DEVELOPMENT AND CURRENT ISSUES RELATED TO INTERNET MARKETING COMMUNICATIONS IN CHINA

DEVELOPMENT AND CURRENT ISSUES RELATED TO INTERNET MARKETING COMMUNICATIONS IN CHINA Minxue Huang and Alex S.L. Tsang ABSTRACT: The Internet has become an essential resource for enterprise development. Its impact on advertising strategy is perhaps the most apparent influence. Since the first network advertisement was placed on Chinabyte in 1994, network advertising has become the third largest industry in the information economy, second only to e-commerce and online games. To understand the current status and development of Chinese online marketing communications, this article briefly introduces three primary aspects: audience characteristics, media types, and subject placement. It also analyzes relevant and compelling issues for China. Despite the vast number of Internet users in China, they are unevenly spread across cities and counties. In recent years, Internet usage has developed rapidly. According to recent statistics (CNNIC 2010), the number of Chinese netizens has reached 420 million, the highest of any country in the world. However, China's Internet penetration rate is only 31.8%, lower than the nearly 100% rates in Europe, the United Kingdom, Germany, and France or the 75% rate in the United States. Therefore, Internet usage in China still offers huge growth potential, especially in rural areas. Although rural residents account for more than 50% of the total population, they make up only 27.4% of the total number of Chinese Internet users. As rural reform gets under full swing, the potential of China's rural Internet audience continues to grow. Moreover, the Internet increasingly is integrated into people's everyday life. The amount of time that China's Internet users devote to surfing the Net continues to increase, with the average duration reaching 19.8 hours per capita per week-a rate that surpasses that of many developed countries. The Internet has become a key platform for communication, information, and entertainment in Chinese people's daily lives (CNNIC 2010). China's Internet community also has been gradually expanding to include people of all ages, incomes, education levels, and occupations, such that it represents an ordinary, typical tool of everyday life. As the impact of Internet communications increases, online advertising thus has become a new favorite of Chinese advertisers. Internet advertising provides an important tool for business marketing communications and a useful medium that enables consumers to acquire brand information (see Figure 1). The proportion of Internet advertising in China's overall advertising industry continues to expand, accounting for about 12.5% in 2009 and likely to reach 20% by 2011. Figure 1. Consumers' Main Information Channels Source: Data Center of China Internet (DCCI) 2010. Journal of Interactive Advertising, Vol 11 No 1(Fall 2010), pp. 1-10. 2010 American Academy of Advertising, All rights reserved ISSN 1525-2019

2 Journal of Interactive Advertising Fall 2010 During the global economic downturn in 2009, China's Internet advertising market growth suffered, though it still generated revenues of RMB 19.33 billion. As the economy recovers, prospects for future growth are positive, and the revenue generated from this industry is expected to reach RMB 40 billion by 2012 (Figure 2). Figure 2. Internet Advertising Expenditures and Estimates for China, 2005-2010 Source: DCCI 2010 Chinese Internet Marketing Communications: Three Major Domains Figure 3. Internet Ad Market Share, 2009 China's Internet-based advertising mainly features six types of ads: search engine, portal, networks, video, online community, and vertical site advertising. Among these, search engine advertising, advertising portals, and vertical sites account for the major share of the advertising pie (see Figure 3).

