Driven online

Despite having grown into the second largest Internet market in the world, the World Wide Web has yet to make serious inroads in China.

Market penetration is still minimal. What’s more, unique features such as a high percentage of users on public and shared computers present new challenges and unusual opportunities for advertisers.

China’s 123 million users represent less than one in 10 Chinese people, a percentage comparable to Colombia, South Africa and Tunisia. In the US, more than two out of every three people have Internet access, a number similar to Canada, Australia, South Korea and Western Europe.

The youth of the market is also reflected in the number of domain names registered: some three million, with the majority listed in Guangdong (17.2%), Beijing (13.6%), Fujian and Shanghai (both 9.3%), and Zhejiang (8.1%). Places like Inner Mongolia with 13,163 web sites, Hainan with 10,680 and Qinghai with 3,591 have a much longer road ahead of them, according to the China Internet Network Information Centre (CNNIC).

Like most economic development activities, Internet use tends to be concentrated in the more developed eastern areas.

While these numbers belie the idea of China as an impressive Internet market, annualized growth of about 16% certainly is. The number of users and sites is growing alongside more widespread and slightly easier registration for .cn domains.

"The Chinese government realizes this is very important," said Christopher To, founder and director of the Domain Name Registration Centre in Hong Kong. As of this year, the Hong Kong-based center can register .cn names. A soft launch got underway in September and an official kick off is scheduled for the end of the year.

If more users naturally engender more domain names – much like more people engender more houses – then more domain names should lead to more advertising.

But, as things stand now, usage in China is unique.

Public access

The country’s 123 million web surfers share 54.50 million computers, according to the CNNIC, less than one for every two of them. In other markets users tend to have their own computers or, at most, share with their families. In China almost 70% of users are under 35 and more than 70% have monthly incomes of less than US$880, making it unlikely or difficult for them to own computers. Instead, they rely on cafes. So traditional online advertising models may not work in China.

"Online advertising is still very, very small compared with Europe, America or even other Asian countries," said Hans Yu, Greater China Managing Director at Nielsen/Net Ratings. The obvious other side of the coin is the potential for growth.
In September, Nielsen/Net Ratings released the first of a regular series of studies on Internet advertising expenditure in China, which totaled US$190 million between May and July 2006. The top advertiser was China Mobile, followed by Nissan, eBay, Founder and Coca-Cola.

Spending in online advertising is growing visibly. In May, 587 online display advertisers ran almost 1,500 campaigns with 3,700 banners, reported AdRelevance. By July, the number of advertisers using online models jumped 39% to 817 with 2,276 campaigns and 5,785 banner ads.

Among China’s dedicated young internet users "traditional media is definitely losing its influence," Yu said. Newspaper readership is down and the amount of time they spend watching television is less than five hours a week.

But advertisers still have to work on their approach to reach this growing segment of online users.
"In other countries this chunk is very small," said Yu, but in China "this market is tremendous."