NTES's Portal business's rebirth – part 3 – Targeted ads

This is the 3rd part of a 3 part series on what NTES is doing to rejuvenate its portal business. Part 2 of this article can be found here:

http://chinese-net-gaming-stock.blogspot.com/2009/05/ntess-portal-businesss-rebirth-part-2.html

Netease just start a new service that will allows for precision targeted advertising. That service can be found here:

http://jz.163.com/

This service can potentially cause major upheaval in the internet advertising field. Two biggest areas in internet advertising is search and portal. They targeted two different kinds of clients. The portal targets brand ads. Its clients are big cooperation. Search on the hand, because it can target very specific sector, is catered to small and medium companies.

NTES provides blogs, photo album, and email services to its users. These services are free to the users. But they do provide their personal information to NTES. Information such as their ages, their locations, their sex, their hobby, their likes and dislikes, are very useful information. That information can therefore be used for highly segmented targeted advertising. Therefore, this is great for small and medium companies.

Therefore, NTES just come out with a way for the portals to grab businesses away from the search engines.

At this point, NTES is targeting this service for SME (small and medium enterprises). NTES has 300 million email accounts, 80 million blog accounts, and 23 million photo album accounts. Therefore, it represents a very attractive target for advertising to the millions of small businesses in China.

NTES just start this service, to avoid too much inconvenience to their users, the ads will be put in a few places at the beginning.

At this point, I don’t think NTES will get a lot of new revenue at the beginning. But if other portals start to follow suit and start to do this, it would allow all the portals to put more ads in more easily observable locations. By then, it would really become a threat to the search engines.

China's Internet advertising market survey for January and February 2009

My last article on the survey on China』s internet advertising market can be found here:

http://chinese-net-gaming-stock.blogspot.com/2009/02/chinas-2008-internet-advertising-market.html

On 3/26/2009, Nielsen and ChinaRank together published a survey on China』s internet advertising market for the months of January and February 2009. Their survey can be found below:

http://it.sohu.com/20090326/n263027249.shtml

The main data from their survey can be found in the following plot:

The above plot indicated that advertisers spend $850 million in January 2009 and $710 million in February 2009 for China. It represents a 2.6% year over year increase from January 2008 to January 2009 and 19.2% year over year increase from February 2008 to February 2009.

This survey indicated a decrease from January to February 2009 due to seasonal factor. But excluding seasonality, the rate of increase has increased from 2.6% in January to 19.2% in February.

Nielsen also surveys the internet advertising by sectors. I will provide their data below:

% of total advertising by sectors in February, 2008:

Auto – 20.8%

Electronics – 16.1%

Entertainment – 9.8%

Fashion – 9.1%

Fast Moving Consuming Goods – 7.1%

Finance – 6.6%

Media – 5.3%

Service – 4.7%

Sales – 3.3%

Real Estate – 3.3%

Others – 14%

% of total advertising by sectors in February 2009:

Auto – 16.4%

Fashion – 14.3%

Friendships – 11% (this could be dating, community, etc.)

Real Estate – 8.7%

Finance – 8.2%

Entertainment – 7.7%

Electronics – 7.1%

Fast Moving Consuming Goods – 5.2%

Jobs recruitment – 5.1%

Media – 3.8%

Others – 12.5%

From the company's quarterly earning call conference, we can find out the top advertising sectors. They are as follow:

Sina's top advertising sectors: Auto, Finance, Real Estate, Telecom Service and FMCG

Sohu's top advertising sectors: Auto, Online Games, Real Estate, FMCG

Ntes's top advertising sectors: Auto, IT, Internet

For Sina, there is a little decrease in Auto and FMCG. There are also some increases in Finance and Real Estate. But telecom service is a big problem. According to the survey, electronics sector had a severe decrease from 16.1% to 7.1%. One would expect Sina would suffer due to its exposure to the Telecom service sector.

For Sohu, there are some decreases in the Auto and FMCG sector. There is increase in Real Estate. I don't know where I shall classify Online Games.

