The China Vortex

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

There has been a strong outpouring of support in China for the victims of the Sichuan earthquake, and I thought it would help just to give those outside China and/or do not read Chinese a picture of what is going on in the online world in China.

Tianya is one of the larger BBS sites in China, and they have created a page where Tianya users and visitors can make cash contributions to support earthquake victims and help the recovery.

Tianya has given visitors five options for making cash contributions:

1. Online payment using Taobao’s online contribution

option

2. Making an offline cash donation using a specially set-up post office account
3. Making an offline cash donation to the Chinese Red Cross using a specially set-up account at ICBC
4. Foreign currency donations are accepted at an account set up by Jet Li’s One Foundation
5. Community members can also donate goods to receiving offices in Chengdu, from where they will be sent on to earthquake victims.

There is a warning to Tianya members that they should be careful about who they donate their money to, as there are fraudulent accounts which have been set up to take donations.

The page further lists corporate donations from Chinese companies for earthquake victims, with amounts listed in Chinese yuan.

Leading gaming site Shanda has also set up a donation page for online gamers. Shanda chairman Timothy Chen Tianqiao donated 1M yuan to earthquake victims, which was matched by online gamers. Shanda then added another 1M yuan, making for a total 3M yuan which, according to an announcement, has already been sent to Sichuan for disbursement.

The9, another US-listed game publisher and distributor, created a simple page to announce their donation of 1M yuan.

Giant Interactive, also listed in the US, has created a page on their Zhengtu site where players can post their best wishes to Sichuan victims. They do not ask for money/goods donations.

Perfect World, a leading online game publisher, went public last year in the US under the PWRD symbol. Their BBS for their online community has not mentioned anything with regard to the earthquake or any drives to make donations to earthquake victims.

Technorati Tags: BBS, China, Chinese, earthquake, gaming, giantinteractive, online, perfectworld, Shanda, sichuan, taobao, the9, tianya

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

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 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

One of the frequent questions I run into in China is how western Internet companies coming into China should position themselves for growth in China.

Should they try to be western, or should they try in the shortest possible time, try to become Chinese, hiring Chinese for their local staff and management? Under what circumstances is it best to be western, and under what circumstances is it best to be Chinese? And what if a company has been in Taiwan, Hong Kong and/or the US; how should they position themselves for future growth in the Chinese market?

Their positions are made more complicated because it is now hard to find good management people they can trust locally in China; as an organization becomes larger the camaraderie and culture which forms in the management team becomes increasingly important. Over time, this builds into trust, especially if they need to deal with problems and challenges which need to be overcome on a daily basis. This comes face to face with another China reality: it simply is not easy to find people you can trust in China. Backgrounds can be fudged, headhunters want to push their candidates; the list goes on and on.

Internet businesses are especially complicated; most founders come from technology backgrounds, even today, and they have very little understanding of marketing, company positioning, and yes, national and corporate culture. Many still have dreams of serving the world from one virtual data center in Redmond, Mountain View, Beijing, Hong Kong or elsewhere, and letting more junior management deal with the soft and fuzzy stuff like “culture” and “marketing”. Even relying on ethnic Chinese management from Taiwan or Hong Kong has not really worked, as China is littered with Internet startup failures led by Taiwan and Hong Kong management teams who really did not understand the dynamics of the market in China. There have been many western executives who have said “How was I supposed to know that they didn’t understand China; they told me that they were from Hong Kong/Taiwan?”

For anyone from established business service sectors, such as banking, these ideas seem silly, even foolish. And they are. A simple reality of the Internet is that it is going to come under more national jurisdictions and regulations as it becomes a more important part of peoples’ lives. Just as it is inconceivable that banking would not be government regulated (unless you count the ongoing subprime mortgage crisis as a failure of the government’s regulatory system), it is becoming inconceivable that the Chinese, US or other governments would not want to have a say in how the Internet is run.

These established sectors know only too well how important it is to somehow find a way to live with government regulatory bodies. In China, successful new startups have almost always come from new areas which the Chinese government has not figured out regulations about and does not yet know how to regulate.

