Ad China 2012 china digital media scene

Brought to you by AdChinaJanuary 2012

MEDIA SCENE2012 CHINA DIGITAL

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Dear Partners,

We start off the year 2012 with great excitement. In the past five years, the category of technology-driven internet advertising has grown from 0% to 8% of the total internet advertising spending in China. We estimate this number to double in 2012. Our confidence is based on the daily work we do for our clients, who are the largest 1,000 advertisers on the China market. Last year we upgraded several of our products, such as the cross-media planning system eTV2.0, and our clients’ satisfaction has risen dramatically. They have responded by increasing their project requests exponentially.

An important agenda of AdChina in the past two years has been to expand our advertising operating platform both to the supply-side (media) as well as to the demand-side (agency and advertisers) of the value chain in China. Today, 200 online and mobile internet publishers are using our supply-side platform ASP, and 4 of the 6 largest international 4A media agencies in China are using our demand-side platform ADP to manage their advertising operations. We’re launching this 2012 Digital Media Scene Report with the aim to provide a practical digital outlook for the coming year for our clients: what are the new digital media trends in China and around the globe? What are the investment opportunities that no one should miss? During the process of preparing this report, we referenced a lot of domestic and overseas research reports, interviewed our clients and overseas collaborators. We also sponsored a Harvard Business School project on “the Future of China’s Technology-driven Advertising” in Q4, 2011. All in all, we hope you’ll find this report useful. Last but not least, we wish you and your loved ones a happy Lunar New Year and prosperous Year of the Dragon. May you find great health, happiness and success! Yours, AdChina Team

Introduction

Jing Pan

VP of Marketing, AdChina

Sina Microblog: @Jing潘静

http://weibo.com/jingpanac


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The core advertising operating system

Agencies

-workflow mgmt

- Media planning/buying- Cross-media planning

- Data collection- Report & analysis

Ad operating system for agencies / advertisers

Supply-side

Publishers

-Workflow mgmt-Publisher advertising mgmt-Data mgmt

Ad operating system for publishers

- Processing 1 billion requests / day- Advertising placement on 400 PC

publishers and 10,000 mobile publishers daily

- Matching the right ads with the most appropriate audience

- Automated company workflow mgmt

- Generating financial reporting data for mgmt decision-making

AdChina is China‘s leading integrated internet advertising platform. A leader in online advertising space in China, AdChina provides the technology platform and creates the marketplace for publishers, agencies/advertisers, as well as other third party players with a comprehensive range of digital advertising technologies, online user data solutions, and audience management systems. By end of Q3 2011, on a monthly basis, AdChina platforms have access to over 457 million or ~90% of total Chinese internet users across PC internet and mobile internet. AdChina was founded in Silicon Valley in 2007.

AdChina is the leading technology-driven integrated internet advertising platform in China

Demand-side

- 100 premium online publishers are using ASP

- 80 mainstream mobile publishers are using ASP

- 200 additional campaigns per month

- 300 campaigns at any given time

- 4000 historical campaigns

- 4 of the top 6 international 4A groups in China are using ADP

For PC and mobile internet

Advertisers

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[ PART 1 ]

2011-2012 Digital Media Outlook

[ 1.1 ] General

[ 1.2 ] Display Ads

[ 1.3 ] Mobile internet

[ 1.4 ] Video

[ 1.5 ] Social Media

[ PART 2 ]

2012 New Digital Technology Outlook

SoLoMo, HTML5, Augmented Reality, NFC, QR code, Open Platform, Interest Graph

- Internet visitation through mobile devices accounts for 1% of the non-search & eCommerce total.

- APP marketing to become mainstream and LBS commercialization at the inflection point.

- 20% of the display ads to be placed through 3rd party platforms by 2014 in China. Dramatic

growth to happen in 2012 driven by client confidence based on proven result and cautious

economic outlook.

- Social media user growth to slow down. Social media marketing approaches and measurement

metrics to diversify.

- Coming soon: AdChina “Microblog Marketing Manual: Today & Future”

- Online video to grow significantly. TV and internet overlap exceeds 50% in the top 60 China cities.

- Chinese internet population exceeded 500 million in Jan. 2012. Driven by government policies,

short term growth comes from urban and long term from rural markets.

- Chinese internet advertising budget as percentage of total is ½ of that of the developed market.

