Alibaba, the country’s largest e-commerce group, failed to draw online advertising dollars in the mainland with Yahoo’s search engine service. Now it is trying a new tack – Alimama, an online advertisement exchange service soft-launched on August 12 that industry insiders see as a likely success.
02 October 2007
Published by South China Morning Post
“The project is in a pilot phase and will launch officially in the fourth quarter,” said an Alibaba Group executive who declined to be named. Alibaba’s investment in the project was not revealed.
Porter Erisman, a spokesman for Alibaba, declined to comment.
Alimama targets the numerous small websites that struggle to benefit from the mainland’s fast-growing online advertising business, most of which goes to a few top players.
“Online advertising in China concentrates on the top 10 most popular sites, such as Sina, Sohu and Baidu. Many of the smaller sites have no way of selling their advertising inventory,” said Jacky Huang, digital marketplace research analyst at IDC China.
At stake is an online advertising market that would reach 11.56 billion yuan by the end of 2010 on a compound annual growth rate of 26.2 per cent, said Analysys.
The online advertising exchange allows small and medium-sized websites to sell slots to advertisers. For example, Chinafund.cn, a financial information site with about 150,000 visitors a day, is offering a banner advertising space at the bottom of its first page for 5,000 yuan a week in Alimama.
Alibaba said advertising on smaller sites could be as effective as the major sites, if not more so.
“When we first launched our online auction site Taobao two years ago, we were locked out from advertising on the major sites such as Sina, Sohu and NetEase because eBay had exclusive deals with them,” said the Alibaba executives.
“We were forced to advertise on the smaller sites. The rates are low and return on investment is great. It was very successful for our business.”
Online advertising exchanges or affiliated networks are not new. US-based Doubleclick, which Google proposes to buy for US$3.1 billion, and Right Media, a US company Yahoo acquired for US$700 million, operate on a similar concept.
Alimama is not alone in spotting the opportunity in the mainland.
“In fact, many companies in China are working on similar services,” said Mr Huang.
Services that aim to offer a bridge between advertisers and the hundreds of thousands of small and medium-sized websites include Smarttrade.cn, a subsidiary of Focus Media, the largest mainland outdoor media firm, Beijing-based Eqifa.com and Shanghai-based clickvalue.com.cn.
“However, none of them are very successful,” said Mr Huang.
“Smarttrade.cn was once considered the largest China affiliate network but it appears to be losing steam lately. The company has near-term pressures to maximise profit before the affiliate market has truly arrived,” said T.R. Harrington, managing director of Darwin Marketing, which runs clickvalue.com.cn, with about 30 advertisers and 7,000 websites.
Alimama, on the other hand, is likely to be a winner.
“Alimama can probably be a success as Alibaba has the resources to invest,” said Mr Huang.
Mr Harrington agreed. “Taobao is a key advertiser on many of the ad networks. If Taobao is going to advertise with Alimama at the exclusion of other networks, it can quickly ramp up Alimama’s publisher base,” he said,
“And because of the network effort, the more publishers on a network, the more advertisers it will attract, and vice versa.”
That does not mean Alimama would be a threat to search engines, such as Baidu and Google, even in the long run.
“To some extent, all channels compete for a fixed advertising budget. But keyword search remains the top online priority and will continue to command a growing share of advertising dollars,” Mr Harrington said.
“For search, your ads appear next to the information people actively seek and, as such, it generally results in a much higher relevance and conversion rates for advertisers.”
He said for advertising networks, users primarily visited publisher’s websites for content and the advertisements next to the content were secondary to the users’ intent. This less direct user engagement meant a lower conversion rate for advertisers.
“In the US, despite the presence of large affiliate networks ValueClick, LinkShare and more recent media exchanges such as RightMedia, Google’s growth remains strong due to its effectiveness,” Mr Harrington said.
The size of the mainland online advertising market reached 1.63 billion yuan in the second quarter, up 19 per cent from three months earlier and 31 per cent larger year on year, Analysys said.
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