The perfect example is the online gaming industry. This industry was basically an import from South Korea, and took root in China because gaming consoles are technically illegal. (Sony PS2 and 3, Nintendo Wii and xBox360 are all freely sold; that law is seldom enforced, and all of the games sold are cracked versions.) The Chinese government’s rationale for that law was because way back in the nineties, the Chinese government saw PCs as a valuable educational tool, but considered gaming consoles to be expensive frivolous tools for kids to waste their time. At a time when the Chinese had much less buying power than they do today, it seemed like a good idea to ban gaming consoles.

This created an opportunity for Shanda, which was the first company to launch online games (almost all from South Korea) in the Chinese market. This idea caught fire with many younger Chinese and spawned the Internet cafe industry, where many younger Chinese choose to spend/waste their time and has also popularized QQ, the ultimate social networking application if there ever was one, and which for many Chinese, is the Internet.

This industry has swiftly matured, and with success has come regulation. Online gaming companies have tried to adapt, some have adapted (or tried to adapt) by moving into the online game publishing business from online game distribution. The transition from online game distribution to online game publishing has been a rocky road for companies like Shanda. The company has in the past acquired studios and titles, but many of the creative pros have left post-acquisition. A new wave of game publishers with strong titles have come up, led by Perfect World and the highly-contentious Giant Interactive.

On the regulatory and marketing fronts, the online game publishing company has become a victim of its own success: the huge amount of revenue it generates has created something the government and other regulators call a “social problem”, and it has fallen into a rut on the creative side, adding more titles in what are basically the same genre with very little to differentiate each other. The result: titles with diminishing shelf lives and ROI. People who are not addicted to games (i.e. people who have lives) have an increasingly bad view of the industry and game titles.

Unless you have some way to break out of your core audience, which is exactly what Nintendo did with the Wii. The greatest contribution of the Wii is that it has forced people to take a second look at gaming, as something other than just frivolous entertainment which wastes a lot of time and is anti-social for people who do not play games. (Heavy game players would argue that game players are social; they are just online.)

So the Nintendo Wii is halfway there; it has offered a new paradigm for games and gaming.

Now, if gaming is going to really succeed, it will have to get non-gamers to think that they are not playing a game. Then we are talking breakout.

And the game publishers (creative people) will have to learn how to get along and work with the marketing pros, and will have to understand that there is much more to marketing than press releases, press conferences, paying off the media to pick up their stories, planting stories and fake planted conversations on Chinese BBSes, etc.

To really go big, they will rely on a new class of professional and and a new kind of strike force.

We’re not there yet, and we’re not moving fast enough. But there is a way.

I believe in the value of history, but I also believe that there are times when we have to stop referencing the past for what we do in the future.

This is one of those times.

Technorati Tags: , banking, BBS, cafe, China, Chinese, culture, distribution, gaming, government, Hongkong, internet, management, marketing, microsoft, online, publishing, regulation, service, Shanda, sony, taiwan, western, xbox

In my previous post, I talked about the dark side of China’s Internet cafes. I was surprised at how quickly I got responses to the posting; there were more than six comments in less than two hours.

Now, I would like to talk about a business opportunity in China’s Internet cafes. One of the biggest problems with Internet cafes is the uneven quality of the management; most are terribly managed, some are managed pretty well. Overall, the well-managed cafes suffer from the poor image problem associated with the whole industry. In a comment following my post, Fons Tuinstra says that the numbers of people going to Internet cafes are falling sharply, citing CNNIC figures. I suspect that this is because of a combination of factors:

• Educated Chinese families don’t like them because of their bad reputation
• With laptop computer prices coming down to 7,000-8,000 yuan for a fully equipped notebook, prices are coming with the range of most urban Chinese
• With monthly DSL prices between 100-200 yuan; broadband access is now affordable

In spite of all this, the Internet cafe still has attraction as a social and recreation area for young people who are looking for places to meet which don’t cost too much.

So why hasn’t someone come in with a roll-up strategy, buying up the good Internet cafes, offering professional management and a franchise package, and turning the whole thing into a franchise like Starbucks, McDonald’s or KFC? After all, that is how Ray Kroc started with McDonald’s in the 50s in the US.

These Internet cafes should offer clean well-lit areas which are frequently cleaned, fresh food and drink, clean bathrooms and a good overall experience. Just think of what could be done if a Chinese Internet cafe experience could be as good as an Apple store! Yes, prices would be higher but it would attract a much better demographic group. And a better demographic would make for a better advertising market.

Events could be planned for the stores educating people about online buying and selling, and to demo new products and services. Game contests could be held in a much better environment than are available now.

