SES China Conference: Up Close and Down Deep

The highlights for the 1st in China, Search Engine Strategies conference 2006 in Nanjing.

Search Engine marketing, while not a completely new concept for the China market, is still a very new marketing channel in China. In addition, the China Search Engine Forum has also been in China for the past 2 years now, put on by the ISAS organization. However, when you start to see industry conferences from the US and Europe coming to China for the first time, as did the 1st ever Search Engine Strategies conference in Nanjing last week, it sent me as well as to the marketplace a very strong message: “Hey world, you’d better brace yourself, because the Search market in China is about to really take off!”

With featured keynotes from Johnny Chou, President of Google, Greater China and Jack Ma, CEO Yahoo! China and Alibaba, the audience of marketers, search engines, service providers, investment companies, technology providers, and SEM/SEO firms small and even smaller, came from as far as Israel, Germany, the US, as well as from Korea, Japan, and all throughout China. While there was international representation, keep in mind that out of the estimated over 600 attendees, most were Chinese.

Ironically, while the content of the conference was some what informative, (yet basic for seasoned Search marketing professionals), the true value of the event was found in: 1) validating that Search is set to explode in China and 2) calling to the marketplace to come and network-- come all ye players, let’s see who’s doing this stuff and who wants to take Search in China to the next level?!

Surprisingly, premier sponsors like Google and MSN were quick to show support, with Google even hosting a scaled-down version of the Google Dance party minus the decadent spread that you’d get at their party in San Jose, and yet heavy on the barrage of slides on Google in China propaganda—yes, they are hiring!

All in all, if the cold conference rooms (from the heating system being out all day on the 1st day as well as marginally working on the 2nd) and the mystery meat from the lunch trays (2 days in a row!) didn’t scare you away, the conference was a good venue to meet with others who work in Search, and better yet, who are making the business of search a reality here in China.

So here are a few top highlights from the SES Nanjing 2006 conference, if you didn’t have the chance to fly for 13 hours from the US, take a 4 hour train from Shanghai to Nanjing, and be primped and looking fabulous for the pre-conference Networking party on Thursday night (despite the 15-hour ahead time zone change)!

The keynotes with Google and Yahoo! Alibaba!
You could really tell how different in style and character Johnny Chou, Google and Jack Ma, Yahoo! Alibaba are simply by how the audience responded to both of them after their keynotes.
Jack won the respect and affection of the crowd by first starting off that we would speak to the audience in Chinese and humbling himself by stating he wasn’t quite sure why he was invited to keynote when “he believes that the internet will change the world, not search engines.”

He spoke of the latest changes in Yahoo since Alibaba took it over in December 2005, one of which was localizing the management team. Furthermore, he explained that the reason why Alibaba took over Yahoo! China was because the development of search engine technology is very fast and Alibaba at the time focused only on B2B, which was lacking in Search. “[We wanted to provide better results],” Jack said.

He went on to emphasize that the payment issue in China needs to be resolved (China is currently lacking a credit payment system). And without integrity from the marketplace among users, e-commerce really won’t be able to take off, requiring then that “we must train and educate people.”

Jack was truly down to earth and appealed to your regular and non-technical man, engaging the audience by sharing his story of how he got ‘kidnapped’ in the US, how he didn’t have a good academic background, and how he is not very technical himself, yet his goal is to bring the power of technology, ie the power of search to the 12 million small-medium enterprises (SME’s) that are using their [Alibaba] services currently. Of course we all know that the reach and power of that goal has even greater potential for the total market of China!

When asked about the future vision for Alibaba, Jack replied that his goal is to focus on developing the business and that it will be better to ‘not follow fashion’ to develop the internet ie, not follow in the footsteps of Google and Baidu but stay focused on their core business.

Lastly he again humbled himself by stating he didn’t know if he would still be the CEO in 5-10 years because “there are lots of young, smarter people, very creative people [who may supercede him] but that overall the goal is to better serve their members. For example, “Taobao (China’s online auction, competitor to eBay China) is going to provide people in China with more opportunities.” He also strongly believes that they need partners and agencies to carry out his vision.

Johnny Chou’s keynote echoed some similar sentiments on the importance of working with partners, marketers and other search engines on establishing the ‘ecosystem in China’ because of the immaturity of the internet market here. However, the information Johnny provided was your very corporate Google positing of: 1) Google’s corporate culture is one of innovation; 2) The highest priority to customers is to bring them the best experience and 3) With the development of the internet here in China plus Google’s global reach and brand, Google will be “happy and lucky” to be part of the forefront in this revolution.”