For Ntes, there is decrease in the Auto sector. IT sector might be troublesome. IT is probably part of Electronics sector and there is significant degradation in the Electronics sector. The internet sector however is growing very well. I believe both the recruitment and friendship sectors probably count as internet sector. Both those sectors improve greatly.

Finally, for the overall internet advertising market in China, the survey has YoY (year over year) increase of 2.6% in January and 19.2% in February. One would think the YoY increase shall accelerate in March.

If we assume March would have a YoY increase of 25% (your guess is as good as mine), we shall have a year over year of (2.6+19.2+25)/3 = 15.6% increase for the 1^st quarter of 2009.

For Sina, its 1^st quarter increase is probably below 15.6% due to its reliance on Telecom service.

For Sohu, its 1^st quarter increase is probably around 15.6%. For Ntes, its 1^st quarter increase is probably a little above 15.6%.

DCCI survey on Chinese search market

I has just written a survey article on China』s search market. That article is based on a survey conducted by Analysys International. It can be found here:

http://chinese-net-gaming-stock.blogspot.com/2009/01/chinas-search-market-survey-and-bidus.html

On 2/5/2009, DCCI published another survey on China』s search market. It can be found here:

http://it.sohu.com/20090205/n262065965.shtml

I will copy their survey plot below:

From the above plot, one can see the year over year (YoY) growth rate for 2008 is 86.2%. They also published their prediction for the next 3 years. I don't really care about their prediction.

But their survey result for 2008 might be of use. Since Bidu hasn't published their 4^th quarter 2008 revenue number yet. Their survey result might give us some insight about the 4^th quarter performance for Bidu.

If we compare that with Bidu's analyst survey on Yahoo finance site:

http://finance.yahoo.com/q/ae?s=BIDU

From Yahoo, the YoY revenue is estimated to be 98.8% based on 19 analysts. The analysts are predicting full year revenue much better than the survey result from DCCI.

DCCI's results are based on the whole search industry in China. So unless Bidu were grabbing significant market shares from other search companies, DCCI's results seem to suggest Bidu's full year revenue won't be as good as what the Wall Street were expecting.

Now, we are in an impasse. The survey results conducted by Analysys International suggest Bidu's 4Q revenue will blow away Wall Street estimates.

On the other hand, survey results published by DCCI suggest Bidu's 2008 revenue will fall short of Wall Street estimates.

We will have to wait until after Bidu's 4^th quarter earning conference to find out which survey is more correct.

China’s video and music web site survey

My previous article on video can be found here:

http://chinese-net-gaming-stock.blogspot.com/2007/09/sohu-video-tv-stations-opened.html

On 1/21/2009, Analysys International published a survey on the most popular video and audio web sites for China』s internet café users. The article can be found here:

http://www.analysys.com.cn/web2007/ygfx_index.php/id_6167.html

The following plot list the market share of all the major video web sites for China』s internet café:

From the above plot, one can find the market share number for all the major web sites:

Todou: 46.8%

Youku: 44.3%

56: 10.2%

Ku6: 9.0%

QQ Video: 7.5%

Tencent Broadband: 5.1%

6: 4.2%

Youtube: 3.3%

Sina: 3.2%

Sohu: 2.1%

Analysys Internation also performed the survey for the most popular music web site frequented by China Internet Café users:

From the above chart, one can get the market share data for the major music web sites:

Bidu Music: 57.4%

QQ 163: 16.6%

Sogou Music: 12.8%

Gougou Music: 11.8%

From the above survey results, one can make some observations. For videos, it is basically a 2 horses race. Todou and Youko dominates. Tencent is coming on fast. Its two services (QQ video and Tencent broadband) together accounts for 12.6%. Since it is being pushed by its powerful QQ internet messaging service, there is no doubt its market share will keep on climbing.

Youtube is a non factor in China. China』s other portals, Sina and Sohu, are also non factors.