We estimate dramatic growth in 2012.

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[ PART 1 ]


[ 1.1 ] General: Winning on internet = winning the current & future consumers

[ 1.2 ] Display Advertising


[ 1.4 ] Video


[ PART 2 ]


SoLoMo, HTML5 ， Augmented Reality, NFC, QRcode, Open Platform, Interest Graph

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China internet population exceeded 500 million; rural growth drives long term outlook- Government policies are the main drivers. “The National 12th 5-year Plan” indicates that information technology

construction for the rural areas is the main focus of rural development in China in 2011-2015.- The urbanization process also accelerates the progress.

Bandwidth upgrade and 3-screen development brings opportunities for new internet applications, hence drives urban internet growth in near term- “Broadband China” strategy is part of “The National 12th 5-year Plan”. The internet bandwidth in urban cities will be

upgraded and the prices will drop dramatically. “3-screen project ”will continue to be important.- Online video, cloud services, and internet TV will proliferate accordingly and change urban internet users’ behaviors.

Data source: CNNIC China Internet Statistics2009-2012

Users(millions)

Mobileinternet

Rural

PC internet

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Social media continues growth, mobile to drive social- Growth for traditional social networking and microblogs will slow down. User

fatigue starts to appear.- Mobile social isto take off. Weixin* as the killer APP, will lead the next social

networking tide.

- Consumer online video usage will increase dramatically in 2012, driven by: 1. higher speed and lower price of broadband; 2. the Bureau of Radio & TV’s administrative order to limit certain entertainment content on TV.

- Advertisers will shift significant advertising budget from TV to internet video. However the online video sites may not be able to absorb all the additional budget because most advertisers only command the traffic from tier 1 and 2 cities, which only accounts for 30%** of the total online video sites’ traffic. 3rd party display advertising platforms which are able to offer solid cross-channel media planning and data solutions will thrive with the opportunity

Online video to take the lead in digital advertising

Social media and online video are not yet saturated

Social media coverage

Online video coverage

US data source:comScore Nov. 2011

China data source:CNNIC29th ChinaInternet Statistics

Jan. 2012

* Weixin is the mobile instant messaging application offered by Tencent weixin.qq.com** AdChina platform data, Jan. 2012

http://www.weixin.qq.com/

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Winning on internet = winning current & future consumers

China’s netizens spend almost as much time on internet as on TV

Newspaper

avg. time spent hours/day

Magazine

CMMS Summer 2007 – Summer 2011

TV

Internet

Broadcast

CNNIC 29th China Internet Statistics Report Jan 2012 StarcomMediaVest Group “China Yangtze Study: Oct. 2011

avg. time spenthours/day (age:13-45)

TV

Internet

Younger users (age: 13-45) spend more time on internet than on TV, especially in Tier 3 & 4 cities

28% of internet users are below 20 years;30% are 20-30

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Internet advertising is under-invested in China

- Most Chinese advertisers think that internet marketing is a high priority. Their investment decision is held back by the fact that there are not enough reliable digital marketing partners who can offer measurable services as on TV.

- The mature internet advertisers are increasing their budget significantly in 2012 to occupy resources and build customer assets on internet before more competition comes in.

- The London Olympics, proliferation of smart phones, and internet’s expansion to the smaller cities and rural areas will bring new opportunities to internet marketing in 2012.

China data source： GroupM “This Year, Next Year, China Media Forecasters” , Sep. 2010;U.S. data source： eMarketer 2010 data, published in Mar. 2011

China’s internet ad spending as % of the total media budget is ½ of that in the US

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[ PART 1 ]


[ 1.1 ] General

[ 1.2 ] Display Advertising： Ad placement through 3rd party platforms to become mainstream


[ 1.4 ] Video


[ PART 2 ]



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Global perspectives: -Google to increase investment in display advertising, especially in 4 areas:

- Technology to simplify media buying and ad placement- Ad space engagement capabilities- Advertising evaluation mechanism- Advertising operations system for media owners to effectively manage traffic monetization and media planning

China scene:-After the rise and fall of eCommerce fever in 2011, advertisers now have a clearer perception on budget allocation and KPI setting for brand advertising and performance-based advertising.-After trial and testing, the Chinese advertisers have become used to looking beyond PV and clicks to evaluate digital advertising. Branding lift and target audience coverage efficiency are to become standard metrics. -Advertisers request display ads to be better combined with social media marketing.

eMarketer Nov. 2011

China display ad as % to total digital spending will grow to 43% in 2014

Display ads to become highest priority for Chinese advertisers

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Ad placement through 3rd party platforms is a top choice for US advertisers- US advertisers widely recognize the value

of ad networks, DSPs*, and ad exchanges for delivering better results and saving budget.