He spoke of why he joined Google and their massive hiring efforts (which again were reinforced with the heavy slide show of Google’s opening in China at the Google Dance party later that evening). He also mentioned that Google’s #1 challenge is, “can we localize products and meet local needs?” Furthermore in talking about the future for Google in China, he tied in the fact that while the current volume of purchase transactions are quite small in China, the search-based market is “on the edge of growth,” which presents enormous opportunity. He concluded by reiterating the theme that the people in China want to reach the rest of the world. Globally, 40% of transactions can be done online, of which China has not even contributed to any of that (due to its lack of developed, credit card payment system). The integration of economy and goods flow have no boundaries today, therefore its more important now to “be able to reach every corner of the world” for Google China.

Market Stats
Two well known Research companies, CNNIC (China Internet Information Network Center) and iResearch were also represented to back up the excited sentiments of the keynotes on the market of Search in China. In addition, one presenter, YuYang, CEO of Analysys International did echo the fact that currently SE’s are not meeting the needs of the users and that 40% of SE users are under the age of 30 (very different consumer behavior pattern than the US market for example!)

Quick snapshot according to iResearch statistics:

+ Market size* of China’s online marketing: 4.17 Bn RMB in 2005
* (excluding business revenue of distributors) -an increase of 78.4% of 2.34 Bn RMB from 2004

+ The market size of Online marketing 3.13 Bn RMB in 2005
-accounting for 75.1% of entire online market

+ The market size of Search engine marketing 1.04 Bn RMB in 2005
-accounting for 24.9% of entire online market

+ Market estimate for 2006 6.5 Bn RMB
-with a rapide growth rate of 55.9%

+ Market size of China’s online marketing by 2010 25.7 Bn RMB
-while the market share of online advertising will decrease over time, the market share of
search engines is set to rise.

+ Business revenue of China’s SE operators 1.04 Bn in 2005
-81.9% increase in terms of Year-over-year revenue
-20 times larger than initial market of 50 Mn RMB in 2001

+ 2006 Revenue for China SE operators 1.9 Bn in 2006 & up to 10 Bn by 2010
-with an annual growth rate of 41.2%

+ Market Segments of Search Advertising Market:
-Position bidding advertising: 54.4%, RMB 570 Mn (Paid Media)
-Fixed slot advertising: 25.7%, RMB 270 Mn (Banner Ads)
-Address bar advertising: 15.2%, RMB 160 Mn (Natural search)

+ SE Market share:
-Yahoo! China (Yahoo search, Yisou and 3721) - 26.9% in 2005
-Baidu - 26% in 2005
-Google China - 14.4% in 2005

Advertising revenue of general search portals (Google, Baidu, Zhongsou) and major information portals (Sina, Sohu, Netease) make up the major part of China’s search engine advertising
market.


Search engine usage stats
Information presented by Peter, Senior Analylst at CNNIC (whom I met online when I found the report he published online when I did a search for “Online search market in China”— man, I love the internet!) gave a good high level overview of SE usage in China.

His research is done through sampling, surveys over the phone and also covers the 3 main cities: Beijing, Shanghai and Guangzhou. Here is a sampling of what was worthy to note:

-Among students, Baidu is the most popular SE
-Higher income users more likely to use Google
-84% of netizens use SE’s
-Most netizens use more than 1 SE
-2/3 of users use keyword combinations for search
-Baidu does not distinguish & identify if it’s a paid listing so users would not know the difference
-SE marketing only accounts for 1% of the entire advertising market!

Tracks and more Tracks!
In terms of the rest of the sessions and content, the SES Nanjing show broke out into 2 main tracks: 1) Fundamentals: Techniques for SEM and SEO and 2) Advanced Track: A view into Search Engine Marketing in China: Case studies, Working with Partners & Agencies, B2B Search, Rich Media & Video Ads, and Vertical Search.
See here for full listing:
Day 1 Agenda: http://www.isas.cn/en/about_agenda.asp
Day 2 Agenda: http://www.isas.cn/en/about_agenda.asp

And while we heard from MSN Ad Center and CEO of Zhongsou, nothing too earth shattering was mentioned from them.

What about the rest of the show?
What stands out among the rest of the presenters was emphasis placed on Mobile Search as well
as B2B marketing & Search in China.

We got a lot of good insights and market data on the burgeoning market for Mobile Search from Alvin at mInfo, a mobile search service based in Shanghai.

- There are over 440 mn wireless subscribers
- The major carriers in China are: China Mobile, Unicom and Netcom
- Wireless data is 15-20% of carriers revenue and growing!
o (SMS, MMS, WAP, IVR, LBS)
- 90% of market has SMS adoption = 350 Bn plus SMS sent in 2005
- 15% of market has WAP adoption (ring tones, pictures, games)
- There’s a growing distrust from customers on traditional wireless service providers due to billing practices.

From my own private conversations with Alvin, he definitely reminded me about the user and consumer behavior patterns local to China that make Mobile search quite powerful.
For one, many consumers do not purchase online, and if so, they do for small transactions.
China is dominated by a offline purchase culture, especially give the fact that the payment processing system online is lacking.

