The China Vortex

The definition of astroturfing, according to Wikipedia is:

a neologism for formal public relations campaigns in politics and advertising which seek to create the impression of being spontaneous, grassroots behavior, hence the reference to the artificial grass AstroTurf.

The goal of such a campaign is to disguise the efforts of a political or commercial entity as an independent public reaction to some political entity—a politician, political group, product, service or event. Astroturfers attempt to orchestrate the actions of apparently diverse and geographically distributed individuals, by both overt (”outreach”, “awareness”, etc.) and covert (disinformation) means. Astroturfing may be undertaken by anything from an individual pushing one’s own personal agenda through to highly organized professional groups with financial backing from large corporations, non-profits, or activist organizations.

As a business and marketing consultant who spends considerable time in China, I get upset when I see marketing and PR terms not used the right way. One thing which is done very frequently in China, but whose terminology is not used correctly, is astroturfing. As a matter of fact, I have not even heard of a Chinese term for astroturfing, even though I have seen it in many forms all the time. In fact, a good deal of what the Internet is used for in China in the BBSes in China, is astroturfing in different forms.

I was upset when I saw the term astroturfing mixed up with censorship in this video interview with reference to censorship in China. My definition of censorship is when I have to use a VPN tunnel to get to content I cannot view in China, or because I cannot get my Feedburner RSS feeds because they are blocked by the GFW, or as Jeremy Goldkorn, publisher of Danwei chooses to call it, the Net Nanny.

The biggest difference between astroturfing and censorship: astroturfing is a PR term and censorship is a political term. Astroturfing is a PR tactic which can be used for either political or commercial ends; censorship is always used for political ends. Using censorship with reference to China is a politically charged term because many critics of Chinese government policy like to use it to satisfy their own political agendas. Other people are entitled to their own political views re Chinese government policy, just as I’m entitled to mine. Everybody has a right to their own opinions. What I do criticize is abuse of terminology in order to score political points when in fact what is being used is a PR tactic.

Paying bloggers and users of Twitter to shape public opinion about China is an astroturfing tactic. Let’s call it astroturfing and not call it censorship. Admittedly, the Chinese government has used astroturfing in a very clumsy fashion by paying bloggers directly for their blog posts and tweets. Rule No. 1 of astroturfing is “Don’t get caught doing it”. This means you should set up front organizations to do the work so that the important guys/government have plausible deniability. These front organizations have to be run by eloquent, expensive and intelligent opinion leaders who know what they are doing and what the whole objective is. The people they work with, and contract with, do not have to know.

Sure, it adds to your costs, but some things are more important than costs. That’s why this whole payoff of bloggers and tweets is so silly and let’s say it, downright stupid.

The real masters at the right way to do astroturfing are the Americans and American PR and lobbying firms. They set up enough “independent” organizations so that the astroturfing movements cannot be traced back to the government, the original sponsor. After all, that is the whole point of it. Government ministries, organizations and parties should never be directly involved in it.

These “independent” organizations, usually think tanks, then contract with the PR firms and coordinate very complex and expensive PR campaigns which are, well, astroturfing. The whole objective is to make it look independent for most people. These people are the audience, the people whose opinion you want to shape.

Astroturfing was used extensively in the aftermath of the revelations of torture re Abu Ghraib and Guantanamo in the US. Many Americans were sincerely shocked that the US military would use such interrogation techniques. In order to shape US public opinion, the Pentagon provided leading US media companies hired retired generals as “consultants” to talk on TV about the situation, and mitigate the political damage to the Bush administration. These consultants were paid for by the Pentagon. How it was done was revealed in an article on the New York Times.

If the Chinese government wants to be truly effective at winning the PR war with the western media, it has to allow different voices to speak up about China, and get past the very worn-out charges of “interfering in China’s internal affairs” or “hurting the feelings of the Chinese people”, which may have some appeal to not very bright people, but really turn off intelligent people. Part of the price of being considered a developed nation is to allow different discourse and opinions on an intelligent level. Moreover, this gives the Chinese leadership a better selection of policies to choose from. After all, that’s whole point of the exercise.