If I were an advertiser, I would really love to reach this demographic group. They would be upwardly mobile, not like the permanent urban underclass we now see in so many Internet cafes.

In short, make the Internet cafe a place where Chinese parents would not be ashamed of letting their child go to, and a place where the child could tell his parents he is at, without having to lie or admit to shamefully.

This would help to clean up the image of an industry which badly needs to improve its image. It would even make sense for an advertising company to get into it, as the advertising opportunities in a wholesome Internet cafe franchise are huge. I can think of several companies which should seriously consider doing an Internet cafe franchise in China:

• Focus Media
• Baidu
• Tencent
• Google
• Starbucks
• McDonald’s
• KFC

And now, here’s the company I’d really like to see do a Internet cafe franchise in China because it really knows about making cool stuff and it understands lifestyle marketing. If they did it, and did it right, they would own the Chinese Internet cafe experience.

Now wouldn’t that be something! You saw it here first.

I can always wish…

Technorati Tags: advertising, Apple, baidu, business, cafes, China, Chinese, data, demographic, game, google, internet, management, market, marketing, mobile, online, tencent, US, usa, yuan

A while ago, a friend of mine who works in a 4A ad agency in Beijing said to me: “You think we’re all dinosaurs, don’t you, and that Google is going to own the whole advertising scene?”

I’m glad he challenged me, because he forced me to think things through on a deeper level as to what my prognosis on the ad industry is going to look like. I’ll try to outline those thoughts here.

First of all, advertising has been divided into roughly two camps; the “Google is going to own the industry” camp, and a more traditional advertising camp, which says that traditional advertising (TV, radio, print) are going to survive and prosper, albeit in a very different form. I must confess that for a long time I have leaned in favor of the former, or Google camp.

But having thought things through on a deeper level, I think that it might not be so simple. Here’s why.

Ad agencies were born in the 19th century; they did a simple job, they bought media inventory at wholesale rates from newspapers, and then sold them at retail prices to advertisers. Later on, as they developed, they also sold creative services to their clients as an extra value-added, generating more income. This is how the “mass market” arose; manufacturing had risen, and products needed to be sold to the masses.

The business model is simple: buy media inventory at wholesale rates, integrate them into media plans to sell to advertisers at retail rates, and charge them extra for creative services. Since media is controlled by a publishing group, or television or radio group, and is published at regular intervals, the media business is a lot like the airlines business. Airlines fly according to set schedules, and the more butts in the seats, the more profitable that flight is going to be. Media is a lot like that; media inventory are the seats, and advertisers are the butts (no pun intended).

The advertising industry is based on a version of information arbitrage; it knows better than publishers who the advertisers are and what they are willing to pay, and it knows better than advertisers the best ways to reach their audiences. Over time, a whole business ecosystem has formed, including media research and marketing, with their own businesses and terminology. This business ecosystem is deeply entrenched in larger company’s marketing departments, providing them with market information.

Where online media is different is that Google’s Adwords/Adsense model disrupted the whole model. When it comes to search advertising (ads placed on search results pages), Google owns the page (media) where ads are placed. But when it comes to overlaying ads on third-party websites, Google (and the other ad publishing networks) do not own the page. Instead, they pay a portion of the money generated by each ad click to the content publisher. So who determines the targeting of the ad campaign? What is the definition of media inventory? Sometimes it is a large 4A ad agency working for its advertising client, but it could just as easily be a man sitting in his living room in Shanghai targeting his customers with a Google Adwords campaign.

Google has empowered advertisers with the tools to reach their advertisers directly online, without any need for a third-party advertising agency, if that is indeed what the advertiser chooses to do. Furthermore, he/she can set the budget and tweak the campaign according to his needs.

Even more interesting: Google does not have to buy media inventory. It just charges a commission per click.

This has worked very well in an online world, where Google does not have to own the media inventory it runs its ads on. But does it work in traditional media (TV, radio and print) where reach and frequency are the main metrics? Not as well. This is because these are all backed by large media organizations owned by corporations, or in China’s case, by the government through large state-owned media organizations.

No pay-per-click model would work for them. And I’m sure that they would not go for a model where a third-party paid them a commission determined according to how many sales were made. Their problem: their audiences are eroding as more means of delivery become available (webcasting for television, podcasting for radio and more print content moving to the web). It will be interesting to find out if electronic paper will support overlaid ads. This will be a major factor in determining whether the future of print will be more like the Internet or paper.

