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Will China be Google's crown
jewel?
By Peter Morris
With
growth in China's advertising market expected to reach
18.3 percent this year, Google has jumped on the
bandwagon with the introduction of its new Chinese
AdWords advertising service. The service, which began
operating last Wednesday, gives advertisers the chance
to bid for ad placement on pages linked to keyword
queries, and will be offered in both simplified Chinese
characters (used in mainland China) and traditional
Chinese, which is still used in Hong Kong and Taiwan.
Similar to Google's English-language version, the ads
will then automatically appear alongside search results.
Google anticipates that Chinese AdWords will
substantially increase the visibility of advertisers in
China's crowded marketplace.
Google's AdWords
will undoubtedly pose a threat to Chinese search
engines, which rely on pop-up advertising and fee-based
advertising for revenues, which means that companies
will get listed higher on search results if they pay
more. Google, on the other hand, prides itself on fair
search rankings and has no pop-ads or pictures on its
site, and has a reputation for being a user-friendly
tool developed for the benefit of the cyber community.
Its simple, uncluttered design may come as a welcome
relief to Chinese internet users who are accustomed to
flashing graphics, pop-ups and the ubiquitous tiny
square ads that follow readers up and down the website.
Google targets Asia's growing advertising
sector
This year, Asian advertising spending is
expected to outpace the rest of the world's, according
to media-buyer ZenithOptimedia, which has forecast a
growth rate of 5.5 percent for the industry in 2003.
That would bring total spending for the Asian
advertising sector, including Japan, to $65.1 billion,
compared with growth of 3.7 percent in Europe and 5
percent for North America.
In 2003 alone,
analysts estimate that China's online advertising market
grew 120 percent to over 1 billion yuan ($130 million),
and this year online advertising's share of China's
advertising market will expand even further, as
corporations slash their TV advertising budgets and
begin to spend more on Internet and outdoor advertising.
In fact, according to a joint study conducted by
investment firm JP Morgan and R3 consulting, money spent
on TV ads in Asia will shrink by four percent this year.
While TV will continue to be the biggest advertising
medium in China, advertisers are diversifying their
marketing strategies, particularly as the size of
China's Internet community is slated to reach 100
million by the end of the year.
Sina Corp,
China's leading Internet portal and the first Chinese
internet company to list on the Nasdaq, currently
accounts for nearly one third of the Chinese advertising
market (some 300 million yuan of the total - more than
any other Chinese Iinternet portal). But with the
introduction of Google's AdWords, that may soon change,
as Google already commands strong name-recognition among
web surfers in China, and a government decision to block
access to the site in 2002 created a backlash among
Chinese "netizens," who posted thousands of angry
complaints on the Internet and tried to find ways to
bypass the firewall. Subsequently, the central
government - concerned that Google might serve as a
platform for anti-government activity - encouraged the
development of a home-grown search engine that would
serve as an alternative to Google in China.
Sina Corp hedges its bets with
Google
Access to both Google and Alta Vista was
unreliable for the better half of 2002 while the
government deliberated on how best to deal with the
problem. Finally, a decision was made to grant access to
Google while simultaneously nurturing an organic search
engine. In April of 2003, Sina Corp joined the
government-sponsored "China search alliance", a
coalition of over 200 Chinese portals seeking to thwart
Google's move into China's lucrative online advertising
market.
The search engine - developed by the
China Internet Information Center and a Chinese firm
called Sinobet in September 2002 - is linked to a
database of more than 30,000 Chinese websites, including
most of China's official news agencies. The alliance has
consistently denied it is part of a government move to
replace Google and insists that Google's access problems
had nothing to do with the launch of the search
alliance. The government-sponsored search engine,
chinasearch.com.cn, is free for Internet surfers but
firms need to pay to be linked to the database.
In June 2003, however, Sina hedged its bets,
announcing that it was doing "technical testing" on a
Chinese search engine with Google. At the time, Sina
emphasized that there was no official tie-up between the
two companies, and that any solid deal would have to
wait until further tests were completed. Finally, in
August 2003, Sina signed an "exclusive partnership" with
Google to use Google's search technology on its portal.
Google's high standing among Chinese web
surfers, coupled with Sina's dominance among Chinese web
portals, makes the tie-up a natural. Sina's success was
reaffirmed last month when it reported that revenues hit
a record high of $38.3 million in the fourth quarter of
2003 (a whopping 197 percent year-on-year increase).
Sina's revenues were largely derived from growth in
mobile messaging and online advertising - powered by
Google technology. For the year ended December 31, 2003,
Sina's pro forma net income was $41.6 million, quite a
turnaround when compared to a pro forma net loss of $1.4
million for the same period in 2002. The Internet portal
estimates revenues of approximately $40 million for the
current quarter, with $12.7-13.2 million in advertising
revenues and $26.8-27.3 million in non-advertising
revenues.
Google still faces stiff
competition in China
Google's biggest competitors
in China are Baidu, Huicong and Sohu. Huicong
International Software's search tool, which claims to
sift through 200 million Chinese-language web pages,
incorporates topic categorization, content analysis and
"greater China recognition" into its search engine.
Huicong's software can automatically suggest corrections
to incorrectly spelled pinyin (the Romanized version of
Chinese) and search for MP3s, pictures and flash
animations, according to CNET Asia. The company is also
a member of the China Search Alliance.
Meanwhile, Sohu.com, China's second most popular
internet portal after Sina, recently reported
fourth-quarter advertising revenues of $9.5 million, a
120 percent increase over the same period in 2002. The
company derives ad revenue partly from sponsored search
listings similar to Google, and online advertising
contributed to 39 percent of Sohu's total revenues in
the fourth quarter ($9.5 million). Quarter-on-quarter
growth for advertising was only 9 percent, however.
Sohu's flagging growth in advertising can be attributed
to increasing competition from rival Chinese portals
such as Baidu.com.
Established in 1999 in
Silicon Valley, Beijing-based Baidu has quickly carved
out a big chunk of the online ad market. Baidu, which at
first glance the site looks like an exact replica of
Google, means "a hundred degrees" in Chinese. The
company is hoping for a Nasdaq listing this year, and
according to Baidu's founder, averages 30 million text
searches a day in Chinese. By comparison, Google's site
processes 200 million searches per day in 16 different
languages and provides AdWords services in 14 languages.
With so much competition in China's online
advertising market, it remains to be seen whether the
Chinese version of AdWords will become Google's crown
jewel, but with China's advertising market growing at a
dizzying pace, Google's China operations are certain to
reap hefty profits for the search engine. And assuming
Google follows through with plans to go public this
year, profits from the Chinese advertising market will
also put a smile on the faces of countless Google
shareholders.
(Copyright 2004 Asia Times Online
Co, Ltd. All rights reserved. Please contact content@atimes.com for
information on our sales and syndication
policies.)
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