Taken from Services Mobile, an article edited by my good friend Bruno Bensaid, Founder of Mobilemonday Shanghai, Entrepreneur and M&A advisor in the China telecom and media industry.
China’s online advertising market might still be in its infancy, it is nonetheless witnessing robust growth. According to OgilvyOne’s China President, online ad spending in China could reach $6 billion by 2012, when most analysts predict about $4 billion. Mobile advertising is next, but with some major differences: the telecom operators’ monopolistic tenure on the market and weak wap usage to date. With a mobile population now over 500 million (and growing at an astounding pace of 5-6 million new subs a month), mobile ad revenue could reach $92 million in 2007 (from an estimated $65 mil in 2006), $142 million in 2008, $193 million in 2009 and $243.2 million in 2010, according to a recent research from Marbridge Consulting in Beijing (http://www.marbridgeconsulting.com/).
How to explain some of this growth? We have to factor in the concurrent growth of sms campaigns, wap ads, 2D barcode, photo-based marketing campaigns and mobile search. Besides, the overstated “Olympic Games effect” is now also visible on online ad spending as brands are finally releasing long-overdue budgets for 2007 and 2008, reaching out to more customers in the internet world. Along with the Games is 3G being rolled out, and hopefully more wap and SMS campaigns will benefit from the 3G/Olympics hype too. China is currently stuck in the 2.5G era and only rolling out Edge and locally-made 3G standard (with maybe some HSDPA), before the Olympics and in targeted “key” cities. Full fledged 3G deployment will take place in 2008 and 2009.
If all agree mobile advertising will be “big” at some point in the future, several factors are still hampering growth: slow data throughput, lack of reliable campaign metrics, data flat rates (or lack thereof), increasing “walled garden” tendencies and constant threat on free wap site ecosystem, low mobile browsing usage compared to the overall mobile population (at most 8%-10% total subs are regular wap users), agency and brands bias towards traditional media – decision makers, some in their 50s, are often ignorant of the internet age. The market is dominated by SMS, which has reached maturity and is widely accepted by the mobile population (SMS – 66% of ad revenue, Wap push – 16%, wap 12% - Marbridge).
Independent metrics, for one, are missing. Though these metrics don’t exist either in the China online advertising world, this is not stopping the market from growing faster than anytime before. The difference with mobile, however, is that the mobile ad market is hugely uneducated and marketers are more often than not reluctant to throw (larger) budgets to acquire (mobile) inventories when they do not know if their ad will end up on one of the gazillions illegal (soft) porn wap sites marring China’s internet…
Digging deeper into the mobile market’s peculiarities, flat data rates plans (or lack thereof) could be a roadblock to adoption too. China Mobile and China Unicom recently cancelled their flat data plans – though it is believed this will be a short-lived decision, at the eve of major 3G deployment. Beyond the regulatory thing, what insiders fear the most is short-sighted strategies from operators (especially China Mobile, the dominant operator) to create more and more walled gardens. Until a few months ago for example, mobile music was widely available with all content providers working with China Mobile (called “SPs” here) – now they have to go through a dedicated music download platform hosted in one of China Mobile’s provincial operations. Not good for business… Same could be happening with mobile advertising.
Advertising on Monternet wap pages (China Mobile’s own wap content and billing platform) requires to go through the “exclusive agent” of China Mobile, a Japanese company called Fractalist. All other mobile ad companies need to buy inventory from Fractalist if they want a spot on Monternet’s wap pages. How un-cool is that? Besides, pricing is twice higher on Monternet than anywhere else (6 € for CPM and 0.3 € CPC, compared with an average 3 € CPM or 0.15 € CPC for free wap sites, according to Madhouse). And more bad news might still linger ahead. Very recently, China Mobile announced they received an advertising license and might take over the sms and wap agencies job and cut a deal with brands directly to carry out campaigns. In this unlikely yet possible catastrophic scenario, affiliate networks and agencies will rely more on free wap advertising inventory, which – despite its huge number of sites – only covers a small portion of total wap traffic. Statistics show China Mobile and only a few large service providers capture roughly 80% of the wap traffic.
Yet, if there is one area in the mobile industry VCs are currently bullish about, it is undoubtedly mobile advertising, search and marketing. Mobile ad serving companies have mushroomed in 2006 and 2007 (count MadHouse, WAPS, and CASEE in the winning trio), and so have mobile search companies like mInfo, UUCun or Yicha. Search is expected to capture most of the mobile ad revenue in China too, but in the longer run. 2D barcode and photo-based mobile companies have also emerged to grab a piece of the pie, such as Gmedia, Inspiry or Coolmark in 2D, and Hong Kong-based MyClick (picture-taking and recognition advertising-based model). On the marketing side (playing the roles of mobile media agencies), long time players like 21Communications or Puca (from Ireland) and new players like Fugumobile in the advergaming space (ad in games) or Pioco in the bluecasting space. To put things into perspective though, when Madhouse claims 251 million impressions in 10 months across 1,100 publishers (wap sites), AdMob claims 4 Billion impressions since 2006. Considering the China market is at least twice bigger in subscribers than the US market (where most AdMob ads were served), that shows the potential for growth here in China, to say the least. Madhouse, like their colleagues from 21Communications, claim some big guns clients relying on them for mobile marketing compaigns. While 21Communications is the exclusive mobile partner of Coke, Madhouse nourishes big hopes following successful campaigns with Pepsi, Visa, Nokia or Ebay in the past few months (www.madhouse.cn/en/pop/case4.m).
At the end of the day, all these players are still dividing a tiny pie, and few or none are convincingly profitable (except, maybe, the mobile agencies which operate, in my opinion, a non-scalable business model based on campaigns, not ad serving or affiliate network). Yet, the recent explosion of free wap (aka “off portal” wap sites) and advent of 3G before and after the Games in the coming months will probably push more borders than one dares to imagine, and will help facilitate mobile browsing penetration and web-sized content downloads. Location based services and behavioral search should be the icing on the cake boosting mobile ad spending. Let the Games begin!