The China Vortex

Search engine marketing is the main engine behind Google’s rise as a major online media player, and the product it is offered in is Google Adwords, which allows advertisers to directly target their online ads by selecting keywords, and then targeting them to relevant search results pages and to published pages (using Google’s publisher’s network, Adsense).

In China, the leading search engine company is Baidu, which started in the US, but came to China, and is now the most popular search engine among Chinese Internet users. It has been financially successful, and is listed on the US’s Nasdaq under the symbol BIDU

There are several reasons for Google Adword’s success, and the most important are two: PageRank, which measures the popularity of a web page by measuring inbound links which for the most part, are selected by humans and not computer algorithms, and introducing relevance into the keywords auction model. Under the Google model, paying the highest price for a keyword is not enough to insure clickthrus (for the most part, Google charges advertisers per click, or pay-per-click PPC), but it must be relevant. The more relevant it is, the more clickthrus it will get, and the less an advertiser will have to pay for a higher ranking.

As this excellent article makes clear, Google did not invent the keyword auction model, but it did perfect it. By perfecting the Google Adwords model, Google has become the hugely profitable online media machine it is.

As China becomes more important as a market, more advertisers are looking to sell directly into the Chinese market using Google and Baidu, the two leading search engine firms in the Chinese market. Baidu operates under a very different business model from Google, one which it has adapted to suit the Chinese market.

My understanding is that Baidu does not figure relevancy into its advertising fee structure, Chinese advertisers only pay for higher ranking. As far as I know, Baidu does not have anything like PageRank inbound linking algorithm to count inbound links either. Without these two elements, Baidu’s ad search looks a lot like the GoTo.com ad model. This makes it fundamentally different from the Google Adwords model.

I’m digging deeper into the search engine marketing business in China, and want to hear what you would like to know about. If you have questions, please post them in English or Chinese in the comments below.

Technorati Tags: adsense, adwords, auction, baidu, China, Chinese, engine, google, keywords, marketing, optimization, pagerank, ppc, relevance, relevancy, search, sem, seo

The Tianya BBS, as I have mentioned earlier, is one of the leading BBSes in China. It has now launched a special BBS connecting victims in the earthquake affected areas, with those individuals and companies wanting to voluntarily provide goods and services to help them. (h/t to to the Google China blog for mentioning this).

Here is the most recent news in English about the earthquake.

The BBS is in Chinese, but if you are outside China and don’t read Chinese, all you need is someone who reads Chinese to help you understand what is most needed, and in what places. With the Internet, you don’t even need to know someone personally, all you need to do is to reach out and ask.

One good place to start looking for people who know both English and Chinese is Yeeyan.

Technorati Tags: BBS, blog, China, earthquake, google, sichuan, tianya, wenchuan, yeeyan

Google China’s blog (in Chinese) mentions a Google search query log which dramatically shows the moment of silence and mourning on 2:28PM on May 19 for the victims of the May 12 earthquake in Sichuan.

Apparently, even Google search queries fell off dramatically during that three-minute moment of silence where Chinese stopped everything they were doing to observe a moment of silence.

The graph says it all.

Technorati Tags: China, earthquake, google, log, mourning, query, search, sichuan

Google China announced their launch of Google China People Search in the Google China blog to help victims and their relatives get in touch with each other. I have chosen to translate the announcement in full, and have included the original hyperlinks in the story.

Aside from the human tragedy, this is an excellent study in how Chinese Internet users turn to the BBS (all of the links except for the disaster area search platform below are to BBSes) during times of emergency.

As of this morning (May 16), there are 19,579 casualties, and total fatalities are estimated to total more than 50,000. Many families are continuously looking for their loved ones, in the hope that they will be able to find them safe.

Google China’s engineers, after working more than 24 hours, have created the disaster area search platform. We have attempted to gather information from across the Internet to make it easier for users to get information. Our objective is to create a platform where bravery and hope can meet.

We hope that your loved ones are not among the long list of fatalities. Maybe they are searching for victims in ruined buildings, maybe they are caring for the injured in a hospital, maybe they are feeding a child somewhere. Maybe they will hear our call and know that they are not alone in this disaster.

If you have any information about people you know who are involved in this disaster, please post their information to Tianya Laiba, Baidu Tieba, Soso Search, Sina, and Netease. You can also send email to us. Our engineers are at work 24 hours and we will regularly update our information.

