Creating Value In the Digital World, and Bringing It to the Real World

One of the great challenges in the digital world is: “How to create value?” People are spending more and more time online, and are moving to a mobile Internet, which has been attested to by the success of Apple’s iPhone platform. But spending online has lagged behind, especially in China, where advertising has been slow to take off.

Obviously there is something wrong with this picture. What can be done to bring value to people, and are companies looking in the wrong places?

Advertising has been established in the west for more than a century, but it has been much slower to take off in China. There are several reasons for this: for one thing, after having been a strictly socialist society for nearly thirty years, there really wasn’t much of an ad industry in China in the period from 1949 to 1977. A consumer society did not exist, and Chinese citizens did not have many choices. There was the hukou system which meant that Chinese citizens could get enough of what they needed, but only if they were in the right city, and only enough to take care of their basic necessities.

After 1977, when China started to open up, the ad industry had to basically build up from almost nothing. Now, in 2008, it is one of the few markets where ad revenue is growing by leaps and bounds. In the west, many companies are questioning the effectiveness of advertising in the face of the growing power and effectiveness of the Internet and its poster boy for online advertising, Google.

Still though, there is plenty of room for alternative business models. In 1999, while Yahoo! was earning a great deal of ad revenue from banner ads, Chinese companies had to look for alternative business models which were grounded in how Chinese were willing to accept value, and were willing to pay for it with real money.

Tencent, the creator of the fabulously successful QQ IM client, has probably the most successful virtual currency in the world, Q-Coins (in Chinese, Q-bi, it means “Q currency”). Since its introduction, it has become a fabulously successful currency which has its own currency exchange rate, and is bought and sold offline. In short, to many Chinese, it is a real currency with value. This is a case of something which was created in the virtual world, was deemed to have value, and then taken into the offline world.

This leads to a very interesting question for social networks: If Q Coins have been so successful as an online social currency for transactions among community members in China, then why haven’t the western SNS sites such as Facebook, Friendster, etc. created their own currencies which their own members could use worldwide? And why should there not be a secondary market for trading these virtual currencies among themselves, and then with real currencies?

Ogilvy China Digital Watch has done an excellent job of keeping an eye on the development of online advertising in China. But I have a question: “If the volume of online currency denominated transactions were added to digital adspend in China, how would that compare to how much is spent on online advertising in America?”

Could it be that in fact China is already a leader in bringing online-created goods and services to the offline world, and is ahead of the west?

Who knows, maybe the answer for a global ad agency like Ogilvy would be to issue its own virtual currency and to get as many people worldwide to use it as possible?

Now that would be a twist!

2 Responses to “Creating Value In the Digital World, and Bringing It to the Real World”

  1. Will Lewis says:

    We see something similar in US MMORPGs “Second Life” and “Entropia Universe,” and we it playing indirectly in the barter system for items in other MMORPGs such as “WoW”. As to why we haven’t seen virtual currencies spread across other parts of the American Net, my guess is that widespread credit card membership and the instantaneous exchange rates offered by credit card issuers makes no need for virtual currencies. With a credit card the virtual currency adds transaction costs in exchange rates and exchange fees. Without credit cards the virtual currency allows internet users a way to interact in the net’s economy that wasn’t previously available.

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