So let’s stop paying off bloggers and tweeters 50 Chinese yuancents or fen to shape public opinion. That’s the cheap and dumb way.

The Chinese government needs to stop thinking small and start thinking big in how it shapes not just Chinese public opinion, but western public opinion. Spend money and do it the right way with the right people.

Anything else is just an embarrassment.

Technorati Tags: abughraib, astroturfing, blogging, censorship, China, feedburner, guantanamo, marketing, pentagon, PR, publicrelations, rss, twitter, US

Several days ago, Sam Flemming of CIC, a Shanghai-based online reputation management company pointed me to a news article on Business Week called “Inside The War Against China’s Blogs”.

The article specifically highlighted a company called Daqi.com (in Chinese the name means “Big Flag” which has a certain nationalistic appeal), and cited a case in which it helped Toyota satisfy a customer who had not received his car after three months. According to the company’s CEO, her company, an Internet online reputation management company, helps its customers, mostly western multinationals, to monitor their online reputations and help put out fires with users in China.

Out of curiosity, I then entered Daqi.com into my browser address bar so that I could visit the site and learn more about the company and what they do.

What I found, and what I did not find, were very interesting.

First of all, I thought I was going to find an online reputation management company, or public relations company, or whatever buzzwords they are using now to lure in corporate business.

But I found nothing of the kind. Instead, I was confronted with what I would call a typical Chinese portal website, complete with channels for “Homepage”, “Society”, “Military”, “Strange and Curious”, “Autos”, “Digital”, “Women’s Makeup”, “Pictures”, and “Reputations” (in beta).

(I have uploaded the screenshots of the pages mentioned below to Picasa and you can access them here.)

Aha, I thought to myself, I’ll click on “Reputations” and see what I find. When I went there, I found that it was full of forums divided into the categories “Cars”, “Cameras”, “Notebooks”, “Digital Cameras”, “MP3″, and “MP4″. The page is very long, and like most Chinese pages, scrolls on quite a distance with recommended products in each product category. This page, like the rest of the website, was designed very much to lure Chinese visitors. To visit the page, you can go to http://exp.daqi.com/

My next question was whether they took advertising? The only banner advertising I saw was for Dell, which ran on the two pages I visited. But it would be foolish to think that their only revenue came from banner advertising. Looking at how the page was designed, and the way some of the products were given larger photos and highlighted, it was easy to see that some makers were paying for higher rankings for higher visibility.

But nowhere did I see anything about their online reputation management services. So I thought to myself, “Surely the person who wrote the Business Week story, Dexter Roberts, could point to a website where Daqi offered their online reputation management services, in either Chinese or English.”

I could find nothing of the kind.

Daqi claims that it regularly searches 500,000 forums daily for its corporate clients. I’m sure that it works on many sites which are not related to Daqi. However, it also raises the very uncomfortable possibility that it may actually manipulate online reputations by starting flame wars over product reputation, then charging their corporate clients money to put them out. (I’m not claiming that Daqi does, but the very fact that they run their own portal under their own company name and URI means that they have very little respect for their non-Chinese corporate clients and western journalists’ capability to conduct online research in Chinese.)

The clash of interests which arises from revenue from makers for higher rankings on their own portal site, and then revenue from non-Chinese corporate clients for “research insights” and “firefighting services” into Chinese online behavior is obvious to anyone. The temptation to use their own forums to “seed” opinions must be very great. These seeded opinions would then quickly proliferate to other sites.

There is a simple way to find out, and that is to check timestamps of postings. All forum software includes a posting timestamp, and it’s easy to check the timestamps on a subject to push it back in time to where and when a rumor started. What is harder to find out is the identity of the poster, but this can sometimes be done by checking the IP address of the poster if IP cloaking is not used. Different online identities sharing the same IP would most likely be the same poster.

I wonder how many corporate clients do this kind of checking?

I find the whole practice of hiring Chinese and paying them to post favorable comments on a per posting basis to be an unethical PR practice. According to the BW article, this is a common practice. A Beijing-based PR professional, William Moss, talks about this in more detail.

Online public relations firms will have to draw up and aggressively publicize clear guidelines on what they do, and what they don’t do when it comes to monitoring online behavior in China. Playing multiple roles as player and referee doesn’t make it in my book. I have talked about some of the skills needed in a previous posting.

