I’ve been talking to a lot of folks about why China’s internet sites aren’t monetizable.
I was first shocked to hear that a popular SNS website with 9 million users was not able to make any money on its users. Why not? Bloggers in US make money with much smaller audiences!
Several folks have told me that only the top 4-6 websites in China (usual suspects of Sina, SOHU, Baidu, etc) make money from advertising, and they mostly sell a banner on the home page by the day - no “pay for performance”. This implies the advertisers are just buying ads for branding purposes.
At first, I thought it was that the ad networks and affiliate systems were lacking. No Adsense for China. Google obviously has Adsense but maybe it was because Google’s share of the market was too small. That is true; recent research on search sites suggest Google is climbing back up in popularity but most folks “in the know” say Baidu is still far out ahead, 80% plus market share.
But then I went to Ad-tech conference in Beijing (http://www.ad-tech.com/beijing/) and found out these networks exist. However, the tools are immature relative to US, and the click fraud rates are outrageous (somewhat related: see this article on how China websites faked their Alexa data: http://www.chinatechnews.com/2006/02/09/3519-alexa-con-of-marketing-in-china/). Seems like everyone in the industry is guessing; none of the numbers are reliable. Don Schultz, Emeritus Professor of Northwestern University, told us not to look to the US for the right model of marketing; we have to forge our own way in China (although I find that he didn’t really have the answer as to how). Brian Fetherstonhaugh, Global CEO of Ogilvy, tells us the 4 P’s of marketing (Product, Price, Place, Promotion) are now replaced by 4 E’s (Experience, Exchange, Everyplace, Evangelism); http://digitalwatch.ogilvy.com.cn/en/?p=136. Sorry, I’m on a tangent but I was very impressed by Mr. Fetherstonhaugh’s presentation, especially since I just had a mojito with him the night before at midnight. Believe me, I was a bit surprised to stumble into the 9am keynote to see him on stage.
After talking to many folks, I believe head of China Redpoint David Yuan explained it best. E-commerce isn’t ready yet. Without mom & pop e-commerce sites, we don’t have paid search or affiliate ads. Latest CNIIC report on China internet usage (http://cnnic.cn/en/index/0O/index.htm) says: “In China…in shopping online, only 25.5% of Chinese Internet users do it yet it has become a universal action of Internet users in the USA”. I believe the majority of these transactions are done either on the large e-commerce sites (e.g., Dang Dang) or on a C2C site (e.g., TaoBao, eBay - now run under Eachnet name).
It’s not due to lack of payment options, although granted the players are all small: Alipay is the 8 lbs gorilla and the rest are baby chimps (including, alas, my baby “BeiBao”, PayPal China’s name). Nor is it due to poor logistics options. COD in China is very cheap with local couriers. In large cities, it may be because of the ease of buying goods offline, but there are plenty of goods difficult to find in the non-Tier 1 cities.
No, I believe it’s due to lack of trust. Chinese inherently don’t trust strangers. That’s the number one argument I heard from any native Chinese while at eBay and PayPal against both models (online marketplace, online payments). The brave 25% of Chinese internet users who have tried e-commerce are the vanguard of the most adventurous, risk-taking people in China already. And they demand to use Escrow on TaoBao and eBay, or only shop at large e-tailers.
The internet consumers do not trust the mom & pop e-commerce site will ship the good, or if they do ship it, it’ll be fake or broken or wrong. There’s also the fear that their debit PIN will be stolen (credit usage is almost non-existant). Without chargeback rights of credit cards like in the US, it’s a “buyer beware” market. Thus, if the internet consumers won’t buy from them, it doesn’t make sense for the mom & pop sites to advertise. SME’s can’t afford to advertise for branding. Therefore, only the big companies can afford to advertise. Big companies don’t just sell one item, so their ads are for branding. If they are trying to improve their brand, they only market on the trusted portals and search sites, where the majority of the users are anyway.
Frankly, the tracing of the difficulty of monetizing China internet sites with advertising back to the lack of trust isn’t such a huge insight, but believe me, I had to ask a lot of people to piece this together.
Here are two good books to provide academic terminology and case studies to back up this obvious-to-the-native-Chinese assertion that Chinese do not trust each other.