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Growth of Online Advertising Market in China

According to IDC, China's online advertising market maintained its rapid growth in 2006 and is poised to become one of the most promising businesses for portals, search engines and even online game operators in the country.

IDC found that the online advertising market revenue reached RMB5.11 billion (US$0.64 billion) in China in 2006, which is an increase of 42.1 percent over 2005. Of this, the brand-based online advertising revenue was estimated at RMB3.34 billion (US$0.42 billion), and search engine advertising revenue RMB1.77 billion (US$0.22 billion), accounting for 65.3 percent and 34.7 percent of the total, respectively. IDC forecasts the market to reach RMB34.71 billion (US$4.33 billion) by 2010, with a 5-year (2006-2011) CAGR of 46.7 percent.

Grace Zheng, Senior Analyst at IDC's China Cross Products Research team, predicted the development of China’s online advertising market as follows:

Fierce Competition Breaks Oligopoly

While web portals Sina and Sohu accounted for a combined 55 percent of the 2005 China online advertising market, this market oligopoly was reduced in 2006. As competition intensifies with new entrants, not only will Sina and Sohu, and search engines like Baidu and Sogou, compete among themselves, foreign Internet giants Google and Yahoo! will also participate more aggressively in the market. IDC predicts that market concentration in the online advertising market will change and market power will be dispersed.

The Rise of Online Advertising Agencies

A robust online advertising market not only encourages existing ad agencies to increase focus to online advertising, it also acts as a catalyst to attract new ad agencies seeking to make a fortune in the rising market. The new players include both leading global ad agencies and local Chinese online advertising agencies. IDC predicts that there will be further specialization in the ad agency business, and online advertising will further improve in terms of design and content.

New Forms of Online Advertising Gaining Popularity

Traditional forms of online advertising, such as banner ads, remain the primary choice of advertisers. However, with the development of Internet and progress in broadband technology, different and newer forms of online advertising are emerging. IDC predicts that rich media ads, in-game ads and other new forms of advertising will gain popularity with these advertisers in the future.

Advertisers Increasing Online Advertising Over Conventional Ads

As more and newer means of market promotion become available, advertisers will find it increasingly difficult to achieve the same level of promotional results by advertising via conventional media. Advertising budgets will therefore be redistributed from conventional media, such as TV, radio and publications, to newer forms like outdoor promotional activities, TV advertising in commercial buildings, and online ads. IDC predicts that advertisers will increase their online advertising budget in the long run while reducing their investments in conventional ad media.

New Payment Models Emerging to Challenge Conventional Methods

The rapid development of online advertising also poses a challenge to the conventional models of online advertising payment. The widely adopted cost per thousand impressions (CPM) approach, used to monitor advertising results, is now considered ineffective due to click fraud. With paid search engine advertising becoming popular, Cost Per Thousand Click-Through (CPC) and time-based billing are being used as these are more effective in addressing the interests of both advertisers and website owners. In the online brand advertising market, most of the advertisers pay using the time-based billing model, but measure the results by applying the CPC model because CPC provides a more immediate explanation about the effectiveness of online advertisement than CPM. Led by online advertising giants Google, Amazon and eBay, yet another payment model, the cost per action (CPA) approach, has emerged. IDC predicts that online advertising payment models will continue to evolve as advertisers strive to associate cost with advertising results.

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