3 Journal of Interactive Advertising Fall 2010 Search Engine Advertising Search engine advertising accounts for the largest portion of China's Internet advertising market, similar to the proportions in international Internet advertising in recent years. China's search engine advertising has increased rapidly, maintaining an annual growth rate of 50%. Despite the global economic crisis in 2009, it achieved a growth rate of 37.5% that year, reaching RMB 7.01 billion in earnings (Figure 4). The top three companies are Baidu, Google, and Soso, which accounted respectively for 70.8%, 27.3%, and.6% of search engine advertising market share in the second quarter of 2010. However, Google has withdrawn fully from the Chinese market in 2010, even as Bing, Taobao, Sogou, and other enterprises increased their investment. Accordingly, competition in the Chinese search engine market continues to require further study. Figure 4. Search Engine Market Portal Advertising Traditional portal advertising was significantly affected by the economic crisis; its growth rate also is likely to be influenced by video Web sites and community advertisements. Portal advertising, a traditional tactic in the Chinese Internet market, suffered a growth rate of only 1.2% and sales volumes of RMB 4.83 billion in 2009 (Figure 5). Nevertheless, its future growth should accelerate. Tencent, Sina, Netease, and Sohu, four popular Web portals in China, account for 33.78%, 26.38%, 13.93%, and 9.41% of this market presence, respectively; other sites make up relatively small market shares (CIIS 2009). Advertising in portals is rich, including banner, button, picture-in-picture, and text links ads. Because a portal provides more comprehensive information, with high rates of exposure and interest, it provides an indispensable source of information for consumers. However, with the development of new communication tools, such as video and community Web sites, portal ads likely will face stiffer competition in the future.

4 Journal of Interactive Advertising Fall 2010 Figure 5. Portal Advertising Market Alliance Network Advertising Alliance network advertising is one of the primary delivery channels for small- and medium-sized enterprises (SMEs). Because affiliate networks increasingly constitute platforms and media, their value in terms of affiliate marketing has greatly increased. Alliance network advertising still has room for development. In 2009, transactions involving online alliance network advertising amounted to RMB 2.25 billion, with a growth rate of 24.3% over 2008 (Figure 6). Baidu Union, Google's ad alliance, the Tai Chi chain, Smarttrade, and AdChina media provide outstanding representatives of alliance networks. Recent developments have transformed alliance network advertising from a medium of broad and unfocused exposure into one that focuses on specific, precise targets, thereby increasing its advertising effectiveness and providing customers a higher return on their advertising investments. Meanwhile, as new competitors enter the market, the competition for resources has intensified, and the entire industry is reshuffling. Only strong alliance networks will be able to endure. Figure 6. Alliance Network Advertising Market

5 Journal of Interactive Advertising Fall 2010 Online Video Ads Online video is now China's most popular Internet application service. Advertisers recognize the benefits of a marketing model based on Web video platforms and use them more frequently. Online video advertising in 2009 revealed some significant developments, including income of RMB 590 million and a growth rate of 73.5%. In addition, it is likely to maintain its rapid growth in coming years (Figure 7). With the development of copyright, financing, and acquisitions policies, as well as the launch of national network television, online video is becoming a primary facet of China's Internet communications industry. Online video marketing mainly employs video seeding (embedded marketing), patch advertising, or advertising with video features. These marketing modes remain simple; the value that they can provide thus demands further research. Figure 7. Online Video Advertising Market Online Community Advertising The size of China's online community continues to expand, and the prospects for online community advertising are huge. According to DCCI (2010) monitoring data, the number of China's online community subscribers reached 245 million in 2009, and they spent an average of 8.53 hours per month visiting online communities and forums. This vast audience has facilitated the rapid development of online community advertising. In 2009, affected by the global economic crisis, ad revenue was RMB 780 million, and its growth sharply slowed to 18.2% (Figure 8). Representative networks of online communities include Kaixin, Renren, QQ, and Mop; the number of active QQ accounts has reached 484.9 million, far exceeding the standards of similar foreign media. An increasing number of Chinese Internet users also consider Internet communities as sources of information; therefore, their influence in terms of advertising is likely to grow.

6 Journal of Interactive Advertising Fall 2010 Figure 8. Online Community Advertising Market Vertical Web Site Advertising The advent of vertical Web site advertising in China began relatively late, but it has developed rapidly. Network advertisers exceedingly emphasize brand building, which can be achieved effectively through vertical Web advertising. Thus, its development is generally viewed optimistically. Vertical sites can satisfy the development needs of China's Internet market because of their professional services, scale operations, and vertical orientation; in turn, these sites have progressed rapidly in recent years. In 2009, revenue to scale reached RMB 3.87 billion, and the growth rate was 16.5% (Figure 9), accounting for a 20% share of the entire online advertising market in China. The four fastest growing categories are information technology (IT), online games, automobiles, and real estate. Representative vertical sites such as Yesky, Chinacars, and Soufun feature media and rich resources. In the future, China's vertical sites should be more user oriented, combining the needs of industry development with the unique advantages of vertical portals to achieve enormous growth and advancement. Figure 9. Vertical Web Site Advertising Market in China