This is part of the problem which actually slows down Internet growth in China. In spite of it all, there are healthy groups for product discussions.

Of course, each corporate client will have to make its own call as to what it is most comfortable with. And so will their VC backers. (I wonder if they read Chinese?)

But if someone does do an article on a Chinese company, at the very least, the URI mentioned should include, in either Chinese or English, the business they are in which is mentioned in the article.

Nobody likes bait and switch tactics, and I’m no exception.

Is that too much to ask for?

Technorati Tags: advertising, BBS, China, Chinese, cic, forums, imagethief, management, marketing, online, postings, PR, publicrelations, reputationmanagement, VCs, venturecapital

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

When the western media and some outside observers talk about “Angry China”, they really miss out on the real story, and even the real questions which need to be asked. For instance, how do very large groups of people, who at least on the surface, have nothing to do with each other, organize in large numbers so quickly in a society which many westerners see as authoritarian? Are they government-led or influenced, or do they do it themselves? How do they come to believe some of the wild rumors which come up, such as for instance, the belief that Carrefour sends a portion of its earnings to support the Dalai Lama and Tibet independence, and are seemingly oblivious to the fact that any large company would like to keep as much of its earnings for itself?

There is a very simple answer to all this: a large part of the organization is done on the Internet in China, specifically on BBSes. While the BBS (bulletin board system) is something outdated and antiquated in the US Internet, it has been a very important part of the Chinese Internet, and I would argue, it is growing and becoming more influential. For the Chinese government, it is a headache because in spite of Chinese government regulations, it is largely unregulated. For western corporations it is a good place to gather information but is useless for advertising, but for many Chinese it is the most important part of the Internet (along with online gaming and their IM client, which is most likely to be QQ or MSN Instant Messenger depending on their age and demographics).

Don’t believe me? Go to your nearest Chinese Internet cafe and watch what people are doing.

Most westerners who come into the China Internet market have no idea of its power and influence, and instead think that the Chinese Internet is largely the same as the US market, but it isn’t. The Chinese government doesn’t really like BBSes because it really is free (as in free speech), and is the breeding ground for all kinds of weird stuff. And while it is important for gathering buzz on products (as CIC, based in Shanghai, does) for corporations, nobody has really been able to monetize it. And, western journalists fail to monitor it, which is why they miss on so many big stories, and end up giving credit to some sinister Chinese government policies. ( I guess it’s kind of flattering for the Chinese government to be given credit for something when most Chinese know that it isn’t that powerful.)

Isn’t it amazing that such a huge and important part of free speech in China has been entirely missed? Fortunately, Tom Melcher’s new blog Live from Beijing! has a very good introductory article to BBSes (h/t to Andrew Lih). I got something of an introduction to the BBS in 1998, shortly after Sina was formed from the merger of SRS and Sinanet. One of the first web applications created by Wang Zhidong was a simple BBS which he demoed to me in the summer of that year. It really took off in popularity with the US’s accidental bombing of the Chinese embassy in Belgrade in April 1999 when millions of angry Chinese hit the Sina news forum. Please don’t think of the Strong Nation forum on the People’s Daily site as being at all representative of Chinese BBSes; it is official and closely monitored for content. The interesting BBSes are all unofficial or semi-official.

Most of the angry Chinese in China, or fenqing, are organized on the BBSes, where they gather and shoot the breeze. These people have time on their hands, and play games, spend time in QQ, and gossip on the BBSes of their choice at the moment. They spend almost no time on what we would call the official Internet, except going to get news on Sina, Sohu and Netease. It is very hard to reach them with advertising.

Now, let’s talk about their persona. For the most part, they:

• They distrust the official media and do not buy magazines, and get as much information as they can from unofficial sources, such as BBSes. They only go to the official media for some sports information and major news information.
• They trust unofficial news more than news which comes from official sources.
• They are the perfect audience for spreading rumors, because they can be quickly organized by anonymous leaders, or “honeybees” as Tom Melcher calls them in his article.
• When organized, they can be huge, in the millions, and they can move like a swarm.

