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Internet eyes ad sales in hard times

By Wang Xing (China Daily)
Updated: 2009-01-12 07:56

Although the financial crisis has seen many of China's exporters close down and put pressure on the country's economy, the Internet-related industries remain relatively untouched.

While many advertisers are reducing their budgets for traditional outlets, such as print and TV, many companies are still spending on the Internet and giving hope to online companies.

"In the economic slowdown, we need to speed up, even dart," said John Liu, Google's sales vice-president in China, at a recent marketing campaign named "Warm the Winter". Since last year, Google has launched a series of similar activities to attract advertisers. That helped boost the company's revenues in China to 973 million yuan in the first three quarters of last year, with a market share that increased from 23.4 percent in 2007 to 26.9 percent, according to Analysys International, a domestic research firm.

"The financial crisis will bring about reshuffling in almost every industry but the most significant change will be people's way of doing business. And that will lead to the boom of the online economy in China," Liu predicted.

Liu is not the only one who is optimistic about the future in difficult times. Victor Koo, chief executive of Youku.com, one of China's largest video sharing website, also said he expects his company's revenues to increase in the future.

"We will hire more people this year to boost our marketing capability," said Koo, noting that advertisers in China have significantly increased their spending on video sharing websites since last year and he expects the trend not to change.

Since December 2007 when Jack Ma, chairman of e-commerce firm Alibaba Group, first warned at an industry forum of the possible "Internet winter", China's online companies have been prepared for a possible crisis potentially as serious as that of the burst of the dotcom bubble in 2000.

Although there are news reports of some start-up Internet companies shutting down business because they cannot get investments from foreign venture capital firms, the real impact of global financial crisis on the Internet industry seems much less than most people estimate.

"For Internet companies, the impact of the crisis is more positive than negative because people will spend more time on the Internet when time is difficult to find in the real world," said Wang Ran, chief executive of China eCapital Corporation, a private investment bank in China.

"Although some companies such as Alibaba may get hit a little bit more because most of its customers are Chinese exporters, the industry as a whole will benefit."

In general, Chinese Internet companies gain revenue in two major ways: one is from selling virtual items such those sold on Tencent and Shanda (China's largest online game company). The other is from online ads such as on Baidu, Google and Sina.com.

When times are difficult, people are inclined to stay inside and spend more time online playing games, reading news or chatting with friends through instant messaging. That will further increase their chances of being exposed to online advertisements.

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Steven Chang, CEO of Optimedia China, ZenithOptimedia Group, one of the world's largest media services group, said the growth rate of China's advertising market will be reduced from 18 percent in 2008 to about 9 percent this year.

But he said online advertising market in China will still grow 35 percent in 2009, a dip compared with the Olympoic Games boosted growth of 50 percent in 2008.

Change of behavior

Although advertisers didn't significantly reduce spending on the Internet, their marketing strategy did change a little due to the financial crisis.

Liu Ran, managing director of real estate channel of Sina.com, China's largest news portal, said that advertisers became more careful about the capability of their advertisements to generate revenue. She said most advertisers reduced spending on brand advertisements but increased it on those that could help them sell more products.

In order to fulfill the advertisers' needs, Liu and her team launched a new service in June last year helping thousands of real estate developers in China establish online sales offices. Last month, she even arranged a trip for 120,000 of users to visit some of her client's real estate in Beijing, helping clinch orders worth over 1.22 billion yuan.

Michael Yang, chief executive of Mediacom, a newly established Internet firm that provides online advertising and public relation for websites, chat rooms and BBS (Bulletin Board System), said more advertisers are starting to realize the power of Internet to influence targeted consumers.

He said his company generated 15 million yuan six months after it was first established in June last year and predicted the number will reach 50 million in 2009.

TB Song, chairman of Ogilvy & Mather Greater China, said although television is still the most powerful ad medium in China, the Internet will become the mainstream advertising vehicle of choice in the next five to 10 years.

"That is the future of the advertising industry," he said.