7 Journal of Interactive Advertising Fall 2010 China's Internet Advertising Marketing Communications: Unique Characteristics Advertisers in China keep looking to online tactics because online advertising offers unique advantages that attract a continuously increasing proportion of investments. Overall, Internet services and applications, real estate, motor vehicles, IT, and apparel are the top five industries in terms of online advertising spending in 2009. For example, the proportion of online ad spending in the Internet services and applications industry increased significantly, especially in the financial, insurance, food and beverage, communications, trade show, and cosmetics and health sectors (see Figure 10). Network advertisers, however, exhibit considerable differences in their media placement choices. Figure 10. Different Advertisers' Investment Scale, 2009 (? Ten Million) Search Engine Advertising Use by Traditional Industries The principal consumers of search engine marketing are SMEs in traditional industries, such as machinery, IT, power, and logistics. According to DCCI (2010), search engine advertising constitutes a more decentralized industry. Machinery and equipment accounted for only 12.1% of the advertising share, and other sectors accounted for relatively smaller portions (Figure 11). On the basis of these trends, search engine advertising appears to be drawing increasing attention from advertisers. Figure 11. Advertisers in the Search Engine Advertising Market

8 Journal of Interactive Advertising Fall 2010 The Concentration of Portal Advertising According to monitoring data from DCCI (2010), the top four industries advertising using online portals are computers, motor vehicles, real estate, and apparel, which account for 29.5%, 18.5%, 14.5%, and 8.7% of the advertising share, respectively. The portal advertising shares of other industries are relatively small (Figure 12). Figure 12. Advertisers on Top Four Web Sites Online Video Ads: Focus on Main Profiles Internet video marketing mainly involves advertising of IT, online games, and network services. According to the survey by DCCI Admonitor (2010), IT companies account for 39% of Internet video advertisers, followed by online games and network services, which account for 23% (Figure 13). The rest are small-share advertisers. Figure 13. Advertisers in the Video Market Industries Using Online Community Advertising Advertisers have come to acknowledge the value of online communities, such that the advertising industry gradually has diversified (Figure 14). As the size of online communities grow and the skills needed to market products effectively mature, advertisers increasingly recognize the value of online community marketing. Currently, these advertisers mainly represent the computer and communications industry; other advertisers are gradually adopting this form of advertising.

9 Journal of Interactive Advertising Fall 2010 Figure 14. Advertisers in Online Community Advertising Markets, 2009 Alliance Ads: Attractive to Large Enterprises Alliance advertising mainly serves SMEs, but as brand advertisers continue to expand, with their investments seem likely to increase. Brand advertisers, such as General Electric and Haikang Life Insurance, should increase their spending on alliance advertising. Current Issues for Internet Communications in China Despite the rapid development of Internet marketing communications in China, we still know little about the mechanisms that underlie this industry. Minimal research addresses how China's unique cultural, social, political, industrial, competitive, and legal environments influence the role of the Internet in marketing communications. More systematic studies are needed to understand issues surrounding Internet marketing communications in China. Findings from studies conducted in that country also may have implications for other emerging markets. The articles in this issue of JIAD work to address that need. In particular, Chen and Haley note online consumer behavior in relation to Web 2.0. They focus on the shared meanings of Internet participation, rather than any specific product consumption or marketing communication behavior. However, because Internet marketing communications is a facet of Internet communications, we cannot achieve effective marketing communication strategies without a comprehensive understanding of how Chinese consumers interact and construct meanings in cyberspace. Chen and Haley's contribution provides valuable insights. Although their study focuses on a single social network site, readers should find consistent phenomena in equivalent Chinese virtual communities. Considering the importance of online searching in China, Li and colleagues investigate how to select the best keyword in paid search advertising. With their proposed Poisson regression model, they employ actual data from the Web site of a service company in China and link advertising effectiveness to keyword characteristics. Their results show that parsing the features of keywords can influence online advertising effectiveness, which can help advertisers create and select the best new keywords for their online paid search advertising campaigns. In their article, Cui and colleagues provide an experimental investigation of the social influence of Web sites on perceived interactivity. Both the provision of information about other consumers online and the use of emoticons in online consumer comments can enhance consumer perceptions of the interactivity (i.e., control, responsiveness, and synchronicity) of the Web site, which can encourage positive attitudes toward the site. This study helps firms understand how to improve the effectiveness of their online communication through their Web sites. In the study by Wang and colleagues, an econometric method provides the means to explore how user-generated information (word of mouth [WOM]) and media-generated information (media publicity) influence online behavior. Drawing on a Bass new product diffusion model, these authors build an adaptive model to forecast moviegoing behavior according to the WOM and media publicity about the movie prior to its release. They verify the feasibility of the model using online secondary data about China's movie industry and find that media publicity determines moviegoers' innovation probability, whereas WOM determines innovation and imitation probability. Their efforts provide a better

