The emerging online add market - the WTO column

While I could not attend the Adtech Beijing in person, the stories reaching me are indicated a massive change taking place towards online ads. It is for sure a change many have been waiting for. Having over 162 million people online, online ads only received 4.3 percent of the total ad revenue stream of US$ 25.8 billion in 2006. In the US the online ads count for 12 percent of the total market.

There are good reasons why in the past online ads were not getting a rightfully rewarded for the share of eyeballs they were attracting. First, there was a logistical problems, since few people in the internet industry knew how to make attractive offers to the advertisers. That has improved very fast. Second, the percentage of people online is still a fraction of the total population, it has just passed the twelve percent.

A third argument always sounded hypocritical, although it was valid. A huge percentage of the online populations has nothing or very little to spend. Why is it hypocritical? The advertisers were throwing in the past big scale ad revenue to the TV-stations, hoping to get most of the 1.3 billion Chinese. Most of them are at least as poor as the average internet users, but that did not deter the advertisers.

Apart from the fast growing numbers on the internet, there is good news in terms of the income the internet users are earning. When you peek into your average internet cafe you would not say that, but the number of low earners (less than 1,000 Renminbi per month) has dropped dramatically from 80 percent to less than 50 percent. Equally, the number of high earners has grown, mostly in the section from 1,000 to 4,000 renminbi per month, but the percentage of higher income internet users is clearly on the rise. And when you play your cards right, you can target them better than on CCTV.

What is also intriguing are the figures on how much the internet in China is ingrained into the daily life of youngsters, even compared to this other huge internet country, the US. Almost 70 percent of the young Chinese internet users belong to one or more social networks. Chinese netizens have a much larger number of friends online compared to the US internet users, 37 compared to 18, people they have never really met. Also, video sharing is much bigger in China than anywhere else. China's Tudou (claiming 47% of the total market in China) shows each month 15 billion minutes of video, compared to YouTube 3.5 billion minutes per month. An average session on Tudou is 40 minutes, on YouTube between 15-20 minutes.

The Chinese are - when I'm allowed to generalize for once - been much more sociable. That is partly caused by a systematic failure of the traditional media to give the people the information they needed. Interacting with your neighbors was something that could not be avoided, otherwise you would not know the prices on the market, the latest in your neighborhood and the latest in your industry. China's media have never been really important for the real debate among the Chinese, that was conducted at the water pump or wherever people would meet.

The internet has added greatly to that talent of interacting. Suddenly, the Chinese online users were able to connect with millions of other and most of them have taken that opportunity very seriously. The outside world was initially a bit upset the Chinese did not use the internet to plan a regime change, but most were just to busy making money, making friends and looking for all kind of new opportunities that have emerged.

The failure of the traditional media to really address the need for information and communication will cost them dearly. One of the reasons the internet is flourishing in both the US and China is, apart from the size of the online population, the fact that the media have done a worser job than those in Europe, where the old media are much better in retaining their old audiences. They will lose the digital struggle too, but the erosion process in China is much faster.

I see it happening every day at the subway. While the news agents still get every morning their huge piles of printed media, the passengers in the subway only read the free Metro Express. Because much of the old distribution is based on daily delivery by China Post, giving subscribers only once a year a chance to quit their paper. But those who make their decision every day at the news agent have made their choice already, they have left the traditional media.

Fons Tuinstra

PS: Most of the figures in this piece are from webloggers reporting directly from Adtech Beijing, especially Thomas Crampton and Kaiser Kuo. The income figures are collected from the CNNIC reports on the internet in China.