Google’s influence in China is small, so we have made this code available to everyone. Any blog and website can include this code in their website so that more people and websites can join in this search.

This is a long recovery process and there is much more work to be done. May heaven protect China, and we hope that your loved ones will be safe.

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寻找灾区的亲人

Technorati Tags: baidu, BBS, China, disaster, earthquake, google, netease, people, search, sina, sohu, soso, tianya, victims

A few days ago I read an interview with Steve Jobs published in Fortune in March. One of the ideas which Steve Jobs put forth is that you really need to understand the technology issues, then follow how they will roll out in order to be successful. Apple has a certain advantage because it owns the operating system and the hardware. This means that the hardware and technology can be integrated much more tightly together.

This makes me think that one of the issues with the current media and advertising space in China is that there is not enough understanding of the integration of the hardware and software. Basically, DoubleClick came up with the idea of the banner ad, then Google came up with the idea which came from came up with the idea of PPC advertising on the search results page, and the algorithms which would optimize the system to become a money machine for Google. For too long, players in this space have come from the media space, offering a “me too” solution full of buzzwords but with little real content to differentiate.

What did Google do which was so different from Yahoo!, the leading Web 1.0 portal? They got very close to the technology, to the point where they built the servers and disks, and created MapReduce, Google’s search technology which could run on huge clusters.

Now, I hear a lot of talk about all the startups in China, but most of the time, I don’t see how any new technology is used to take a whole new look at how advertising should be delivered over a complex network. Most are consumer plays which do not deliver anything spectacular. That would not be an issue if they had a good feel for the marketing process, but more often than not, they do not. As a result, most advertising buys gravitate to the big online media companies, which include Sina, Sohu, Netease and QQ, as Kaiser Kuo frequently talks about in his blog at Ogilvy China Digital Watch.

In fact, we are just at the beginning of a whole new wave for technology and advertising: this is the mobile wave. Handset makers now only pay US$15 per handset for software, and with the upcoming development and launch of Google’s Android, per handset payouts are going to go down even more. This means only one thing: there will have to be a steady advertising revenue stream to finance all the content. The mobile network though is not one network, it will have to be two:

• The search and search results network including GPS location-based detection
• The network delivery system

In software development, there is the MVC or model/view/controller system for software design. The rules are defined at the model level, there is the presentation end for how the viewer sees the content (Apple is now taking a grab at this with the Apple iPhone) for view and the controller, which connects the rules at the model level with the view, and handles delivery.

Basically, Apple is trying to leverage its control of the iPhone audience at the view level to get leverage with the carriers, who act at the model level. In some markets it has been successful, but not with China Mobile so far. The handset makers such as Nokia, Samsung, and LG have solutions, but since their product lines are spread across so many products, they have little leverage unless they came up with their own operating system and hardware as Apple has. What are the chances of that happening? Microsoft has a solution with Microsoft Windows Mobile, but it is just one among many players and does not have a dominating position on any of the model, view and controller levels of the mobile network.

China Mobile has made no secret of its plans to control the platform as much as possible by virtue of its near-monopoly role in this space. Ultimately, it will have to make marketing choices about what audience it wants to serve: the casual youth market or the productivity worker, and how to maximize revenue from the market they choose. The only way for them to avoid having to make this choice is to offer contextual advertising on the mobile network. It would make a lot of sense for China Mobile to buy Baidu to protect its mobile advertising revenue stream from Google, and then make a serious technology effort to combine improved search algorithms with location services. Search technology involves a great deal of non-trivial technology which cannot be easily replicated, even by a company as huge as China Mobile.

As for smaller players, they will have to come up with ways to get revenue from a market which has been bombarded with a huge amount of free content.

Google has a tremendous advantage with the Google Android operating system, which will have hooks built into it for search and location services. If you think that they are giving a mobile phone OS away for free just because they are nice people, you are delusional. They are offering a new mobile ad platform with other services to attract developers.

I expect that the mobile network will very soon become the “smart network” compared to the PC-based network, which will become the “dumb network” because it does not have location sensitivity. (Of course, newer computers will have location sensitivity. This will then combine with Google’s current services to deliver ads which will make the current ad networks look like something from the Stone Age.) The PC network will continue to be good for banner and brand advertising, but if you really want smart contextual advertising which operates on a PPC basis, mobile will be the leader.

