, become profitable.

Because most US startups come from technology backgrounds, they tend to believe that their business is scalable. The word “scalability” is in itself, an engineering term, which means that an architecture can go from 1 user to one billion (or infinite) users, or across national borders and into different languages and markets, without any major architectural hiccups. For this reason, they tend to play down distribution and cultural differences in their most initial stages. Most of the time, they have people on staff or in management who know something about the local market; more often than not, they are not in senior decision-making roles.

Then, when they get to China, they try to do what they did in the US, and quickly discover that the rules in China are very different. Whereas labor is very expensive in the US, with each hire drawing the attention of different company committees, in China it is one of the single cheapest expenses. (Except for senior and executive management, where highly qualified individuals cost just as much, if not more, than in the US.)

The most common failing comes in the area of product management, when the US insists on controlling the product development and launch schedule, with local product launches coming only after the US is ready. In smaller markets, that’s fine, but in fast-moving large markets, especially one as large as China’s, it’s a killer. (Even in fast-moving small markets it’s a dubious strategy; in South Korea, Google has been consistently beaten by Naver, a highly successful Korean company.)

This puts the China office in a continuous battle with the US headquarters for resources; the Chinese local competitor has no such restrictions on what it can do, and the Chinese company surges ahead in capturing market share, and eventually, revenue. The American company then organizes what can best be called a “strategic withdrawal”, as did eBay.

In more mature industries where there is some kind of brand equity, product lines are already fairly mature, and headquarters makes resources available to country managers as needed. Because of the fast-changing nature and relative immaturity of hi-tech, this has not yet happened.

When the American companies fail, the blame is usually assigned to some form of Chinese government protectionism, and favoritism to the local companies. Of course, this explanation is more palatable to Congress members seeking re-election and US TV talk-show hosts, but more often than not, it is a vast over-simplification of a complicated issue.

Popularity: 64% [?]

Technorati Tags: advertising, baidu, business, China, Chinese, google, HR, information, language, management, market, qq, resources, Shanda, trade, US, yahoo

Until very recently, Chinese language qualifications were not considered a deal-breaker for senior positions in China. For the most part, US and European employers assumed that a person of Chinese extraction had some degree of fluency in Chinese, and could communicate with other Chinese in China.

This all changed when Goldman Sach’s proposed appointment for China co-head, Richard Ong, was disqualified from his proposed position because he failed to pass the language requirements for the position which were passed by the China Banking Regulatory Commission. Ong was a Malaysian Chinese who had been mostly educated in English in the west.

The test which Ong failed to pass was the HSK or Hanyu Shuiping Kaoshi. The test is given in three levels: basic, intermediate and advanced. The most basic level of Chinese language fluency is level 1; the most advanced is level 11. Those who reach level 11 Chinese language fluency are deemed to be able to work in a Chinese-language work environment. The HSK is the only government-sanctioned test given to non-Chinese whose results are recognized by the Chinese government.

Previously, the HSK was considered important only for those who were interested in the Chinese language for research and academic purposes; now, it is quickly evolving into an important job requirement qualification for those who want to work in China.

The test information and registration website includes full information about the process and tests, with test dates and places. Registration for the tests can be done online, as well as payment. All the candidate then needs to do is print out his form and photo, and present himself on the date of the test.

Test preparation books and materials are widely available in foreign-language bookstores in China, as well as in online stores.

As China becomes more important and influential on the international business scene, the need for senior executives who are fluent in written, spoken and in reading Chinese will become more important. Now, because of CBRC regulations, the sectors most affected are the sensitive financial sector; it is likely that as western companies become educated about the difference between being ethnically Chinese and fluent in Mandarin, they will ask for HSK test scores to get a handle on the Chinese language fluency of their staff and management, and prospective candidates. It is likely that it will soon evolve into a requirement for those in marketing in China, and in operations. Already, among executive search firms, there is a serious shortage of senior-level staff and management positions where candidates with Chinese-language fluency and overseas work experience are sought. For those who are serious about working in China, it would be wise to take the HSK and have their scores ready for their meeting with the human resources department.

