China's Internet Boom

Traveling to China after a long absence, I found myself in a country in the midst of soaring enthusiasm for technology and the online industry. It is reminiscent of the Internet boom in the West a few years back.

China now has about as many Internet users - 87 million - as the United States. But because of its enormous population of nearly 1.3 billion people, online penetration is only about 7 percent of adults (compared say, to North America, where penetration is 69 percent.) Since Internet users grew by 34.5 percent last year, it is easy to envision a time in the not so distant future when China will be a powerhouse of users, content creators, applications, and advertisers.

Already sites have encountered issues similar to those experienced in the rest of the world including the problem of almost no inventory. Yes, China's online inventory is routinely "sold out." There is plenty of pent-up demand but no available space. Wouldn't that be a problem we'd all like to have?

I noted with great surprise that most rich media units are developed in-house, including less sophisticated versions of our own. There is only a limited market for what is considered traditional rich media, perhaps because everything is done in-house.

Interestingly, CPM or CPA deals do not exist. Rich media products are marketed and charged over "days" basis, and there is no audit or systematized control to speak of. Costs are spectacularly low, and implementing CPM would be very economical. Clearly CPA will occur, but there is still a wait.

From my perspective, I would say the outlook is very good for doing online business in China where, as you might imagine, tremendous growth is expected. But a cautionary note: everything must be thought out for the long-term. Whoever heads for China with the intention of applying the same business concepts implemented in other parts of the world has no future there. For example, don't even think about relocating business or operations to the Chinese market. Think, rather, about building from the ground up.

And although the industry is developing at varied rates of progress, they are ready for and want the very latest in cutting-edge technology.

As you know, business is conducted differently there. Those who see China as a particular market, though exclusive and distinct, are those who will survive.

Mookie Tenembaum is the founder of United Virtualities, a provider of Internet advertising technologies and marketer of the Shoshkeles ad platform.

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