Youku's Victor Koo

Expect more online videos, search ads and e-commerce

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SHANGHAI--What are the trends in China's digital marketing landscape, according to China internet veteran Victor Koo? User-generated content, mobile marketing and ads seeded within online search engines, games and, of course, video sites, said the founder of one of China's largest YouTube-like online video sites, Youku.com. When he founded that company last year, Mr. Koo was already well-known in Chinese internet circles as the longtime president of Sohu, one of China's leading portals. Before that, he worked at venture capital firms in China, and held skin care and cosmetic marketing roles at Procter & Gamble.

During his keynote address at the AdAgeChina Digital Marketing conference in Shanghai on Dec. 6, Mr. Koo identified China as "one of the most important internet markets in the world." He cited figures to prove it: 162 million users, second only to the U.S.; 31.7% year-on-year growth; and both the largest broadband (122 million users, 58.4% growth) and mobile phone populations (502 million, 17.8% growth).

Today, China's internet market is worth "just 3% of total ad spending, well below international levels, despite the wide penetration of the internet in China," he said. "Eventually, China will become the No. 1 internet advertising market in the world," particularly in areas like web portals, e-commerce, search engines, instant messaging, wireless, games, travel, job and finance sites.

"How are we going to drive growth? Partly by increasing reach and partly through more targeting and segmentation. I break down the market into three mega-trends. From a brand marketing standpoint, the key word is video. From a search advertising standpoint, the key is e-commerce and vertical search. The third is cross-platform advertising, mixing with online games or mobile phones."

Web portals like Sina, Sohu, QQ and 163 have dominated brand advertising so far, " but quick adoption of online video as a killer application in China really started in 2006, and sped up in 2007. When Google acquired YouTube last year, it was delivering about 100 million daily video views. Youku is currently delivering 80 to 90 million daily video views and growing fast."

Research from companies like ACNielsen shows differences between online video site users and TV viewers. "In other words, the people watching online video are not the same people watching TV, so for advertisers, it's important to know when you are building a brand campaign, to reach the widest audience, you really need to complement television with the internet to get the widest reach."

They should also steer away from a "hard" sales approach on online video sites, although Chinese web sites have more advertising than American or European sites and video ads "have been very positive, especially those that have an emotional or compelling story, like Nokia's 'MC Farmer' video about the origins of hip-hop, which our users loved."

In addition to creating "engaging video content, marketers should also be looking at user-generated video content and competitions," he said. A recent content on Youku.com, for example, generated 147 video submissions. The most popular entries were viewed over 650,000 times and were linked to over 1,600 other sites and blogs. "The viral nature of this contest, and from a seed advertising standpoint, should be interesting to brand marketers in China," he said.

In the area of search-based advertising, e-commerce is "starting to evolve here, as payment and fulfillment bottlenecks are gradually fading. I think in the next three to five years, it will be a very important element driving search advertising and marketing. Some major players have already started to position themelves to take advantage of this emerging trend, such as Alibaba launching Alimama, an online advertising trading platform. Baidu launches a consumer-to-consumer e-commerce platform, and Taobao has started selling online advertising. So search advertising and e-commerce have started to overlap in China."

The third big trend is cross-platform advertising. "It's emerging everywhere. Mobile marketing has been talked about a lot in the last three years. It's still relatively small but you're seeing more traction. The interesting trend here is location-based advertising, especially on the SMS side. The other area is in-game advertising."

These different trends, particularly the rise of online video and search, "are fundamentally changing China's online advertising industry. In the future, online ads will need to be more relevent, more engaging and more measurable. After all, with the appearance of new convergence devices like wifi-enabled computers, mobile phones and digital television, online advertising in China will approach 8 to 10% of total ad-spend over the next 10 years. China will be the No. 1 internet market in the world pretty quickly."
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