Among China consultants, the HSK has already become a hot topic for discussion.

For those who are interested in learning more from others, and in sharing their knowledge, there is a discussion group for the HSK on Facebook.

Popularity: 57% [?]

Technorati Tags: business, career, China, Chinese, fluency, goldman, HR, human, information, interest, job, language, management, market, marketing, ong, online, preparation, qualifications, requirement, research, resources, richard, sachs, US

If there is one thing which never ceases to amaze me, it’s the sheer number of overseas investors seeking entry to China, who have a hard time seeing past the most basic facts and figures about the size of the Chinese market.

Most of these firms are American, which are, generally speaking, more addicted to numeric data than their European and Japanese counterparts. Some statements they frequently quote are:

• The number of mobile phone subscribers in China is now greater than the US;
• China is now the world’s second largest auto market, trailing only the US;
• China’s demand for oil imports has far-reaching influence far outside its borders;

Looking at China’s economic statistics in these terms, it is very easy for executives who have little or no experience selling products outside their own home markets to think that the potential of the Chinese market is something which will fund their own retirement nest eggs.

The great danger is that more often than not, they are unable to see past these initial assumptions about the Chinese market on the board and senior management level. In fact, as many learn to their own dismay, the Chinese market is complicated, filled with traps to capture uninformed executives who fail to grasp the difficult realities of China’s markets.

Let’s take a look at some of these wrong assumptions, followed by the facts:

• “The size of the Chinese consumer market is huge.” (True, but for the most part, there is no single national market and no way to distribute nationally; you need to negotiate deals city by city and province by province. Every city and every province wants its own unique distribution deal in order to have uniqueness in the marketplace. The main problem is not high costs, but the amount of time it takes to roll out. While the customer numbers may be huge, revenue per customer/user are usually in fact very low in the beginning for most sectors compared to other more developed markets.)
• “If I partner with a company with national distribution, then my job will be easier.” (True, but the companies which take on partners are usually the ones who are in trouble. Many of these are state-owned enterprises which lack business marketing skills, and are trying to translate their monopoly charters into revenue with the foreign partner’s help.)
• “Our product is so good that it will market itself”. (If you believe your own PR in this regard, your company deserves to fail.)

For the most part, the most successful companies in China’s emergent consumer market economy are firms like Suning (in consumer electronics), Shanda (in online gaming and entertainment) and Suntech (in solar energy).

What do these companies have in common? They are new, and while they did have some government backing and connections in their very early stages, they have now transformed themselves into privately-owned businesses with their own management team and CEO. For the most part, these companies are very centrally managed by their founder/entrepreneur. Unless a foreign company is able to present a very strong case for partnering with them, they will prefer to build and distribute on their own. Why should they share their profits and revenues with another company, and help to build another brand which may become a future competitor? After all, that’s how they became dominant in their own sectors; they’re not about to make the same mistake themselves.

As China’s economy becomes more market-oriented, China’s state-owned enterprises are struggling to define their roles in this new economy. It is not enough to have a government-granted monopoly charter; they need to become profitable. This pressure for profit usually comes from the Chinese government’s State Council, which is China’s cabinet.

Their preferred solution is to set up a joint venture with a foreign company, which injects startup capital since the Chinese government, as a matter of policy, does not inject capital into joint ventures, instead offering other fuzzy stuff like “markets” and “connections” into the joint venture.

Most of these joint ventures fail because the two sides fail to do the hard work to insure that there is a complete alignment of interests and accountability for their investment in the JV. Most of the time, I blame the foreign partner’s inability to see past the market hype and think and discuss the whole project through with the Chinese government partner and clearly defining which partner has responsibility to perform what needs to be done.

The endless procession of foreign companies who come to China and throw good business sense to the winds without performing proper due diligence in order to secure a footing in the “China market” never ceases to amaze me. Why is it they seemingly only do this in China? Do they think that the Chinese will throw them out of the country for asking good legitimate business questions?