But I don't think China』s video war is over by any means. Running a video sharing web site is very costly business. At this point, no video web sites are making money. Given the global financial crisis, those non portal players are vulnerable for bleeding cash too fast. It will be interesting to see how this battle play out.

For the music business, Bidu dominate because it is the dominant search engine in China. Tencent is doing well because its can use its powerful QQ internet messaging service to push any services it wants. Sogou music search is strong because it has very good reputation among Chinese users.

China’s 2008 Internet advertising market survey

My last article related to the advertising market in China can be found below:

http://chinese-net-gaming-stock.blogspot.com/2009/01/chinese-optimistic-about-2009.html

I don't know much about Analysys International. I had seen quite a few survey results from Analysys on various subjects on China』s Internet industry recently. I would like follow their surveys to see if their surveys are accurate.

The following is the survey result from Analysys International:

http://www.analysys.com.cn/web2007/ygfx_index.php/id_6175.html

One can find the revenue and year over year growth rate in the following plot:

From the above plot, the revenue and YoY growth rate for 2008 can be listed:

1Q2008: 2.11084 billion and 54.5% growth rate

2Q2008: 2.80750 and 73.5%

3Q2008: 3.343 and 72.4%

4Q2008: 3.543 and 67.3%

If their survey is correct, we shall be seeing an incredibly strong 4Q2008 advertising revenue for SINA, SOHU, NTES, FMCN and BIDU.

Note that we have Olympics for the 2Q and 3Q. The 4Q2008 survey results are almost on the same level as those Olympics quarters. Even assuming 4Q2008 is a normal quarter, it is an amazing survey result. Now, considering that 4Q2008 is when the global financial crisis occurs, this result is a little hard to believe.

We will see how this survey results stack up when China』s internet companies report their 4Q2008 results.

China’s search market survey and BIDU’s 4Q estimate

My previous article on the state of China』s search market can be found here:

http://chinese-net-gaming-stock.blogspot.com/2008/07/iresearchs-2008-2nd-quarter-chinas.html

The following is a survey for 2008 China』s search market. It is from Analysys International. What is interesting is this is published before any companies published their 4^th quarter revenue. Therefore, we can calculate BIDU's revenue estimate based on this survey. One can find the survey in the following:

http://www.analysys.com.cn/web2007/hysj_index.php/id_6163.html

The following graph list the revenue and year over year growth rate for China』s search market:

From the above graph, the total revenue for 4Q2008 is 1.52577 billions rmb. It had a YoY growth rate of 62.2%.

The next plot has the market share data for all the search engines in China

I will list the data below:

BIDU: 62.2% (was 59.3% in 2007)

Google: 27.8% (was 23.4% in 2007)

Yahoo: 5.8% (was 11% in 2007)

Sogou: 0.9%

Zhongsou: 0.9%

Sina: 0.4%

Ntes: 0.4%

Soso: 0.6%

Others: 1.0%

Now, we are able to calculate the Bidu 4Q2008 revenue.

The total search revenue for 4Q2008 is 1.52577 billion. We have an exchange rate of 6.842 as of today. Bidu's market share is 62.6%. Thus, Bidu's 4Q2008 revenue is 1.52577*0.626/6.842 = 0.13871 = 138.71 millions in US dollars. This is the search revenue. Bidu typically adds 0.2 millions for others. Therefore, the total revenue is 138.73 million for 4Q2008.

The 4Q2007 revenue was 78.3 millions. Therefore, the 4Q2008 revenue of 138.7 millions represents a 77.1% YoY increase.

Yahoo finance site's analysts' estimate for the 4Q2008 is 132.48M. See the following:

http://finance.yahoo.com/q/ae?s=BIDU

Therefore, from this calculation derived from Analysys International's survey, we shall see a nice revenue surprise.

Now, in terms of overall search market, Bidu is doing very well. So is Google. Yahoo is losing ground badly. Everybody is basically at a noise level.

At this point, it is a race between 2 horses. I think the race is almost over. Others are just too far behind to catch up unless there are other factors at work. But I do think that 「other factors」 are going to be online soon.