A common criticism of advertising is that it is unaccountable; there is no way to know which ads directly lead to sales. The only media where it is possible to establish a direct connection between advertising and sales are direct mail advertising and its online younger brother, email advertising (spam). Now Google is trying to establish a direct relationship with scripts which monitor user behavior directly through the checkout process online.

A common marketing rule of thumb is that a person has to hear about a product seven times before he/she makes a purchase. What’s changing now is where they are hearing it from; now the referrals come more from Google Reader and Facebook than television. Social networks are taking more and more of my time. There is no way to establish to establish a direct connection all the time; any advertiser who claimed that they could determine which impression resulted in a sale would be a liar. The promise of Google and online advertising is that eventually it will become possible to trace a direct cause and effect relationship between ads and sales; this forms a threat to the business ecosystem of online advertising.

So far, advertising can measure reach and frequency, but it cannot measure purchasing intent. To reach a higher level of personalization, advertisers (especially of big-ticket items) need to know where each potential customer is in the sales cycle.

More and more, for niche products/services especially advertising is about balancing quantity (reach and frequency) with quality (clicks and other metrics which lead to sales).

If Google goes into traditional advertising, it will have to buy media inventory to sell to its clients for offline campaigns. If it does this, its cost of doing business will go up considerably, cutting into its earnings.

This is why I see Google’s possible foray into the traditional ad agency business as a defensive move, not an offensive move. Online advertising revenues are reaching saturation, and Google has to show its investors that it’s doing something. The real challenge to Google’s ad revenue model will come from Facebook, which has probably already eroded search engine advertising revenue. This is why the real battle will be between Google and Facebook for ad revenue.The age of the “mass market” is over; now we are well on the way to making sales the old-fashioned way:one-by-one.

Both traditional advertising and online advertising are playing out a classic game of “crossing the chasm”. For traditional advertisers, the challenge is how to build a new business ecosystem for online advertising; for online advertisers, led by Google and Facebook, it is how to learn the terminology and and be accepted by the traditional advertising business ecosystem.

Then of course, media publishers might decide to sell their advertising space in online exchanges or auctions, instead of just selling wholesale. CCTV (China Central TV) already does this; it will be interesting to see if others follow suit. If they think that they can get more revenue by adopting a more efficient buy/sell mechanism, then they will do it.

This raises the question of why Google and the 4A agencies are trying to build their own exchange networks? Instead, why don’t they build a new business ecosystem which media inventory owners and ad buyers could simply plug into using standard APIs? Wouldn’t that make things so much more efficient? Why doesn’t WPP or Publicis buy Facebook? Buy the network. Then why not charge both buyers and seller a service fee plus commission for the wider exposure and ad targeting the network brings? It could be argued that this is already what Google Adwords/Adsense already provide, but it does not yet provide a wholesale backend solution for plugging in large amounts of inventory.

For all its strengths, Google is not a user-generated network; Facebook is. It is already selling advertising space, and it is in a better position than Google to create a whole new online metrics for advertising because it owns the network.

At the end of the day, advertising is largely a numbers game, except for the creative part. And then the creative is just to support reaching the right target audience and increasingly now, getting them to convert to buyers.While Facebook now has only 50M profiles, it is growing exponentially.

So, to my friend, I would say that we’re all dinosaurs basking in the glory of our late Cretaceous period just before the asteroid strike, and the world is changing faster and faster. The main question is how human and computer work will be allocated; this is a question which meets in a very intriguing way in the advertising industry.

If this period in advertising was Chinese history, we would call this the Warring States period. The question is whether the ad agency will still be recognizable in 10-20 years’ time? I would say that it is; as long as there are people who spend a portion of their lives reading and absorbing content both online and offline, and if agencies remodel themselves into generalist marketing organizations equally comfortable with both online and offline, there is room for agencies, both large and small.

And what will ads look like? I don’t know, but if more look like Fight for Kisses, I’ll be pleased.

I found out about this very entertaining video commercial from a blog I read on Google Reader. Enjoy.

Technorati Tags: 4A, ad, adsense, advertising, adwords, Beijing, business, cctv, central, China, Chinese, crossingthechasm, ecosystem, exchanges, google, offline, online, television

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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