Chinese SOEs are in particular need of modern management skills, especially in the areas of marketing, sales and cost accounting. Foreign JV partners would in fact be helping the Chinese companies reform by holding them accountable to reach specific business goals. The SOEs have strong connections and resources in a potentially large market.

It is only when both sides are honest about their goals and expectations that they can succeed.

Popularity: 66% [?]

Technorati Tags: autos, board, business, China, Chinese, data, diligence, due, economic, economy, facts, global, interest, investment, investors, joint-venture, management, market, oil, phones, Shanda, SOE, Suning, Suntech, US

This is the opinion of Paul Craig Roberts, who previous served as Assistant Secretary of Treasury during the Reagan administration, and is often quoted as the “father of Reaganomics”. (You can read the Wikipedia entry about him here.)

Recently there has been discussion about China’s threat to use the “nuclear option”, or and basically destroying the value of the US dollar as a global reserve currency by dumping more dollars on the markets than they can absorb in a short time, forcing the dollar into a free-fall.

The prevailing wisdom among US economists is that China would not make such a move, as the damage to China’s own economy would be too great. Roberts rebuts this claim saying that

American economists make a mistake in their reasoning when they assume that China needs large reserves of foreign exchange. China does not need foreign exchange reserves for the usual reasons of supporting its currency’s value and paying its trade bills. China does not allow its currency to be traded in currency markets. Indeed, there is not enough yuan available to trade. Speculators, betting on the eventual rise of the yuan’s value, are trying to capture future gains by trading ‘virtual yuan.’ The other reason is that China does not have foreign trade deficits, and does not need reserves in other currencies with which to pay its bills. Indeed, if China had creditors, the creditors would be pleased to be paid in yuan as the currency is thought to be undervalued.

In addition, he refutes the claim that China would lose US markets with such a move.

The notion that China cannot exercise its power without losing its US markets is wrong. American consumers are as dependent on imports of manufactured goods from China as they are on imported oil. In addition, the profits of US brand name companies are dependent on the sale to Americans of the products that they make in China. The US cannot, in retaliation, block the import of goods and services from China without delivering a knock-out punch to US companies and US consumers. China has many markets and can afford to lose the US market easier than the US can afford to lose the American brand names on Wal-Mart’s shelves that are made in China. Indeed, the US is even dependent on China for advanced technology products. If truth be known, so much US production has been moved to China that many items on which consumers depend are no longer produced in America.

Roberts then builds a case for China’s dumping dollars as a reaction against US pressure for revaluing the yuan, refuting claims that this is an impossible scenario.

Consider that if China were to increase the value of the yuan by 30 percent, the value of China’s dollar holdings would decline by 30 percent. It would have the same effect on China’s pocketbook as dumping dollars and Treasuries in the markets.

Consider also, that as revaluation causes the yuan to move up in relation to the dollar (the reserve currency), it also causes the yuan to move up against every other traded currency. Thus, the Chinese cannot revalue as Paulson has ordered without making Chinese goods more expensive not merely to Americans but everywhere.

Compare this result with China dumping dollars. With the yuan pegged to the dollar, China can dump dollars without altering the exchange rate between the yuan and the dollar. As the dollar falls, the yuan falls with it. Goods and services produced in China do not become more expensive to Americans, and they become cheaper elsewhere. By dumping dollars, China expands its entry into other markets and accumulates more foreign currencies from trade surpluses.

Basically, Roberts makes a strong case for the argument that the US no longer has leverage over China and global financial markets the way it used to. You can read his whole article here.

Have we reached a tipping point in American power and global influence?

Popularity: 50% [?]

Technorati Tags: Beijing, China, Chinese, deficit, dollar, economic, economy, Fed, global, information, interest, rates, research, trade, US, yuan

Actually, quite a lot.

Today’s US stock market tumble of 287 points highlights the dangers of the expanding subprime mortgage backed securities problem, which is now expanding into international markets.