In simple terms, the characteristics of this unofficial crowd are:

• Chinese official government influence is very limited
• They are mostly self-organized
• The numbers are in the millions
• They move extremely fast
• They disappear just as fast as they appeared
• They are almost always anonymous and do not use their real names, preferring instead to use their own handles

In simple terms, they are an issue-focused flash mob. For corporations, they are:

• Not susceptible to traditional PR methods since you are dealing with an anonymous group
• Very tightly focused around one issue
• Move much faster than corporations and their decision-making apparatus is diversified,
• Do not trust/ believe in information from any government, including Chinese

My estimate is that more than 60% of non-IM traffic in China is to these unofficial BBSes, and that number is growing.

When it comes to advertising, most adspend hits that remaining 40% of the official and semi-official Internet, without reaching where many people are. CIC acts as the eyes and ears of corporations, but corporations have not been able to do anything yet with that information and are still reliant on mainstream advertising approaches for both online and offline which are largely out of date. This is the background for my article on why agencies need a new approach to online marketing in China.

So, BBSes are the real social media marketing tool, and as usual, the Chinese are ahead of everyone else, but just haven’t figured out that part themselves. While the west talks about social media and Web 2.0, China has had a version of it for the past ten years. It may not be pretty, but it works.

It’s just that vast majority of outsiders haven’t figured it out yet.

Technorati Tags: angrychina, BBS, carrefour, China, cic, fenqing, gaming, im, marketing, media, online, qq, sina, social, Tibet, US, web2

Unless you have been living under a rock for the past six months, you have probably heard of Twitter. Developed with Ruby on Rails, it has now hit the big time, with many companies offering client versions of Twitter, so that you don’t have to keep the Twitter web page open to record your deepest thoughts, which you can share with your community/ies.

Technically speaking, there is not a whole lot of difference between Twitter and many other IM clients, including Tencent’s QQ, the immensely popular Chinese IM client. If there is any difference, it is that Twitter makes it possible for dispersed communities to keep track of each others’ activities. In contrast, the IM clients are mainly Web 1.0 tools which enable people to find and contact each other to meet offline. QQ, for instance, is a great enabler for that popular activity which we shall call “dating” in China.

The difference between Twitter and the Web 1.0 IM clients is not so much in the technology, as in the way people handle relationships. Put simply, the lines between offline and online relationships are blurring, and in many cases, more people spend more time online than they do offline. For this reason, their online communities are gaining value, and in a few cases, are assuming primary value, while their offline relationships become secondary.

This was not the case for most of the Web 1.0 IM clients.

From the business perspective, this means that businesses will have to pay even more attention to what is going on online, as I have mentioned in my previous post.

In China, many people do not have email addresses, instead they rely on QQ ID numbers to identify each other. Walk into any Chinese working area (including Starbucks and any other area which provides free Wifi) and chances are you will see that almost every screen has a QQ or Windows IM client window open.

And they are using it for business, not just personal gossip.

So, the ultimate test of whether Twitter becomes the American QQ is whether American’s use it for business, not just social chatting.

If that happens, the American Internet will suddenly look a lot more like the Chinese Internet.

Technorati Tags: American, business, China, client, community, dating, email, im, internet, marketing, qq, relationships, rubyonrails, Starbucks, tencent, twitter, US, wifi, windows

There is a whole brave new world for social marketing which is unfolding and which, so far, has caught many businesses off-guard.

A good part of the reason for this is because many corporate marketing departments are managed by people who cut their teeth when TV, radio and print were the main ways to reach audiences.

Sam Flemming, who is the founder of Shanghai-based CIC, a market research and consulting firm which covers brand buzz in China, has posted an article on how online trends will affect how agencies will think and work.

Based on my experience working in traditional media and then online in China, I think that online users are about 2-3 years ahead of online users in the US. This is because the Internet developed without the help of advertising income in its early stages, unlike in the US where advertising was a very established model. For this reason, it is much easier for Chinese consumers and advertisers to adapt. In China, there is much stronger tie-in between offline events and online promotions, instead of just relying on online advertising as in the US.

US corporations and advertisers have to “unlearn” much of what they have thought would work in the new online space.

