Advertising, Real-Name and Other Opportunities in China

July 14th, 2010

Several weeks ago, I wrote an article on China’s digital advertising industry for Forbes.com The China Tracker. Now that China’s online advertising expenditure is growing, I’d like to talk more about challenges, and what I see as good opportunities in the field.

The past few years in China have seen some investment in China in combined lead-gen/traffic websites in China. I won’t name any names, but if you know this space, then I’m sure you know a few players. Basically, combined lead-gen/traffic is not viable on the long-term because there is an inherent conflict in combining lead-gen and traffic together. Either you are in lead-gen, in which you sell your leads to other sites which then try to monetize them, or you are in the traffic business, and you sell your traffic to firms which try to segment that traffic for their campaigns.

You don’t do both under one roof.

I see advertisers and publishers getting smart about this very soon, and figuring out the inherent conflict, which will cause problems for the companies which are doing this, and I expect them to change to either traffic only or lead-gen only very soon.

This will lead to healthier market development, and will help digital advertising expenditure to grow as a whole, as the industry will then grow more healthily.

Many of the advertising plays in China have been laggards, as games have always generated more revenue. Growth is now slowing among game publishers, and the number of new game players is also slowing; this is a reflection of China’s aging demographics. The growth has moved from MMORPG games to casual games, which don’t eat up time and attention the same way MMORPG games do. With the growth of mobile phones, especially the Android and iPhone platforms, you can expect more mobile casual game popularity. Some of the MMORPG game publishers will move to these platforms; others will not. I expect their success to be mixed.

Blizzard and the Chinese government have all been trying to push real-name registration, for their own set of reasons. I predict that this year more people will begin using their real names on the Internet, not out of government registration threats and rules, but because they are building a following, and are becoming well-known, and even generating income from Internet referrals. This already happens for some people, but as the society becomes more digital, it is being pushed down further into society.

This will create a bifurcation of those who use multiple identities and remain anonymous, and those who use real names. Some people will become famous as leaders in their fields and will use their real names; in this respect, they will become like experts on South Korea’s leading search engine Naver.com. In this respect, I expect the Internet in China to develop along and follow South Korean lines. On the one hand, this will make the Chinese government more comfortable with its development, and it will also increase the accountability of the information.

I see the next five years in China as a kind of cleaning-up period, where content quality and reputation need to be re-examined. Let’s be honest, there is an awful lot of content on the Chinese Internet, and a lot of it is crap. Much of the content is just copied from other sites with no value added. Brands are going to advertise in China because of the importance of the market, but it would be much friendlier if it was cleaned up. This needs to be done.

As for advertising sites in China, too many of the startup ideas are content- and front-end related. This is because most of the westerners and westernized Chinese in China are content people. But content is not enough; the Internet is really about data and sorting and filtering very large amounts of data to capture insights for advertisers.

This is where the next generation of online advertising startups in China will add value. This will require REAL technology, and will be filled with terms like Hadoop, MapReduce, etc. This will replace terms like branding, China strategy, market entry, etc. In other words, the emphasis will move from the front-end to the back-end, where the real technology always is.

Google is the world’s most successful advertising company, and it is a backend data-driven business. Its front-end services are just there to drive traffic to the backend, where it is processed into useful data which generate profits.

That is something most people just don’t get.

It’s about time they did.

I wonder who will be the new VCs in this space?

I welcome your comments.

Event on 11/5/08: About IAB In China (Beijing)

November 3rd, 2008

For the past five months, I have been researching about the feasibility of setting up an IAB (Interactive Advertising Bureau) in China. The IAB as a trade association was founded in the US in 1997, and has since spread to all major markets in North America and Europe where it helps to coordinate discussion and implementation of Internet advertising production standards and measurement standards for web analytics.

I have been invited as a guest of Web Analytics Wednesday to speak on the subject on Nov. 5 in Beijing. I plan to talk about what I have learned from talking to many digital companies and ad agencies, and about the progress which has been made so far. I also plan to include my own assessment of what is needed to make IAB successful in China.

If you are interested in this subject and have the time, I look forward to meeting you at the event.

UPDATE For those of you who are having trouble getting to the above link, it will be at 8PM Wednesday at Club Camp. You can get directions to Club Camp here.

My Wish List For The CNNIC Report

July 26th, 2008

The biannual China Internet Network Information Center (CNNIC) report covering the first half of 2008 has been released (in Chinese) and is now available. The Ogilvy China Digital Watch website has provided an excellent job of capturing the main points in English. The most salient point of the report is that China now has 253 million Internet users, pushing China into first place worldwide, surpassing the US.