In the period from 2000 to 2006, US regulators failed to put a check on the issuance of these derivatives, creating an enormous amount of credit, which in turn created excess liquidity globally. Basically, the US Fed lost the monopoly on credit and money creation, flushing markets with credit, which often got turned into cash.

Money is just like any other commodity; if there is too much of it, it loses its value. This means that it costs more money to buy the same goods. In China, food prices have gone up significantly in the past year, which is another way of saying that the value of money has gone down. It’s called inflation.

Over the past year in China, inflation has showed up in higher food prices. On the streets of Beijing and Shanghai, you can frequently hear complaints about how much more expensive food has become, both in markets and supermarkets, and in restaurants.

The big question everyone is asking now is how much of this new credit and liquidity was caused by this runaway train of subprime mortgage securities? Many of these packages have been packaged, repackaged and sold so many times that it will take time to find out what they were backed by. We are just at the beginning of what it likely to turn into a huge financial scandal, with its own need for scapegoats and finger-pointing.

The sooner it can be cleared up and the excess credit flushed out of the system, the better. But the need for scapegoats, political investigations and recriminations are likely to mean that it lasts longer. This will have an adverse effect on most economies and business, as everyone waits on the sidelines for things to clear up.

The implications for the American economy are huge. American regulators failed to do their job, creating what has now become a bubble of global proportions, and it is now popping dramatically. The US is a leader in capital markets because it is more transparent and properly regulated than most other markets. It has taken decades to earn this trust; now it is disappearing.

The implications for American economic and financial leadership are huge.

Popularity: 18% [?]

I have just switched to Feedburner to manage the feeds for this site, so if you are using a RSS reader, please subscribe to it using the following address: http://feeds.feedburner.com/chinavortex/mKwn

Popularity: 25% [?]

One the things which has been interesting to me are visual maps of the Internet, which show the main websites, and usually, how much traffic they attract. One of the leaders in measuring Internet usage all over the world, and in Asia-Pacific, is Comscore, which recently prepared a report on Asia-Pacific Internet usage.

Today, we are swamped with data and different sets of variables, so much so that most executives prefer to have their data presented in some graphic form. One great pioneer in this field is Edward R. Tufte, whose book The Visual Display of Quantitative Information is considered a classic for all communicators who need to provide snapshots of large data sets in a simple and clear fashion so that business decisions can be made quickly and efficiently.

iA Japan has recently released a map of the Internet presented as a variation of the Tokyo subway map. Broadly speaking, larger sites are larger, while sites with less traffic are smaller.

Now, I find myself spending more time thinking about how to visualize human behavior. Advertising and marketing have everything to do with understanding group behavior and psychology. While there have been books written about it, there has been almost no research done about how to visualize it. I find myself most interested in how groups of people move from one interest and website/s to another.

In the map, for example, I can see that among Chinese sites, Sina, Sohu, Netease and QQ are big, but I don’t know how people move to and from these sites, and to other sites. Static maps are about nouns; I’m also interested in the verbs and the adverbs. And not on a static basis as a snapshot, but in a live, ongoing, continuously evolving and changing basis in real-time.

How would online user behavior be visualized? One thing for sure: no static image would capture it; it would have to be like a video, constantly updated in real-time. And what insights would it give to marketers, advertisers, psychologists, anthropologists and linguists? My guess is that it would show that online user group behavior really has a lot in common with members of the animal kingdom which travel together in large groups, such as fish and starlings.

How about you? How do you think this data should be represented?

Since Google just announced a new university search API for research, maybe this could be a project it could be applied to.

Popularity: 28% [?]

Technorati Tags: animal, behavior, google, human, information, maps, netease, online, qq, sina, sohu, Tufte, user, visualization

Microsoft’s recent purchase of online ad market platform AdECN Exchange highlights the rise of neutral ad market platforms as a new venue for the buying and selling of ads between content publishers and advertisers.