One of the big questions is that agency account people will have to learn to become advocates for their brands and products both offline and online. Where does the agency and customer advocate line end and begin? It’s easy to see that in the very near future the best agency account people will be those who are the most passionate and eloquent advocates for a product, and can exercise good judgment quickly. Those who succeed will be the ones who can go from strategy to tactics very quickly, while keeping the client clear about overall goals and weaving through the intricacies of the online conversation.

One book which is going on my “to read” list is Jump Point, which talks about how marketing to the interconnected online crowd is going to work.

Technorati Tags: advertisers, advertising, brands, China, cic, corporations, events, iwom, marketing, media, offline, online, print, promotions, radio, samflemming, TV, US

One of the things which I frequently hear from first-time visitors to China is that “It is so big!” Sometimes, I hear this even from Texans, an American state which takes pride in being bigger than almost any other state, with the exception of Alaska.

Westerners are not the only ones to fall victim to this thinking; Chinese also are enamored with these numbers. When I hear presentations, the most frequently heard numbers show 420 million mobile phone subscribers, 250 million IM subscribers, at which point the China virgins go gaga and start counting the yuan they are going to make (in their dreams) and planning their retirements (also in their dreams).

By now, I’m sure that you’ve figured out that I don’t buy into this view. Yes, China is big, but so what?

Instead, when you start looking at real revenue and earnings numbers, China is still way down there. And for many companies, both Chinese and western, it’s a difficult nut to crack.

But I don’t think that it needs to be. First of all, let’s get past the population and subscriber numbers. Yes, they are very big, and the only country which can even come close is India. All the thoughts, fantasies and conversation about projections should end there, and marketers should dig deeper to look at revenue and earnings projections, since they are the only real numbers which count.

Marketing 101 says that it isn’t the size of your market and number of units sold, it’s really all about your margins and accessories you can continue to cross-sell or up-sell to your customers after the initial sale. There is the often quoted example of “give away the razor, and sell the razor blades (where you really make the money).”

Since my field is the Internet, I frequently come across all kinds of interesting ideas where Chinese entrepreneurs are seeking funding. Let’s say that I’ve seen a lot of ideas in my lifetime, and I’m picky about what strikes my fancy. When I talk to people, I’m often looking for a “je ne sais quoi” which is different about them, or their products and services, and their ability to execute. China subscriber and user numbers don’t impress me, and make my eyes glaze over very quickly.

I’m much more impressed when people talk about revenue and earnings projections. I’m even more impressed when I find out that these numbers are not pulled out of thin air, and can relate to something the presenter/entrepreneur has worked on and delivered in the past. At this point, we cross the line from fantasy to a doable reality.

The trouble with many Chinese startups is that the founder is so focused on raising money that he forgets to even spin a good story about what he’s going to do with the money! And yet, China is such a hot place to be now that there are people with money who are willing to part with significant amounts of money without even asking for a good story about how they are going to execute!

Part of the reason so many poor ideas get funded is because the burn rate is so low in China that even if the startup fails in the initial stage, the burn can be kept so low that if/when the startup founder has to do a reboot (usually by coming up with a sensible idea), that there is still money left in the till for a repositioning and second chance. In reality though, I think that this is a bad strategy for investors. After all, if the founder/s did not come up with a good idea the first time, and it got funded, what is the incentive for him to come up with a good idea the second time around?

This is why countries like the US and Sweden and other countries continue to be competitive in the Internet startup field even though their initial startup costs and burn rate are much higher than in China. Being cheap and being good are too entirely different things, and often being cheap actually prevents you from being good because it allows, and even encourages, sloppy thinking and poor execution skills.

This is not healthy for the western investors and for the Chinese. This is a sign of a bubble, and is oddly reminiscent of that situation in the US just a few short years ago when many people thought that they could buy a house without a down payment and a job. Fortunately for China, the Internet sector is still a relatively small part of the economy, and while US and western funds may eventually come up $50 billion or so shorter in a few years, it won’t be significant enough to put a crimp in any venture capitalist’s or private equity fund manager’s retirement plans.