However, everyone and anyone has a mobile! I can therefore see the power and reach through mobile search has far more immediate impact for China’s current consuming market.
Without high ticket items nor high volume purchases being done online, there are not a lot of STRONG incentives for small enterprises in China to spend huge amounts of advertising dollars on online Search engine marketing just yet! You must keep in mind, the target market and local consumer behavior, not simply look at the dollar signs and market size of the 1.2 billion people in China!

Another major area which stood out in substance from the conference was the talk about B2B commerce from speakers like Jason Wan, CEO of BusyTrade, (a new channel for the ever rising popular B2B market in China) and Peter Zapf, VP of Community Development at Global Sources (a not so new and well established B2B platform provider, enabling Chinese manufacturers to connect with global buyers across top verticals like: consumer electronics, gifts & home products, and fashion accessories). Global Sources said it well, that for China to reach buyers around the world, its really about marketing how the manufacturer is different and better. Global Sources has been successful in helping Chinese manufacturers get in front of customers looking to source certain products by offering an integrated marketing approach and effectively reaching the right target buyers by hitting all channels: print & trade magazines, tradeshows, online search & advertising. This is quite different than the often traditional Chinese way of lowering their price to get more buyers.

Surprisingly there was only one real testimonial and perspective from PCCW, a SEM reseller on how they structure their paid placement business in China. Lawrence Wan's presentation definitely stirred some grumblings from an eager-to-speak SEO professional in the audience who found Lawrence's proud claims of packaging PPC management packages on a monthly, subscription fee basis ($2500/mo subscription) over the real PPC prices which if left to fluctuate with the bidding system could be a lot less costly for clients doing PPC campaigns.

Lastly in long and final closing, the last session on Global Search Marketing Case studies, was quite informative with 2 fantastic and insightful presentations from Koichiro Fukasawa, CEO of Wasabi Communications (a Japanese SEM firm) and Jungmin 'Ricky' Kwon, CEO of OSO, (a Korean SEM firm). Both gave a very quick yet strong view into the market dynamics of Search in Japan and Korea, with the astounding news that Google barely has penetration in Korea and Yahoo! is the most influential SE in Japan!

Overall, the message and sessions shared one theme in common, that Search in China is set to grow at an unprecedented rate! Furthermore, all over the world, our eyes and our bets are looking toward the full development of the internet and e-commerce in China through the effective medium of Search. Mark this conference as one to go down in internet history and if you live here in China and are in the Search space, I hope that you will join the local, China SEMPO (Search Engine Marketing Professional Organization) chapter and make a contribution to this fast growing industry that is tranforming not only the landscape of how business is done in China but furthermore how people connect with China --creating more opportunities and transforming people's lives globally, for the better.

signing off for now,
your i4Shanghai correspondent,
ahnster

Adtech Shanghai Conference Highlights

Ad-Tech Shanghai 2005 Conference (Nov 15-17th) Highlights
While the theme of the 1st time Ad-Tech in China conference, was “Digital Marketing- Where we are and where we are growing,” to my surprise, there didn’t seem to be much written about what went on during the conference after the event was over.

Although there were some disappointments like the BabyFace Networking party being cancelled and the lack of energy and somewhat serious tone of the first day’s keynote (its common Chinese business protocol to have local Chinese government officials give an address and kick things off), things did liven up by Wednesday evening for the adhoc drinks at Jin Mao Tower in the Hyatt Hotel thankfully due to Susan Cendara’s spontaneous corralling!

So for those of you who were not in attendance, but are craving and searching for the shortened low down on who was there, what went on, secrets revealed and deals made in between track sessions, here is my 2 cents on the conference highlights and the most memorable musings from not only the speakers but the audience members as well!

Keep in mind, the state of the China advertising market is changing significantly at this time, especially considering that Advertising as an industry has only arrived in China roughly 10 years ago. With that being said, many agencies here in China and Shanghai were very interested in what issues and topics a first conference for ‘Digital Marketing’ in China would discuss and who among industry leaders would gather for networking and collaboration.

Needless to say, the conference drew over 600 attendee’s and a strong cast of industry leaders from both local Chinese companies to global Mutli-National Companies from the US and Europe including: Yahoo China!, Microsoft, Google, Zhongsou, NetEase, Tom Online, TenCent (QQ), Ogilvy One Worldwide, CBS Digital Media, Ave A/ Razorfish, eBay, Alibaba and many other local Chinese agencies covering Research, Mobile Marketing, Search Marketing, Interactive Media and even VC Funding.While there was simultaneous translation services available via headsets, the audience itself as well as the panelists did seem to lack a stronger local voice and representation from Chinese agencies and marketers.