The smaller mobile players will have to pay “toll fees” to the model (China Mobile, China Unicom, etc,.) and view (Apple) players. It will be much harder to get onto the technology ramp for mobile than it is for the PC, at least in the beginning.

Technorati Tags: android, Apple, baidu, China, chinamobile, doubleclick, google, gps, iPhone, lg, microsoft, Nokia, samsung, search, stevejobs, yahoo

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!

Technorati Tags: advertising, banners, businessmodels, China, currencies, google, ogilvy, online, q-coins, qq, US, virtual, yahoo

Ever since its publication, The Tipping Point, by Malcolm Gladwell, has captured the imagination of marketers and PR people all over the world. Basically, the book argues that ideas are spread by different groups of people, and that some have more influence than others in helping an idea to spread.

For marketers and PR people, the book basically argues that there is a formula for success; just feed your client’s idea or product into this ecosystem, and you can come up with a very predictable result. It’s almost like a software engineer’s dream: given a certain input, then a process, there is a predictable outcome. The marketer/PR agency can argue that the amount of money spent forms a direct correlation with the input, and if a project fails to take fire, it’s because the client didn’t spend enough money. As a result, the right connectors could not be influenced, and the project failed.

This is known as Influentials theory and forms the backbone of much marketing practice.

All clear and simple, right?

I have always had my doubts about it. For one thing, the model fails to take into account what is a good idea and what is a bad idea. And it fails to explain how people decide what is a good idea worth transmitting to one’s network, and what is a bad idea which should be immediately dismissed or ignored. If you were a Google engineer, how would you write an algorithm to describe how these very human and subjective individual judgements are made?

It seems to me that it is impossible to write an algorithm to describe them. What an engineer can do though, is plot how ideas are spread in a time when we are bombarded with more and more information, making our attention spans progressively shorter.

Wouldn’t there come a point when influence becomes almost random, when Influentials lose most of their influence? And doesn’t this coincide with the breakdown of the “mass market”, a concept which has collapsed with the rise of the social networking phenomenon and the long tail?

I had long suspected this, but I had never been able to prove the thesis. However, the results of some serious research by Duncan Watts supports this thesis. In this article published in Fast Company, his experiments suggest that the success of many fads has become, for all practical purposes, random. The article is an excellent read.

For one thing, I believe that The Tipping Point was written too long ago, and it described a world vastly different from ours in 2008. When it was published in 2002, the book described a time when people still read paper newspapers and books and before blogs. You may remember a term then called the “mass media”.

Now, ideas spread much faster, and within smaller groups which may appear random. It is also very likely that products/services/ideas will be served to much smaller groups of people.

One example is the gaming industry where the shelf life of titles has become progressively shorter, almost to the point where the marketing industry has trouble keeping up with the shorter time cycles. Hollywood movies have to prove their box-office success in their opening weekend in the US. These two industries have yet to adapt to lower production expense models which fit in with the lower shelf-life of their titles.

Basically, they need to downsize their costs.

If you boil it down to essentials, it means that you will have to market your ideas/products/services yourself, since you know your own audience best and understand how to pitch it to them. If they like what you have to say/sell, then they will become your connectors, and push it beyond your immediate circle, creating a breakout phenomenon.

In the end, the Internet empowers smart generalists who understand technology and keep the human touch in their marketing. Dumb messages may have short-time entertainment appeal, but they are unlikely to be profitable unless there is something behind them.

And marketing cannot buy credibility.

Technorati Tags: algorithm, attention, blogs, engineering, google, human, ideas, influentials, malcolmgladwell, marketing, PR, software, tippingpoint

The quality and amount of discourse on the proposed takeover of Yahoo! by Microsoft has had my bullshit meter jumping off the charts, and I felt I just had to chime in.

Paul Kedrosky summed it up best when he said that it would benefit Google the most. Anyone with half a brain and who has worked in corporate management more than one week knows that the most painful thing to do in business is to grow by acquisition. Acquisitions are especially hard to do in a market which has matured relatively quickly in the US, such as search advertising. But analysts and senior management sometimes like to do acquisitions because it creates a lot of buzz. And in the lousy US market nowadays, any buzz which does not include the keyword “subprime” is welcome buzz.