The CNNIC is the main official source of information for the state of the Internet in China, and is the most frequently quoted report on China Internet statistics. For more detailed information, especially ecommerce numbers, etc., there are a number of market research firms in China which provide services, including custom reports for paying clients.

I would like see some changes and improvement to the CNNIC report. Here are some of them:

  1. Outline the methodology used. Explain how the data is collected and by what authorities. Also explain how the audience is chosen. Make the whole process transparent as possible.
  2. Show the questionnaire used, and let people provide feedback about what questions are used so that they can be improved in future versions of the report.
  3. Use the same questionnaire nationwide so that there is a level basis for comparison.
  4. Current data is weighed too much towards national and tier one cities in China. This information is too broad and not granular enough. Break out the information by province.
  5. Provide the names of the government officials who collect the data on the national, municipal and provincial levels along with their email contact information so that we know who is responsible for collecting what data on what level.
  6. Provide a forum so that these same people can answer questions about the CNNIC report and reply to suggestions. Engage the audience in a continuous dialogue to improve the CNNIC report.
  7. Keep the primary data in a data warehouse, and consider making it accessible to researchers so that they can write their own queries and generate reports for a one-time fee or on a long-term basis for a subscription fee.

Wanted: A New Kind of Ad Agency Warrior

November 16th, 2007

Readers know that I have spent quite some time thinking about how the Internet and online advertising will affect the whole overall advertising industry. A recent post on Ogilvy China Digital Watch made me think more about how some of the changes the rapid rise in online advertising spending will affect the advertising industry as a whole.

The advertising industry grew at a time when the divisions and demarcations between different media and media audiences were very clear (TV, radio, print and below the line advertising). It was a good business, and permitted the ad agencies to buy large amounts of media, then resell it to their advertisers, while offering other services (creative, PR, direct mail, etc.) on top as value-added services. Advertising could be divided into brand advertising for global brands and more targeted ads for small local clients. All in all, it was a good service business with healthy margins.

That whole business model has been blown apart with the Internet, and ad agencies are adjusting to the changes. These changes are just starting, and will ripple out to affect other services as well.

The single greatest change brought by the Internet is the shortening of the business cycle. People have more things to do, which means that they need to make decisions, even important decisions, in much shorter time cycles. This means that if they want to find out something about a product/service, they want to know it in as short a time as possible.

This has been enabled by search, a business which Google has built to near-perfection. Add advertising to search results, and you have the Google money machine. Advertising appears in a welcome context instead of being disruptive.

Search advertising has had some negative effect on brand advertising because it is possible, in a very short time, to find out what others are saying about a given product or service. This is not the line from the corporation, but what other buyers are saying. More disruption of the communications process.

The immediate effect for ad agencies is that their whole time-cycle has been disrupted. Instead of the normal annual budgets and precious planning time which goes into big-budget ad campaigns, more corporate attention is going to fighting fires, which usually fall into the PR realm. The agencies are trying to protect their creative and media teams from this hyper speed development cycle in-house, but it is impossible to control what is happening on the advertising client’s side, who is getting continuously distracted by what sounds like noise and chatter.

What is the ad agency to do in order to adapt and survive?

First of all, it is necessary to tell the clients that it is no longer possible to control the message to the customers. The customers are talking back, and there is no way to tell them to shut up. A lot of the customer feedback is noise, but there are also very valuable pieces of information in there.

There is a need for a new kind of ad agency warrior who can go out there and slay the dragons , and collect the valuable information and give it back to the creative teams and client so that they can act on that information in its product and marketing cycle.

Here are my draft job requirements for an ideal candidate:

  • Information researcher, able to use Internet and mobile tools to monitor client-relevant information in real-time;
  • Able to engage with client at all levels (executive and manager) to understand evolving client needs, and to report in real-time on rapid changes in market situation;
  • Able to understand client’s corporate position and voice, and act as a responsible spokesperson and advocate in the digital realm while upholding client’s integrity;
  • Understands how to communicate to different clients on different levels and is able to quickly adjust accordingly
  • Can quickly analyze and learn and communicate this information back to creative and media teams and back to client on a frequent basis;
  • Proactively pushes out information to other team members and clients for their use;
  • Comfortable working with amorphous teams which are changing on a constant basis;
  • Is comfortable communicating in at least two human languages;

Requirements:

  • More than two years’ blogging experience, including acting as an advocate for a product/service;
  • Knowledge of SEO tools and terminology;
  • Understanding of corporate structures and organizations and how they work, and how to get things done in them;
  • Must love doing things fast and independently

Notice that I didn’t include academic credentials? I told you that we needed a new kind of ad agency warrior, didn’t I?