- The generally low economic outlook further promoted advertisers’ adoption of 3rd party platforms.

*A DSP(Demand Side Platform) is a system that allows digital advertisers to manage multiple ads through one interface. Utilizing a

DSP, marketers can manage their bids for the ad space, the pricing, and the data that they are layering on to target their audiences.

- DSP is still in its starting stage in China.- AdChina DSP is probably the only DSP

developed for China market with world-class standards.

- 4 of the top 6 international 4A media agencies in China adopted AdChina DSP to manage their advertising operations in the past 2 years. We estimate significant growth in China’s DSP business in 2012.

AdChina platform ad placement is widely recognized by Chinese advertisers- On average, every client has placed more

than 4 ads with AdChina.- We estimate that at least 20% of the

internet ads will be placed through 3rd party platforms in China by 2014.

ValueClick “Advertiser Survey 2011” based on 400+ senior U.S. advertiser

Feb. 2011

43% advertisers plan to spend more than 25% of their digital budgets in / through? ad networks

25% of advertisers planned to increase their ad network budget

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- The Chinese advertisers need the platforms to deliver ads to massive audiences and across hundreds of websites easily. Publisher quality is a high priority.

Chinese advertisers utilize 3rd party display ad platforms mainly for branding

The Harvard Business School research students provided the following POV:- It’s a massive offline market in China. Advertisers recognize 3rd party platforms’ abilities to

maximize the reach to consumers, collect data and conduct eCRM to drive offline sales- The Chinese digital market is sophisticated but not complex. Advertisers are good at

prioritization. That’s why it’s hard for the market space to support multiple types of 3rd party platforms to develop. Chinese advertisers prefer platforms that can provide to them practical solutions and proven track records.

Harvard Business School“China’s Technology-driven Advertising Study”, Dec. 2011

China branding ad network market will double every year till 2013

iResearch 2010-2011China ad network development report May. 2011

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The top 3 factors in choosing a media partner:

US advertisers value data-driven advertising capabilities

- Performance/ROI- Audience targeting- Price

- The ROI from behavioral targeting may vary significantly depending on the technological capabilities to process large-scale data and conduct multi-dimensional analysis

ValueClick “Advertiser Survey 2011” Based on 400+ senior US advertiser

Feb. 2011

The top factors in choosing a media partner

Behavioral targeting (66%) is believed to be one of the most important types of audience targeting

Harvard Business School“China’s Technology-driven Advertising Study”, Dec. 2011

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[ PART 1 ]


[ 1.1 ] General


[ 1.3 ] Mobile internet： It’s a war. And it’s starting now.

[ 1.4 ] Video


[ PART 2 ]



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Mobile advertising has great potential. Tablets are the future stars- Mobile internet user growth CAGR is much higher than PC internet in the

comparable period. Smart phone proliferation and decrease in telecom fees are the main drivers.

- Tablet computer growth was significant in 2011 and provides new marketing opportunities in the next few years.

- 1% of the AdChina online platform visitation (non-search and eCommerce) are from mobile devices at the end of 2011. While the according number from the previous year was only 0.04%. 44.5% of the mobile devices’ traffic are from iPads at the end of 2011.

- AdChina research indicates that 58% of the mobile users are using smart phones.

- 74% of mobile internet users access internet everyday using smart phone and 87% use installed mobile internet applications

2007

50MM

Smart phone changing the worldCNNIC 29th China Internet Statistics Report Jan. 2012

End of 2011End of 2011

356MM356MMCAGR 48%CAGR 48%

*Base: mobile internet users AdChina “2011China mobile internet research report”

Jul. 2011

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APPs are already among the most important consumer touch points

APPs are highly fragmented

- Consumers use APPs as time fillers and on a frequent basis

55% of app users use apps longer than 1 hour/day 9% heavy users use apps more than 5 hours/day

55% mobile users use more than 5 apps, up by 31% YOY

AdChina “2011China mobile internet research report”Jul. 2011

App Store & Android Market Dec. 2011

- Number of apps on the global market :

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LBS might be the next killer marketing application

In 2011a lot of major digital media owners (Sina, Jiepang, Shanda, Tencent, Dianping, etc.) upgraded their LBS services. New applications include:-Coupon downloads-eCommerce-Location-based social networking-Quick response (QR) code scanning

LBS: it’s beyond check-in and sharing- As user needs change, new

marketing opportunities around LBS will emerge.