Organic growth is the much better way, and in the long run, yields better results. A lot of early Google talent has been cashing in their chips and leaving the company; shouldn’t Microsoft focus on hiring some of those very smart people to beef up their search offerings? Wouldn’t that be a better way to catch up to Google’s search technology? Yes, and I’m sure that Microsoft is doing that right now, but it doesn’t capture the imagination of the old media folks the way Microsoft! would.

“Let’s toss a big fat red herring to the dumb masses!”

In spite of its management problems, Microsoft still has a formidable technology pool of talent. The fact that it cannot create an operating system as reliable as Apple’s Leopard even though it has more than three times the number of employees is more a testament to bad management of talent and resources than to anything else. It could even be argued that Ubuntu Linux has a friendlier and more stable operating system, and it has almost no revenue, and almost everyone working on it is a volunteer!

So why does Microsoft’s Steve Ballmer want to do this deal? I see it as hail-Mary desperation pass to show that he is “doing something”. If you are saying that it is useless and dumb, then you have a problem. You see, you have committed the unforgiveable sin of looking too closely and thinking too much.

Shame on you!

To add to the entertainment value of this show, Google has jumped in with claims that it is seeking to protect the “openness of the Internet from a closed company like Microsoft”. Now, I have had many images of the Internet, but I have never quite had the image of the Internet as this beautiful bride about to be horribly ravished by some mean thug in the northwest. As a matter of fact, I think that the Internet has been ravished many times before, continues to be ravished, and somehow manages to live with it and get along with life.

Now, if Google has suddenly discovered that Microsoft is closed, why should it limit itself to complaining about Microsoft? Why not go after nation-states which are not famous for openness, and frequently tinker with the “openness” of the Internet. If they have any trouble thinking of any, they are welcome to call me.

I could easily come up with more than 190 names.

So Google can now also score points with your senile old grandfather, the one who criticized Microsoft for being a monopoly way back in the 90s, but still makes sure to keep his copies of Microsoft Office current.

YEAH, GOOGLE STANDS FOR OPENNESS!

Now, to add to Uncle Steve’s general cluelessness, he comes out with this gem stating that Google has no products, it only has search. He may not have heard it, but there is a whole bunch of businesses which don’t have products; they’re called services.

Yes, Google doesn’t have any products; it only has services. But the services produce something called search advertising revenue by matching advertisers with content providers using keywords and taking a chunk of revenue in the process.

Do you think that Steve knows why he’s buying Yahoo?

Frightening thought, isn’t it?

Technorati Tags: acquisitions, advertising, google, keywords, microsoft, paulkedrosky, products, revenue, search, services, steveballmer, yahoo

One of the things past experience has taught me that while it is possible to guess that some business will take off in China, it is almost impossible to tell when. The most common scenario is that for many years, a western business will devote its people and resources to making its business popular with Chinese, it will not show results. Frustrated, it will depart China with nothing to show for its hard work and investment. (This happened frequently in the eighties and nineties; now it is much more rare.)

This rule does not just apply to business; it even applies to Chinese government policy. For years, the Chinese government actively urged the Chinese people to travel more; it even increased the number of public holidays, creating the Golden Week holiday around the May Day holiday in the late 90s to get Chinese to travel more, and spend some of their savings. For years, the policy yielded no solid results.

But later it worked, and beginning this year, the May Golden Week holiday will be abolished. Put simply, it’s no longer needed. Chinese now travel freely, are willing to spend their savings, and the incentive is now no longer needed.

The same phenomenon occurred in the auto industry. For years, local Chinese automakers were unable to get Chinese to spend money on automobiles; most of their production went to taxis and to Chinese government ministries and officials. These habits changed suddenly with the SARS crisis in 2003. All of a sudden, Chinese were afraid to take public transport and started buying cars. And unlike in the west, they paid for their cars in cash.

This trend, which started in 2003, has continued to this day. Now, if a young man in China’s cities wants to get married, more and more young brides are expecting an apartment and car to go with their husband-to-be. Today, in Beijing, 1,000 new cars are being added daily to the city’s traffic woes.

This creates a phenomenon which I call the “Chinese hockey stick”. In simple terms, this means that “It is likely that a new business/service/product will take off in China, but it is hard to say when.” This can be endlessly frustrating for businesses which need to plan their expenditures on an annual or quarterly basis. When are they going to see some of their investment money come back? Country heads need to tell their head offices when the hockey stick will finally take off, and more often than not, it is very hard, if not impossible, to tell.