What is needed now, at least in the Internet startup area, are entrepreneurs who have actually had experience selling something, and actually understand the purchasing habits of Chinese consumers, and know how to provide a useful service to earn that money and are willing to put revenue projections into their pitches.

There are plenty of opportunities and China is still a big market. I can think of several things right off the bat.

But let’s stop talking population and subscribers, and start talking revenue and earnings, shall we?

Technorati Tags: alaska, burnrate, China, Chinese, earnings, economy, entrepreneurs, founders, funding, im, marketing, mobilephone, privateequity, projections, revenue, startups, sweden, texas, US, venturecapital

A good way to find out how sharp a person is to listen carefully to the questions they ask. Smart people ask very sharp questions which cut right to the core of an issue, while less astute individuals kind of dance around the edges.

Smart entrepreneurs ask the sharpest questions because often the success of their own business depends on the questions they ask. Smart people who work for large organizations usually do not have to ask such sharp questions because they have an employer who tells them what they need to do, and they are usually not paid to ask questions, they are just paid to do things they are told to do, regardless of whether the tasks are smart or not.

I have long been an admirer of the folks at 37 Signals because I think that they are a small and very smart crowd of people. For me, they represent the kind of company which future entrepreneurial organizations should be like: small, smart, fast and lightweight. They are the Davids (as opposed to Goliaths) who want to continue to be small and smart, and focus on serving their customers’ needs.

One of the reasons I admire them is because they were the incubator/developer for Ruby on Rails, which I talked about earlier in this article. What is significant about the 37 Signals team is that they think of themselves more as designers than developers, which gives them a different perspective. Instead of adding features, they are focused more on making software programs easier to use. This is the thinking behind their online application suite offering which includes Basecamp, Highrise, Campfire, Backpack, Writeboard and Ta-da. After doing web development over several years, they have captured their thoughts about web application development in a downloadable PDF book called Getting Real.

A major part of their appeal is that aside from being designer/developers, they also have an appreciation of how the business world works. For this reason, I’m a frequent visitor to their website. Recently, they had a posting to their company blog called Question your work. According to this article, there are several questions which you should always ask:

• Why are we doing this?
• What problem are we solving?
• Is this actually useful?
• Are we adding value?
• Will this change behavior
• Is there an easier way?
• What’s the opportunity cost?
• Is this actually worth it?

All of the questions are very good big-picture questions which should be asked up-front before embarking on any major development project. I have seen many fairly major software development undertakings, as well as marketing projects, which did not answer these questions well, and frankly, a good deal of grief would have been saved if these questions were posed first.

So regardless of where you are, whether you are in the US, China or anywhere else, ask these questions first before you embark on a major business adventure.

Technorati Tags: 37signals, business, China, development, entrepreneurs, marketing, opportunitycosts, questions, software, startups, US

In technology marketing parlance, the three screens refer to the television screen, the PC screen and the mobile phone screen. Most marketers and advertisers now recognize that more eyeballs and viewing time are going to the PC screen, and even more will soon go to the mobile phone screen, and the question they are asking is “When will advertising on the PC and mobile phone catch up with advertising on the television?”

This is a question which Kaiser Kuo, publisher of Ogilvy China Digital Watch, asked in his article “Closing the Marketing Gap”. To quote from his article:

The “Marketing Confidence Gap.” That’s Ogilvy parlance for that vexing and persistent chasm between, on the one hand, the high percentage of media time spent by the average consumer online and, on the other, the relatively low percentage of overall ad budgets being directed online.

Kaiser then goes on to point out that when TV was the disruptive new technology, advertisers most likely ran into the same kinds of complaints from what were then mainstream media buyers (print and radio). And that it took some time for the new advertising models for TV to take off and then reach a new equilibrium of general acceptance. The new medium created its own new business ecosystem with the most well-known being the television market research firm AC Nielsen.

The three screens model throws the old model of TV advertising into question. For many video watchers on the PC, the main appeal of watching videos on Youtube or Tudou is because they can watch them anytime, without advertising. Contrast this with the old broadcast model of the 1960s in the US, dominated by ABC, NBC, and CBS and a few affiliate networks. In the 1970s, cable TV began to take off; it did not have any advertising and relied exclusively on subscriptions. Then in the 80s, satellite news (CNN) took off. So the good old days were not really as quiet and stable as some would have us believe.

