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