Part of my rationale for the Chinese hockey stick is that Chinese consumer spending patterns will track more closely to the spending habits of their Asian neighbors in South Korea, Japan, Hong Kong and Taiwan, than to the west, as Chinese society becomes more prosperous. If you want to understand how Chinese spending habits are likely to develop, take a close look at these places. You will learn a lot. In culture and language, these places are closer to how Chinese think, act and behave than the societies of North American and the EU.

Most frequently, the businesses which are able to time the rise of the hockey stick are local Chinese entrepreneurs. Unlike western companies which try to sell their foreign-designed products in China; these Chinese entrepreneurs stand in the wings, just waiting to swoop in at just the right moment. Unlike western corporations, these companies do not have the big budgets of western companies, but their knowledge of their countrymen’s thinking and spending habits more than compensates for this. This is why many leading Chinese Internet companies such as Tencent, Baidu and Sohu have been able to prosper, while their much larger and richer western competitors have been unable to gain traction.

With the dramatic growth of the Chinese consumer market in the past five years, you would think that western observers would learn to be quiet instead of sticking their necks out and betting against the spending power of Chinese consumers.

Apparently not.

David Wolf’s Silicon Hutong has pointed to an article by Donald dePalma in which he claims that China’s buyers account for only 1.1% of what he calls “online GDP”. Unfortunately, he does not explain his methodology as to how he gathered his numbers.

In the west, the Internet led to the creation of some whole new businesses, with Amazon and Google being the best examples. In China, many Internet companies are front-ends for established brick and mortar businesses. For many Chinese consumers, the Internet is like a shop window; when they buy, they still prefer to buy from a person in a store.

These fundamental differences in consumer spending habits make me question the value of even measuring something like “online GDP”. And as David Wolf alludes to, the eGDP is a static number; it does not capture or reflect trends. It is like trying to understand a movie storyline from a still photo.

That’s why I’ll stick with my analogy for the Chinese hockey stick, at least for the time being.

Technorati Tags: amazon, baidu, cars, China, Chinese, consumers, egdp, expenditures, google, Hongkong, internet, japan, sars, sohu, southkorea, spending, taiwan, tencent, travel

Everything else being equal, it is safe to assume that human language-specific search should closely map to populations. For example, the US population is 300M, Canada’s is about 30M, the UK is about 60M, and Australia is about 15M and New Zealand is about 4M. These are the main English-speaking populations, and they total about 4.1B, and make up most English-language search. Of course, there are many other English speakers living in other countries, and there are many non-native speakers who also choose to search in English for their own reasons.

Most of them use Google as their leading search engine.

There are about 1.3B Chinese who use Chinese as their language of choice for search; for the most part, they use Baidu.

If the Chinese searched as much and as frequently as Americans, Canadians, Britons, Australians and New Zealanders combined, it is safe to assume that Baidu’s Chinese-language search would have about three times the volume of Google’s English language search.

This has not happened yet, but this report shows that the growth trend for Baidu’s Chinese language search is beginning, since it has already overtaken Microsoft, according to this report from Techcrunch. In China, Baidu commands more than 60% of the search market share, while Google’s Chinese-language search in China has only 20+%, and the gap appears to be growing…

In the US, Google is putting its efforts into the mobile Internet, and sees the mobile phone as soon replacing the PC-based Internet as the access device of choice for most people, even in the US. In China, South Korea, Japan and Europe, the mobile phone already is the access device used by most people, which accounts for the huge volume of SMS traffic.

Google Android is the major part of Google’s effort to define a mobile platform for communications. Since the Chinese carriers, especially China Mobile, and Baidu, have not yet defined an SDK for the mobile platform, many assume that Google will soon have a mobile strategy in China which will turn the tables on its Chinese competitors.

My answer to this: “Dream on…”

China Mobile has a well-deserved reputation as a very tough company to deal with in China, but they are not stupid…

The Economist has an excellent article on Rupert Murdoch which is in fact a review of a book titled: “Rupert’s Adverntures in China: How Murdoch Lost A Fortune and Found A Wife”.

All’s well that ends well…

It makes me wonder if the presence and performance of many western companies in China can be explained as company-financed executive wife searches?

Maybe Google should take heed.

Technorati Tags: australia, baidu, canada, China, chinamobile, economist, google, microsoft, mobile, murdoch, newzealand, rupertmurdoch, search, US