42% of mobile users use LBS* because of convenience

Convenience

Social needs

Fashion

Coupons

Enfodesk Dec. 2011

*A location-based service (LBS) is an information or entertainment service which is accessible with mobile devices

through the mobile network and which uses information on the geographical position of the mobile device.

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Chinese mobile internet users are more willing to receive mobile ads than the US counterparts

- 61% of Chinese mobile users are willing to receive ads for rewards or freebies.

- 53% of the Chinese mobile users used a mobile coupon to purchase a product offline.

Google/IPSOS/MMA (Mobile Marketing Association) Our Mobile Planet Nov.2011

*Base: smart phone owners who have noticed advertising on their smartphones

*Base: smart phone owners

Awareness of mobile ads

Statements

Actions after noticing a mobile ad

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[ PART 1 ]


[ 1.1 ] General



[ 1.4 ] Video： Cross-screen is the gold mine for digital marketing


[ PART 2 ]



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Online video user base continues to grow- User composition of online video is much younger

than the general internet.

Online video is an addictive medium- According to data from Youku.com (the largest online

video website in China), the online video users’ time spent on TV decreased by 63.3%, frequency dropped by 56.4% after they started to watch video online.

- The longer a user uses online video, the more the media behavior changes.

End of 2011

325MMCAGR 15%

67% online video users are below 30

Jan-Nov. 2011Online video monthly time spent increased 57%

CNNIC 29th China Internet Statistics Report Jan.2012

iResearch iUserTracker Jan-Nov. 2011

2007

160MM

CNNIC 29th China Internet Statistics ReportJan. 2012

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Cross-screen usage increases year by year

TV and internet complement each other well in terms of reachInternet complements TV reach during day time

TV complements internet reach during the night time

CMMS2009A~CMMS2010A

China National Resident Survey, 2008-201060 top Chinese cities, sample age: 15-60

TV & internet user overlap is above 50%TV only users decreased year on year

TV & internet overlap reached 63% in tier 1 cities

CC11SUAC Mar. 2011

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Interactive pre-roll is coming- Interactive pre-roll works well with long video content and to engage young audiences.- Interactive pre-roll is a hot new format on the US market in 2011. AdChina introduced the format to China in Q4 2011

after collecting enough data to prove its value to Chinese advertisers.

Pre-roll Interactive pre-roll

comScore Data for in-stream Video Advertising Jul. 2011

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[ PART 1 ]

2011-2012Digital Media Outlook

[ 1.1 ] General



[ 1.4 ] Video

[ 1.5 ] Social Media： The market is looking for a practical social media marketing book

[ PART 2 ]



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Online social media user growth slowed down- Mobile social networking is reaching its critical mass. Weixin active users reached 30 million.

Social media marketing is at its early stage in China- Less than half of the advertisers use

social media for marketing purposes in China while 80% do so in the US.

- Social media marketing is heavily under-invested in China.

reason of social mediamarketing

usage of social media marketing

Booz &Co Buddy Media Campaigns to Capabilities Social Media &Marketing

Oct. 2011

2011.10

350MM

Nov. 2011

390MM

iResearch iUserTracker Jan-Nov. 2011

Grant Thornton “International Business Report”

Nov. 2011

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- Limited by the availability of technology and tools, social media marketing is mainly evaluated by the number of followers and forwards currently

Chinese advertisers’ urging

question: How to effectively do

micro-blog marketing

Social media marketing metrics US advertisers are most concerned about

Chief Marketer “2011 Social Marketing Survey”

Oct. 2011

Coming soon: AdChina

“Micro-blog Marketing Manual:

Today and Future”