This is why the relationship between time spent online and advertising does not hold water for me. There is no rule which says that the correlations which applied to the first screen of television should also apply to the second and third screens of the PC and the mobile phone. I would go so far as to argue that disk and broadband prices have dropped so low that the traditional ad agency role of playing matchmaker to ad inventory (advertisers) and media (publishers) have disappeared. My opinion is that the only place where there is any meaningful and measurable matchup of ad inventory and media are done online is with search ad results, with Google the leader in most of the world and Baidu in China.

This is why I think Sam Flemming’s talk about Internet Word of Mouth (IWOM) has hit an important vein which the ad agency’s have failed to grasp. It is an uncontested fact that while e-commerce in China has been slow to take off in China, many Chinese look for information about purchases beforehand by visiting BBSes and seeing what others say about a product. So why is there no way to track the main influencers of buying decisions and rewarding them with money if their recommendation results in a completed sale? To me, this has always seemed like a difficult, but not insurmountable, technical challenge. In the west, there would be complaints about people making recommendations because they want to make money instead of actually having tried and used the product, but in China, I don’t believe that those disputes would be likely to arise.

China has a unique retail phenomenon called tuangou 团购. This is groups of individuals and families who meet each other in the BBSes and who are planning on purchasing the same big-ticket items. Then, they go and negotiate volume discounts with individual retailers, eventually selecting the retailer who gives the biggest discounts. I have never heard of this phenomenon anywhere outside China.

There are plenty of opportunities in China; it’s just a question of how you see the challenge.

Technorati Tags: abc, advertising, cbs, China, iwom, marketing, mobilephone, nbc, ogilvy, PC, retailers, television

For many westerners and western companies, it’s hard to figure out why some Chinese have gone to the US for their graduate degrees, worked at name technology companies such as Intel and Microsoft, then come back to China, their homeland, start their own businesses, and fall flat on their faces.

How is this possible? They had everything going for them; they had the best education the US had to offer, worked in a great company, were smart and entrepreneurial, know the language, have connections, and they failed.

More often than not, these people have been away from China for a long time. Over time, they have become used to the American way of life, and while they keep up with what is going on in China, their knowledge and understanding of the country has gone stale. Gradually, they are more at home in America than in China. They jump on the China bandwagon because it is in the media all the time, and they hope to strike it rich.

Then they return to China and discover a country which is not the China which they grew up in. Compared to when they left, the role of the government is much smaller, the country has become more market-oriented in most sectors, and they may have lost many of their former connections. Worst of all, they look at the country through American-tinted glasses and use American society as a point of reference, something which does not work in China at all.

For any business or individual to succeed in China, you must understand China on Chinese terms.

This failure to understand China on Chinese terms is, in my opinion, why so many western Internet companies have failed in China. Moreover, the constant need of local management to report to headquarters outside of China, and to report every purchase they make, and more often, to explain what they are doing, puts a fatal hindrance on the decision-making process because the management is constantly tied up in knots educating someone in headquarters about China.

This makes for another very important point: No successful company in China can be successfully run from outside China; the key decisions and decision-makers must live, breathe, work and sweat in China every single day to make it work.

The single most important bad decision western companies make in China is to force the local China management to consult with headquarters about every matter; this makes the local management look weak in the eyes of their own staff. After all, what is the point in staying with a company if they do not have the power to make decisions even if they are sitting in the corner office?

It all comes down to how empowered people are to make their own decisions, and to be held responsible and accountable for them.

It makes much more sense for them to break out and start their own company, often taking the idea the western company had, but was not able to implement in China because they were constrained by headquarters’ indecision. In the Internet sector, where change is happening so fast, it makes no sense to sue and countersue; that would only make the lawyers happy and not solve the basic issues.

This just scratches the surface of why being Chinese is no guarantee of success in today’s China. Put simply, the society has changed too much too fast, and unless outsiders live here and deal with local Chinese who have never been outside China and speak only Chinese on a daily basis, they will fail.

In business, success cannot be guaranteed, but failure can…

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