Online ad market platforms represent the next stage, or second generation, of ad networks. The first generation was represented by Google Adsense, the company’s successful platform for publishers, which provided ad inventory from independently-published websites for Google Adwords, the ad targeting and delivery system, and Google’s cash cow.

First generation ad platforms such as the Adwords/Adsense platform have used real-time indexers, or spiders, to scan content for keywords, and then match up advertisers with inventory. Technologically, this is great non-trivial technology, but there are also problems with it.

• If you are an ad publisher or advertiser, you need to join a network (Google, Yahoo!, MSN, Baidu, etc.). By joining a network, you automatically lose advertising and revenue opportunities with other prospects who may not be members of the same network.
• Advertisers and publishers are entrusting a third-party to act as their facilitator and to act in their best interests. While search engines make claims to be objective and neutral; this is in fact impossible. Just do a search on a term of your choosing across several different search engines, and compare the search results.
• As search engine companies go public and come under pressure from Wall Street and investors, management’s strategy is always to blur the line between organic (free search) and pay-per-click (PPC) search. As revenue becomes more important, search results become more skewed to favor sites which belong to their publishers’ network.
• Click fraud is a major problem which the search engines have never been able to come clean about. Aside from waffle statements to the effect that “click fraud is a minor problem which does not affect most users”, all search engines, even Google, have been reluctant to provide independent third-party statistics about click fraud. This reluctance to come clean has led many to believe that the problem is greater and would affect their revenue more than they want investors to know. In a worst case scenario, it could be manipulated into a Ponzi scheme.
• In certain markets such as China, where keywords are sold through distributors, there is even wider room for abuse through distributor collusion. This is why advertiser groups have formed organizations such as Fanbaidu who have challenged charges for advertising clicks made to their accounts.
• As the Cluetrain Manifesto made clear, along with Seth Godin, marketing and blogging are becoming increasingly about conversations. Blogs are nothing more than linked conversations on a given topic, and sometimes they ramble on by themselves. For this reason, blog content resists a “one size fits all” approach, hence the attractiveness of the long tail approach. For unique content, neutral ad platforms where buying and selling is done by human buyers and sellers online work better than networks which have their algorithms continuously tweaked. Since the most knowledgeable seller is the creator of the content, this means that more and more, content creators will become marketers and publishers of their own content. After all, the main task of a publisher is to attract good content creators and market their work.

This is why the ad exchange system is the trend of the future; it works best for unique content and for the long tail. Compared to ad networks, they are more transparent. Click fraud collusion is made much more difficult because the market is real-time and more dynamic, and the content creators and publishers would have it in their own best interests to fight and resist click fraud. Transparency rewards the honest over the long term. Exchanges are not perfect and Ponzi schemes can also develop in exchanges, but this has more to do with human nature than exchanges.

The problem with the advertising industry, as it exists today, is it is built for a world where advertisers and inventory are comparatively static, and where audiences are defined as being “mass market”. In today’s online market, where peoples’ needs, care and interests are constantly changing on a real-time basis, the question should become “Is there a mass market anymore, and what is its definition in quantitative and qualitative terms?” If the answer is no, then the main currency of advertising becomes attention, which would then have to be translated into monetary terms not only on an individual, but on a time basis. Pushed to its logical outcome, advertisers would need to pay consumers for their time and attention.

In an article on Ogilvy China Digital Watch, Kaiser Kuo raised the question about why ad exchanges were slow to take off in China. Although there may be many reasons, I believe the most important single reason is that content creators want to just create content, and don’t like the idea of marketing, buying and selling their own content or becoming publishers. They want to write for someone else and be paid, and don’t want to take the risk themselves. This problem is not unique to China; it will affect takeup of the online ad exchange model all over the world.

Of course, the market always tend to reward the individuals who see and act on opportunities before others.

Popularity: 39% [?]

Technorati Tags: AdECN, adsense, advertising, adwords, baidu, google, marketing, microsoft, msn, ogilvy, yahoo