China's Online Ad Boom

The growth of the Net, especially among kids, is powering an overnight shift in spending

When Motorola Inc. (MOT ) launched a new line of youth-oriented mobile phones in China last year, it didn't bother advertising on TV or in newspapers and magazines. Instead, it hired a pair of college students from the southern city of Guangzhou who had become an Internet sensation with their homemade videos of themselves lip-synching Western pop songs. Dubbing the duo the "Back Dorm Boyz," the phonemaker built an online marketing campaign in which the two lip-synched As Long as You Love Me by the Backstreet Boys.

The response was overwhelming: A related lip-synching and song re-mixing competition garnered 14 million page views, with the surge in traffic at one point crashing the site. Visitors cast more than 1.3 million votes to determine the winner of the contest -- and sales of the new phones soared. "This was a grassroots, guerrilla way to relate to the youth of China," says Ian Chapman-Banks, Motorola's phone marketing chief for North Asia.

The migration of advertising from print to online is an accelerating trend in the U.S. Now, the same thing seems to be happening in China's fast-growing ad market. With 111 million Internet users on the mainland -- typically trend-conscious, young, and relatively wealthy -- few marketers can resist the lure of the Chinese Web. On Apr. 26, Tiffany & Co. (TIF ) launched a 557-page site in Chinese to woo the mainland's nouveaux riches. Procter & Gamble Co. (PG ) set up a site pitching its beauty brands Olay, SK-II, and Hugo Boss during last fall's Shanghai Fashion Week. And General Motors Corp. (GM ) last winter held an online contest to choose the Chinese name of a new Chevrolet compact, giving one of the cars, the Lova, to the winner. "Brands have decided to take the Internet a lot more seriously," says Chris Reitermann, managing director in China for digital and direct marketing shop OgilvyOne, which has about 100 people in online marketing on the mainland.

That's adding up to some serious money. Online ad spending has been growing by more than 75% annually for the past three years. It's expected to reach $812 million this year and top $1 billion in 2007, according to Shanghai-based IResearch. While Net advertising today represents just 2.3% of the total ad market in China, the balance is changing fast. "New Media's advertising revenues are starting to catch up" and will surpass traditional media's within 10 years, says Cui Baoguo, director of the Center for Media Management Studies at Beijing's Tsinghua University. "There is huge space for growth."


That growth is already taking its toll on traditional media. After almost two decades of surging ad and circulation numbers, newspaper ad sales on the mainland fell 5.1% in 2004, while at magazines they dropped 16.5%, a Tsinghua University report says. "Business magazine page growth is pretty flat," says Hugo Shong, head of IDG Asia Pacific, which publishes business and technology titles such as CEO & CIO and PC World China. His business and tech publications still managed 20% revenue growth. But, Shong says, "If we hadn't done a good job with online solutions and nonpublishing revenue [such as conferences], we wouldn't have done so well."

As in other markets, the slump has print publications scrambling to find new online models. The Economic Observer, a five-year-old Beijing-based financial weekly printed on pink paper (in a nod to London's Financial Times), saw its ad revenue growth slow to 5% last year, from 100% three years ago. So the Observer has launched a lifestyle supplement to appeal to younger readers and is seeking a foreign partner to help upgrade its Web site, adding more graphics, video clips, and perhaps a search engine for financial news. "We must focus on changing our platform," says He Li, editor-in-chief.

China's youth has already changed, which makes the Net a good way to reach them. P&G created a site to launch a new youth-oriented Crest sub-brand called "Whitening Expression," which comes in unusual flavors such as "Icy Mountain Spring" and "Morning Lotus Fragrance." P&G is asking young people to post videos of themselves dancing with a tube of Crest in hand, and visitors to the site will vote on the best act. The winners -- 250 of them -- will get free tickets to pop concerts in July. "Our online objective is to increase our interaction with consumers," says Arun Kumar, strategic planning director at Starcom Worldwide, P&G's media planning and buying agency. "The Internet allows you to do things that other media can't do."

The shift is giving a boost to Chinese Internet players. Advertising revenues at the leading Net portals grew by 25% or more last year, the Tsinghua report says. For instance, Inc. (SOHU ), China's No. 3 portal, now gets about two-thirds of its revenues from advertising, double the proportion just three years ago. To lure more ads, has signed marketing deals connected to this summer's World Cup in Germany and the 2008 Beijing Olympics. On Apr. 27, Sohu announced that during the first quarter, ad revenues grew 35%. "Companies want to segment and target their marketing," says Chairman Charles Zhang. And that will surely mean even more online ads.

By Dexter Roberts

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