China's e-commerce is now a US$720 billion industry; with this comes a dramatic shift in online advertising.
The e-commerce industry in Greater China in the past few years has sprouted dramatically; iResearch estimates that the e-commerce business reached RMB 4.8 trillion, or US$720 billion in 2010. Online shopping as a component was RMB 498 billion, or US$75 billion, an astonishing four-fold increase in two years. Similarly, in Hong Kong, it was once thought (as recently as last year) that e-commerce would never take hold on this shopaholic location but in fact, Groupon claims to already have saved Hong Kongers HK$100 million since its inception in June last year and boasts over 520,000 registered users. The company's best deal to date was for hamburgers (Triple-O's), selling 70,000 in just 72 hours.
In China, a lot of the initial e-commerce drive has come through Taobao and Alipay, both Alibaba-owned companies, with over 200 million registered users on their site and is said to account for nearly 80 percent of online shopping in China (yet trending lower as a percent). Many have said Chinese people are only willing to spend less than RMB 100 (US$15) online, which in some regards is true, but at the same time, Ctrip, the undisputed leader in China for travel (with around 50 percent market share) booked US$437 million in revenue in 2010, up 50 percent over 2009, the vast majority of these trips well over RMB 100.
With this comes a very dramatic shift in online advertising in China. Specifically, there are five implications:
1. More "unlimited" budgets. First, if we look to the West, or even to Australia and Japan, we can see that while brand marketing over the Internet is strong, i'ts e-commerce marketing that really drives the 'unlimited' performance marketing budgets (so long as the ROI works) in North America, Europe, Japan, and Australia, and it's not until you see that when e-commerce really picks up. Not surprisingly, Groupon is now right there at the top in terms of ad impressions in Hong Kong, and Alibaba's Taobao is the leading ad spender in China.
2. Functionality unique to China. What we also see in China is that 'e-commerce' takes on a lot of different forms vs. those in the West. For instance, on Ctrip, to book a hotel room, one only needs to be a registered user of Ctrip (which requires a bit of bank style identity verification, as does Alipay), and then payment upon arrival at the hotel. A missed booking that is not cancelled in advance then requires payment or deposit to 'restore your reputation' (think eBay). This allows for much simpler integration, as well as helps to develop trust with users – and this 'blacklist' system may work as well as a credit card penalty might. As for Alipay – it accounts for at least 50 percent of all payments online (with two other similar systems, Tenpay and 99bill, making up another 40 percent according to iResearch), and works off of a process unique to China that allows customers to only release the payment (from the equivalent of a "trust account") when the goods arrive safely and are what the customer expected. In addition, more so than in the West, the mobile phone will be used as a payment tool, either through apps or SMS-based micro-payments, as has been used for years now in China.
3. The rise of the use of affiliate marketing and ad exchanges. While there have been a few agencies in China plugging away at affiliate marketing for some time, in the U.S., affiliate marketing is big business due to e-commerce, and truly based on the final sale, not on 'clicks' or 'leads'. The landscape has finally evolved whereby this will be feasible in China. As with affiliate marketing, while ad exchanges and ad networks are also not new in China, in general there was a distrust of ad networks and therefore a propensity to use fixed position ads versus rotational ads (to make sure the placement could be checked easily by the client). But with e-commerce, it's not necessarily the number of impressions served, it's the number of clicks and purchases. Therefore, remnant inventory will become more valuable (or at least monetisable).
4. The rise in the use of measurement tools and analytics. Having been involved in measurement and analytics in China and Asia Pacific since year 2000, it's interesting and encouraging to see that the rise of e-commerce has also led to greater importance of analytics tools to optimise advertising. These tools include customised bid management tools for search (and now global tools are finally getting around to fixing all double byte problems after 10 years), ad tracking tools, web analytic tools, and in some cases leapfrogging the West on video analytic tools.
5. More retailers and providers jumping in and marketing online directly to consumers. When looking at the top e-commerce sites in China today, they are Taobao, 360BUY, Joyo, and Dangdang. When looking at travel sites, they are Ctrip, eLong, Qunar, Kuxun, and Daodao. None are actual retailers (like Walmart or Carrefour) or providers of travel services like airlines and hotels. In fact, according to an iResearch study in travel, while Ctrip has 50 percent of hotel bookings online, all hotels combined only have 9 percent of direct bookings. This is quite different from the West where airlines and hotels are much more focused on going direct to the end users and using search and social to ensure that the 'middle man' is cut out. Per my recent conversations in China, this will be changing fast where retailers and travel providers will be focused on taking market share from these aggregator sites and redirecting consumers back to their own sites.
Overall, I see this shift in greater China to be a very positive one, as no longer is it about getting your ad on the home page of the major portal so the boss or client can see it – it's about driving real results from marketing spend and developing the targeting, tools, creative, and know-how to do so, which is a great benefit for the digital marketing industry and China as a whole.
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Michael Zung currently heads up Bite Communications digital practices in Asia Pacific, serving clients like Skype, Coach, Marriott, and Toys R Us for both their digital marketing and communications needs. Previous to Bite, Mike served as senior vice president in HSBC's Asia Pacific personal banking services, where he launched and headed up HSBC Direct in Taiwan and was responsible for the growth of HSBC Direct in Korea and Taiwan, the first "branchless bank" in both countries. Prior to HSBC, he founded OneXeno, a regional digital marketing consultancy based in Hong Kong that was subsequently acquired by Bite Communications. Mike first came to Asia 10 years ago, working for DoubleClick, where he served in various positions including managing director for North Asia and was also the first editor of AccessAsia, a guide for Asian specialists and current research. He holds an MBA from New York University and an MA from University of Washington.
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