Report: Cory Doctorow of Boingboing Speaks in Beijing

September 13th, 2007

Cory Doctorow, open-source advocate and publisher of the Boingboing blog, spoke in Beijing yesterday on Sept. 12. The Boingboing blog was one of the first blogs on the Internet, and now reportedly has more than 600K subscribers. The venue for the event was the Beijing Bookworm bookclub/bookstore in Sanlitun. Many members of Beijing’s English-blogging digerati were there including Jeremy Goldkorn of danwei.org who served as host, William Moss of ImageThief and Kaiser Kuo of Ogilvy China Digital Watch.

Cory opened his talk by reading a short story he had written. The story was set in 2027, where a VC was trying to talk a woman into letting him invest 600K in her company, which created customized mobile devices from junk, which she would then sell to customers. It was a perfect case of mass customization; this time, the VC had become commoditized, he was now part of a venture capital franchise and was looking for places to put his money. Trouble was, he had more cash to invest than what he knew to do with. The woman complained saying that she had tried to get money from Sand Hill Road in 1999, but she was blown off because her business did not, as the VCs put it then, scale. Now the tables were turned, and the woman was able to buy her raw materials for very cheap prices, and taking advantage of new technology design software and equipment, was able to design unique devices very quickly. At the end of the story, the poor VC was reduced to asking if he could work a shift on her assembly line so that he could have one of the devices.

After the reading of the story, Cory proceeded to talk about the issue of DRM (digital rights management) and copyright. He related the story of how Google had recently stopped selling videos from Google Video, disabling the ability of people who had paid for downloads to watch videos they had already paid money to buy. For this reason, many had turned to the Google search engine to find unauthorized downloads of those same videos which they did not have to pay money to buy, and which they could play anytime they wanted. This was a perfect example of how screwed up the whole copyright issue had become; it encouraged unlawful behavior by punishing those who acted lawfully, but now changes forced people to adopt and use products which were not “lawful”.

He then proceeded to talk about the DMCA (Digital Millenium Copyright Act) takedown request, which was used to remove content from Internet websites. He recounted the experience of one publisher, the Science Fiction Writers Society, of which Cory is a member, which asked that all references to Isaac Asimov be removed from a document publishing website. As a result, even high school reading lists had to be removed.

All this was done without any need for proof of ownership to be submitted to a court, or seeking of an injunction. His point was that the copyright laws are much more strict on the Internet, and do not need “proof”. In a twisted way, this has encouraged the proliferation of online piracy because the laws are unreasonable and unenforceable.

He then talked about how changes in technology had helped the publishing industry as a whole. Whereas before, major book hits needed to sell 50,000 copies, now many books became profitable by selling only 3,000 books. Technology has lowered the threshold of costs and profitability for small niche publishers, which are now able to reach a wider audience through the Internet, and later through mobile search and applications.

When the US was founded, for the first hundred years of its history, the US pirated all books written by English authors, and refused to honor British copyright laws. Cory added that the American founding fathers knew what they were doing; they were not prepared to have US dollars go into the pockets of the English treasury. It was only Mark Twain, an American author, became famous, did Americans become interested in copyright laws.

Now, Cory noted, China wants to become an accepted member of WTO and the international business community, and is seeking to honor international copyright laws. He warned that it is important for China to think through what its own interests are so that the country’s own best interests are not sacrificed to globalization.

Cory made it very clear that he believes that the current copyright laws are formulated to favor current copyright owners, at the expense of consumers. He noted that the current US copyright law, introduced some thirty years ago, has gone through eleven revisions, and that literally no one, including judges, lawyers and politicians understands it completely.

If there was a theme to his discussion, it is that the Internet has opened up a whole new world for those who are savvy enough to use it intelligently, and use it to reach niche audiences and interest groups all over the world, without being restricted by geography and language.

It’s great to know that we are all tied into our own interest groups through the power of the Internet. If we are willing to reach out, we can find people with similiar interests without any restrictions at all.

It’s all in our hands now.

Andrew Lih has posted a photo of the event on his blog and Frank Yu has posted photos of the event on Flickr. Search for “cory doctorow beijing”

Updated 9/15/07: Danwei has posted a video of Cory’s talk.