I think there are two dark horses. One is Tencent's Soso search engine. At this point, soso uses google search. Therefore, Tencent is not pushing this service hard. But Tencent is developing its search engine. Once it is developed, it will be pushed by Tencent's powerful QQ IM service.

Another dark horse is the Sohu's sogou search engine. Sohu didn't push its Sogou search engine during the Olympics because it has a much more powerful weapon at its disposal. That weapon is called Sogou Chinese Input Pinyin method. That weapon is ready now and the battle is starting. I will spend some time talk about this exciting new development.

But other than these two dark horses, I think the search war in China is basically over.

Chinese web sites caught with pornography

Today, 1/5/2009, 7 separate department agencies announced that 19 Chinese internet companies have pornography on their web sites. See the following four articles on their announcement:
http://net.china.cn/qzl/txt/2009-01/05/content_2668340.htm
http://tech.sina.com.cn/i/2009-01-05/09442717376.shtml
http://tech.163.com/09/0105/13/4UT9U3UD000915BF.html
http://tech.163.com/09/0105/10/4USSOO07000915BF.html

19 web sites (and their offending departments) having porn contents are listed below:
1. Google. Web search and photo search. The company didn't remove pornographic contents even after been notified.
2. Baidu. Baidu Bar, Baidu Space and web search. The company didn't remove pornographic contents even after been notified.
3. Sina. Sina Album and Sina Blog. The company didn't remove the pornographic contents in a timely fashion after been notified.
4. Sohu. Sohu Album, Sohu Blog, and Sohu Forum. The company didn't remove the pornographic contents in a timely fashion after been notified.
5. Tencent. Photo search, QQ Album and QQ Space. The company didn't remove the pornographic contents in a timely fashion after been notified.
6. Ntes. Ntes Album. The company didn't remove the pornographic contents in a timely fashion after been notified.
7 to 19. 13 other very famous Chinese web sites. Most of the 13 internet companies didn't remove pornographic contents even after been notified.

First of all, it is a very strange announcement. Basically, 7 government agencies just pick the 19 most important internet companies in China and say that they have pornographic contents.

Rather than going after the real porn sites in China, they just pick the easy target. It seems like a big boss said 「We need to get rid of x-rated content in internet」. Therefore bureaucrats from 7 departments form a tiger team. Like all fumbling bureaucrats, rather than going after the real culprits, they just pick the 19 largest web sites in China.

Especially weird is their accusation against the portals. For Sina, Sohu, Tencents, and Ntes, they are not being accused of carrying pornographic contents. They are been accused of not taking down user-generated pornographic contents fast enough.

If that is the new standard, I don't think any web sites in the world can pass the test.

Well, I am not sure what those idiots from the seven bureaus want to accomplished. Without those 19 companies, there is no internet industry in China. There is no way other powerful government departments will tolerate that.

Note that the government notice didn't mention any thing specific about punishments. In the notice, they want the China Internet Association to do a better job to do 「industry self-regulation」.

Most likely, it will result in what Chinese called 「big thunder, no rain」, ie., a big hoopla about nothing. That way the 7 departments look good in front of their boss by going after the 19 biggest internet companies (in appearance only). The 19 companies give the bureaucrats some verbal commitment while nothing much really changed. Nobody will be hurt and nobody's interests will be affected, so that these 7 departments won't have to face any backlash.

Now, in the extremely unlikely circumstance that the government will close all the specific company departments mentioned in the government notice, let's see what the worse case scenarios are:

1. Most affected:
Google: They are search engine in China. Without web search, they are done in China.
Bidu: They are search engine in China. Without web search, they are done.

2. Some affect:
Sina: They are number 1 in Blog in China. They also make some money from Blogs. They will not be affected in any serious way even if they are forced to close down Blogs and Albums.
Tencent: They have a popular QQ Space. Again, similar to Sina, there will some some minimal though negative affect if they are forced to close down QQ Photo search, Album, and QQ Space.