There was one session which comes to mind that did convey a global representation of both markets: Online Media Reporting and Optimization US and Asia Comparisons, which included panelists Hiroshi Momota from Japan, Ruth Stubbs covering the AP region, and Young Bean Song from the US.

So now for the Top 10 Insights from the conference:

1. With over 130 Million internet users in China, and that being just 8% of China’s internet population, the potential for the internet market in China is tremendous. The internet as a marketing channel is only 6% of advertising spend, signifying the huge growth opportunity to develop this market here in China.

2. Search and the marketplace are converging and the potential to capitalize on the value of Search Marketing is growing fast Because Search marketing as an industry is growing from a far less critical mass (as compared to the US), in China, it therefore seems like its growing even faster. Today, its estimated there are 300 Million searches a day and by 2006, that number will grow to 600 Million searches /day.

3. Search however is still in its very early stages in China. It is only when you can add the intelligence (relevancy) into search results will the opportunity arise. Today, many people do not find what they want when doing a search online in the search engines. Not to mention, ecommerce is very much in its infancy as well with online payment solutions still trying to gain wide acceptance in a historically, very cash-based society very weary of security online.

4. Broadband is transforming media and the move toward digital convergence is steadily approaching. We can see a direct correlation of broadband and the way you use media online. Consumers are changing habits of consumption while Marketing as an industry is moving too slow to meet their needs.

5. The consumers are fast becoming the content provider, producer and distributor, resulting in a ‘My Media’ generation where people demand and access media on their terms.

6. The biggest opportunity in monetizing the blog as a marketing channel is in product recommendations based on the fact that the strongest influencer for consumers is word of mouth through friends or referral. To capitalize advertising through blogs would only work if it was based on particular user habits or preferences, leading to the significant discussion on behavioral targeting as the next wave of targeted ad serving.

7. There is a rise in interactive forms of entertainment and especially among MSN users in China where they are sharing their entertainment experiences with their friends online. Instant Messaging is will fast become the new carrier for advertisers. However the IM industry will need to balance relevancy with function so as to avoid ‘annoying’ IM users with useless advertisements and messages that may steer users away.

8. There is a real opportunity for Loyalty Programs in China. This type of customer retention and customer data collection program is far a few between in China but could do massively well in a population as large as it is (1.3 billion) The next phase in CRM is really customer retention after all the efforts made to get them!

9. Standards are lacking in China for media buying, in particular for adserving. There is a lot of good data available but in China it is not used very much or in the same fashion that other agencies outside China would use. In China, clients here do not use 3rd party adserving. Therefore when clients in China don’t see the reports from their agency, it is creating large discrepancies in pricing and the industry must come to an agreed value on adserving. In the US, the commissions typically can be from 3-5% whereas in China it can be as high as 50% which is diminishing the integrity and reputation of this service. There is a need for greater transparency and collaboration among the agencies and there are some discussion going on now as we speak to bring a level of consistency and standard to this area of service. Only by sharing and being honest with the data and performance from adserving can agencies have legitimate metrics in which to show value to clients and better negotiate for contracts.

10. In terms of the ‘hottest’ area for growth, it seems to be that the next digital medium on the horizon, or what industry pundits loosely refer to as “the 3rd screen” (with tv being the 1st screen and the PC the 2nd screen) will be in PDA, Mobile, and the iPod. Taking all the messaging and cool technology of the internet and tv and transporting it all into one tiny little ‘something you can put into your pocket.’ While we all certainly know that in China, one simply isn’t a real person without their mobile, more and more we are enticed by the latest versions of mobile phones or smart phones where you can watch movies, personalize and create ringtones, pictures, or whatever to the point where your mobile becomes truly a ‘mini-me’of you that you can hold in the palm of your hand and share with all the world!

Certainly there is more that happened both on stage and offline (like the after parties and the gossiping after one moderator seemed to piss off one of the Google panelists during one of the sessions…but we won’t get into that here) and a lot that was discussed during the 3 day conference. However this is just a round up of the most poignant statements and discussions that went on here in Shanghai, in the vastly changing, advertising market of China, in my humble opinion.

PS: Another important note that was brought up about the best way to effectively market here in China, is to always hire the locals who know the specific nuances and particular details of doing things here in Shanghai or the particular city you are targeting. Making that button red and closer to the top or smaller with a different local word in Mandarin are the small but important stuff that make the difference. For foreigners, it will take 3 times as long (or more) to figure this stuff out! If you look to even Yahoo, who finally buckeled and sold its Yahoo China business to Alibaba, a local ecommerce player here (very close) in Shanghai, you will realize that it better to ‘go local’ and let them run it their way here and save yourself the headache of trying to force a process or standards that just may not be accepted here!

So remember, when in China, go local, go local!
Signing off for now...your i4shanghai correspondent,
--Ahnee