10 Journal of Interactive Advertising Fall 2010 understanding of the decision-making process involved in moviegoing, as well as effective ways to release new movies in emerging markets. Chang and colleagues provide an exploratory investigation of product placement in an online game context, which will help firms make better use of online games. They investigate in particular the influence of a match between online games and in-game advertising, using a survey method. Their results show that congruity, integration, and prominence critically affect consumer perceptions of the match between online games and in-game advertising, which can lead to higher levels of interest and purchase intentions. Finally, to provide a picture of the future of e-commerce in Mainland China, Liang Chunxiao, Vice President of Alibaba.com and head of the company's research center, provides us with an insightful perspective piece. He predicts that China's e-commerce will continue to grow, such that it will take a leading role worldwide in the next five to ten years. He also notes that e-commerce service is a powerful engine for the development of e-commerce. As the social and economic influence of e-commerce is expands and deepens, he imagines a new business paradigm and civilization emerging as well. Thus, a vast number of research opportunities exist, and they should be geared toward filling gaps in our understanding of Internet communications in China. Data Center of China Internet (DCCI) (2010), "2009-2010 China Online Advertising Market Data," available athttp://www.dcci.com.cn/down/2009-2010 年 中 国 网 络 广 告 市 场 监 测 数 据 与 互 动 营 销 研 究 报 告 _D CCI.pdf (accessed August 15, 2010). ABOUT THE GUEST EDITORS Minxue Huang (Ph.D., Wuhan University) is the Associate Head of the Marketing Department and Professor of Marketing at Wuhan University, China. His research interests include Internet marketing and the impact of online information on consumers. He has published in journals such as European Journal of Marketing and Advances in Consumer Research. Alex S.L. Tsang (Ph.D., City University of Hong Kong) is an assistant professor at Hong Kong Baptist University. His current research interests are in the areas of Chinese consumer behavior and leisure marketing. He has published in European Journal of Marketing, Industrial Marketing Management, Journal of Advertising Research, Journal of Business Ethics, and Journal of Business Research, among others. As these exemplary texts clearly reveal, Internet communications in China is a crucial topic, and a single special issue in this journal cannot address all relevant questions. However, we offer this special issue in the hope of catalyzing more in-depth, innovative research in this domain, especially in China. We anticipate that international scholars will become more and more involved in studying Internet communications as it applies to the unique circumstances of China. REFERENCES China Internet Index System (CIIS) (2009.9), "China Portal Website Development Report," available athttp://www.chinalabs.com/html/ Shichangpinggu_WenZha ng (accessed August 15, 2010). China Internet Network Information Center (CNNIC) (2010), "China Internet Development Report," available athttp://www.cnnic.cn/uploadfiles/pdf/2010/7/15/100708.pdf ( accessed August 15, 2010).