3. Minimal affect:
Sohu: They are either number 2 or 3 in Blogs in China. But I don't think they got much (if any) money from Blog, Album, and Forum. I think they are still in the process in attracting viewers, thus they are not in monetization stage yet.

4. Silver lining
Ntes: I don't think Ntes make any money from Album. But they do spend money on severs and man-power to maintain those servers and to monitor illegal contents. If they are forced to close down the Album department, it would mean increased profit margin.

China’s WAP survey

My last post on the WVAS (Wireless Value Added Service) can be found here:
http://chinese-net-gaming-stock.blogspot.com/2008/04/td-scdma-cost-comparison-and-potential.html

iResearch had just released a survey on China’s WAP (Wireless Access Point) market. It can be found here:
http://www.iresearch.com.cn/html/consulting/WAP/DetailNews_id_84226.html

WVAS had been hammered badly in the last couple of years. But when all the bad news had been out, there is nowhere to go but up.

In addition, as China getting into 3G, the next frontier is in the area of mobile internet. Whoever has established a position on WAP would get the first bite of the big apple.

From the iResearch survey, its result can be summarized as follows:

QQ mobile (Tencent) has 34.9% of market
3G Portals have a combined market share of 18.5%
Sina mobile has a market share of 11.9%
Baidu mobile has a market share of 5.8%
China Mobile’s WAP has a market share of 5.0%

I was a little surprised at the strength of qq WAP. Sina had always been very strong in this area and this survey confirmed it.

This is going to be a very lucrative area in the next few years. In addition, as all the telecom operators busying re-organize, there will be a period of few years for other players such Sina, QQ and others to get established.

Sometimes iResearch’s survey can be inaccurate. But if this survey is accurate, QQ and Sina will be handsomely rewarded in the future. Sohu and Ntes need to start to get busy.

iResearch’s 2008 2nd quarter China’s search market

My last post on the iResearch survey can be found here:

http://chinese-net-gaming-stock.blogspot.com/2008/03/iresearchs-china-advertising-market.html

But that survey is not on China’s search market. Yesterday, it published a survey on the 2^nd quarter 2008 China’s search market. It can be found here:

http://www.iresearch.com.cn/html/consulting/search_engine/DetailNews_id_82891.html

Some basic result:

- China’s search market in 2Q2008 is $183 million dollars. It represents a 35.8% quarter over quarter growth and 96.7% growth year over year.

- Baidu has 62.8% of market

- Google has 26.2% of market

- Yahoo has 7.9% of market

- Sogou has 0.9% of market

- Zhongsou has 0.8% of market

- Sina has 0.3% of market

- Netease has 0.3% of market

It is interesting that a survey would be published right before all the Chinese companies would announce its 2^nd quarter earning. Either this survey is right or wrong. If it prove to be wrong from the upcoming earning announcements, iResearch is probably not a very good source of information. If it proves to be right, we would have a great source to know how the companies do just a few weeks before the earning announcements.

The following table gives the official 1st quarter result, the 2nd quarter estimate from iResearch, and the % increase quarter over quarter:

	1Q2008 search rev.	2Q rev. (estimate)	% increase
Baidu	81.7	114.9	40.6%
Sohu	1.6	1.65	0.3%
Sina	?	0.55	?
Netease	?	0.55	?

It predicted a search revenue for Baidu of 114.9 million for 2Q2008. Adds other revenue of about 0.2 million, we would have total revenue of $115.1 millions. It compares favorable to the average analysts estimate of $112.27 millions. If iResearch is right, we shall be a nice pop to Bidu’s stock price right after they announced their 2^nd quarter earning.

On the other hand, if iResearch is right, then Sohu’s Sogou is rather disappointing. It is so close to the Olympics and you would think Sogou would have gain since Sohu is an official Olympics sponsor and the producer of the official Olympics web site.

For Sina, they gave up on search already. For Netease, they might as well.

For course, I have no idea how accurate is iResearch. I will do a follow-up after all the companies announced their 2^nd quarter earning.