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Planning out of the box to unleash the power of social media marketing- Advertisers need to build the strategy and working process to utilize social media to engage

with customers, conduct CRM, building word-of-mouth, and collect market insights

Booz & Co Buddy Media Campaigns to Capabilities Social Media & Marketing

Oct. 2011

US advertisers widely use social media for brand building

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[ PART 1 ]

2011-2012Digital Media Outlook

[ 1.1 ] General



[ 1.4 ] Video


[ PART 2 ]



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HTML5 STANDARD

SOLOMO MARKETING

NEAR FIELD COMMUNICATION

INTEREST GRAPH

OPEN PLATFORM

AUGMENTED REALITY

QUICK RESPONSE CODE

SocialMobile

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MobileConnecting online with

offline

SocialWhere word-of-mouth and viral

content fly

LocalGenerating sales and shopping

experiences

So-Mo: Connecting with the consumers at real time

Mo-Lo: driving consumers to the stores

Lo-So: creating word-of-mouth

LBS to direct consumers to the nearby stores and outdoor.

More and more consumers are using mobile devices accessing social media, checking out micro-blogs and checking in to share their thoughts and activities with friends.

Consumers today are eager to express themselves. Social media is their stage. Posting pictures and checking-in to share shopping experiences are common activities.

O2O

SoLoMo: connecting the digital and real world

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Two-dimensional code/quick response code:scan it, and you’ll know

Consumers are scanning every code they can access

Newspapers Product packaging

Webpages Fliers Outdoor TV Postcards

QR code scan enables

Mobile payment

Accessing product

information

APPdownload

Online/MobileShopping

Coupon download

Sharing on social

media

Check-in

Please try and scan the QR code above : )

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Augmented reality: adding new possibilities to marketing ideas

Combining with QR codes: bringing life to the creative

Combining QR scanning with LBS

- Through scanning the QR codes on magazines, packages or other media, the users will be presented with animated content.

- Through scanning the QR code at the store front or outdoor ads, users can see virtual content added to the environment they are in.

- There are limited mobile applications in China with augmented reality functions.- The market is expecting the big fanfare event. AdChina targets to be the clients’ technology enabler.

Augmented reality marketing is not widely adopted yet in China

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Near Field Communication: the future star

Fast and safe data exchange without touch or connection line-The latest Android 4.0 system includes the Near Field Communication (NFC) technology named Android Beam. Users can easily exchange webpages, maps, and game data at near range with each other.- The NFC technology creates new creative possibilities to APP marketing and enables new interactive experiences for consumers.

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HTML5: an upgrade to user experiences

HTML5 will dramatically enhance mobile experiences: faster, bringing more powerful functions, and better compatibility

- According to AT&T, 85% of all smart phones being sold in 2016 will support HTML5- HTML5 can help marketers to deploy the same creative or campaign easily on mobile devices with different operating systems

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Open platform: integration & fragmentation

Integration- Through open platform, the user can utilize multiple services through one single platform, i.e. sharing video content to social media, and doing shopping on social media.

Fragmentation- Open platform decreased the entry barrier for developing applications, services, and websites. A lot of new players will come into the market and provide more choices to the users.

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Interest graph: the next hot thing

Vertical social networking: based on interest- Through interest graph, users can get to know people beyond “6 degrees of separation”

Augmented social networking: stronger media influence- Media based on interest graph push content to users according to their interest. Such content could be highly valuable and attract loyal users.- Fashion industry could be the first one to adopt this technology for marketing.

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Please follow us on Sina microblog:

@闫方军 Alan

易传媒 CEO

@郑靖伟

易传媒 COO

@易传媒 -celia

易传媒 CMO

@程华奕

易传媒 CTO

@王帅民

易传媒媒体部副总裁

@Jing潘静

易传媒市场营销副总裁

Our World Class Advisory Board

@AdChina易传媒 @易传媒 App营销方案 @易传媒 LBS营销平台 @易传媒 Solutions @易传媒 CircleA@易传媒 ASP

David Rosenblatt-CEO, Double Click-President, Google Display Ads-Board member, Twitter

Michael Galgon-Principal Advertising Strategist, Microsoft-Founder, aQuantive

Rick Thompson-Founder, Playdom-CEO, Adify &Flycast

William A. Sahlman-Senior Associate Dean, Harvard Business School

http://weibo.com/alanyan

http://weibo.com/petercheng

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