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Hello America - China's economy overtakes Japan's in real terms

CHINA has become the world's second biggest economy according to data released on Monday August 16th. Japan's economy fell behind China's at market exchange rates in the second quarter (it has been number three in PPP terms for some time). These numbers are not strictly comparable: Japan's data have been seasonally adjusted while those for China have not. Quibbles aside, Japan will surely be eclipsed soon, if it has not been already. Data compiled by Angus Maddison, an economist who died earlier this year, suggest that China and India were the biggest economies in the world for almost all of the past 2000 years. Why they fell so far behind may be more of a mystery than why they are currently flourishing.

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Agencies' New Frontier: China Web Ads - Httpool Group on Track ;-)

Publicis, Interpublic to Launch Digital-Ad Buying Units in the Country, Hoping to Capitalize on a Fast-Growing Market. The world's largest advertising companies want to conquer a burgeoning territory: online-ad buying in China. Publicis Groupe SA and Interpublic Group of Cos., hoping to capitalize on projections for fast-paced growth in the country, are now planning to launch digital-ad buying units in China, company executives say.Most large advertising companies, like Publicis, have been investing in China for several years through acquisitions and partnerships—a move that provided a crucial buffer during the economic downturn in the U.S. and Europe. WPP PLC, in particular, has established a strong foothold in China by snapping up companies and aggressively pursuing partners for specialty areas. The next frontier is the business of buying online ads—a lucrative sector that has become a sophisticated business in the U.S. Advertising companies are looking to take their expertise and apply it to China's fast-growing digital market, where the Internet population now ranks as the largest in the world. The efforts are likely to face some hurdles though, ranging from technology issues to relations with the Chinese government. The total Chinese ad market is expected to grow 14.4% this year to $21.1 billion. Of that, Internet ad revenues are expected to reach $2.5 billion, up 25% from 2009, according to Interpublic's media agency Magna Global. In comparison, U.S. ad revenue will increase 3.4% this year to $138.9 billion, with Internet advertising growing 13% to $25.7 billion. WPP Chief Executive Martin Sorrell says one-third of the growth of the world's media market this year will be driven by business from China. From a scale and size perspective, China is the most important media market, he says. "China represents the bull's eye and digital is incredibly important," says Sir Martin. WPP and Omnicom Group Inc. both say they are on the prowl to acquire more digital-ad firms in the region. On Monday, WPP said it had acquired a minority stake in a Chinese digital-advertising measurement company.

[ADCHINA]

John Wren, chief executive of Omnicom, said on an earnings conference call Tuesday, referring to acquisitions: "We expect to see more activity going forward, especially in markets like Asia." Publicis's digital advertising group, VivaKi, is deploying advertising models it has developed in the U.S. for online search, display and video advertising in China, says Curt Hecht, chief executive of the digital-ad unit VivaKi Nerve Center. The company has formed a partnership with Shanghai-based technology company Menlo Technologies to develop a system that will allow marketers to buy advertisements from online exchanges that operate auctions to match ad buyers and sellers to ad spaces on websites. Advertisers will be able to specify whether to buy a particular ad and how much to pay for it based on data about the consumer visiting a particular Web page. Interpublic's media buying arm Mediabrands is in talks to acquire or establish a partnership with local online advertising companies to launch a similar initiative as Publicis, says Quentin George, chief digital officer at Mediabrands. Interpublic has trailed its rivals in investing in the China ad market. The companies face a number of hurdles. For one, online advertising technologies are still nascent and building a new architecture will take time. Online ad exchanges have yet to take hold in China, for instance. Most websites sell their ad space for a set time period. Other online advertising technologies are still developing, such as the existence of third-party companies to deliver online ads to websites. Ad executives say this limits marketers' ability to check whether their ads appeared online, analyze the results and capture data about their consumers. "There is nothing that competes with China in terms of the opportunity for scale. On the demand side, it is very high. On the actual doing stuff side—it is a lot more complicated than most people would like it to be," Interpublic's Mr. George says. Another hurdle could be relations with the Chinese government, as Google Inc.'s recent tensions with government officials over censorship requirements highlight. Google said earlier this year that it would phase out censored search deals with its Chinese partners. Though, Google recently said China would renew a license it needed to continue using its Chinese Web address, questions continue to linger over its future in the country. Google dominates the search advertising marketing in the U.S. But doing business in China means brokering relationships with a new set of Chinese-based digital players, such as search engine Baidu.com Inc. and Internet portal Tencent Inc. Despite projections for digital advertising in China, television also still drives the advertising market in the country as it remains the easiest way to reach audiences, executives say. "A lot of the emerging markets are still big TV markets," says James Dix, an analyst with Wedbush Securities. "But some of the emerging technology on the digital side could leapfrog traditional media."

Web 2.0 to China - Ok, Let’s Try This Again…

Yesterday, I had lunch with one of the top people in the Chinese Internet scene who said, “We have a saying here, ‘Internet multinationals all fail in China, Google was just the last one to go.’” As sayings go, that’s not especially catchy. But it is devastating. And true even if you count Google’s recent actions as a China morally-based forfeit. The stark truth is there are already more Chinese than Americans online and China is only at about 20% Internet penetration. And yet, so far, Yahoo is the only one to play this market well, by swapping its local assets and $1 billion for a 40% stake in Alibaba back in 2005.

But a funny thing has happened between my last trip to China in October of last year and my current trip. The Silicon Valley Web 2.0 gang has invaded. OK, “invaded” is the wrong word, it’s more like gingerly “waded into the pool.” Most of the entrants are being very cautious, staying below the radar with limited, hedged plans. But there is a clear trend of Web 2.0 testing the Chinese waters—and hoping it doesn’t make the mistake the first generation made.

The picture above– snapped at a Beijing newsstand where Scarlett Johansson and Sarah Jessica Parker were the only other faces I recognized– is a good metaphor for the kind of hey!-don’t-look-at-us!, easing-into-the-market approach the Web 2.0 generation is taking. (Note the word “metaphor.” I’m not implying Facebook planted this or even pitched the story to what I understand is an English language learning magazine.)

There is Playfish’s office, the Zynga acquisition of XPD Media and Hulu CEO Jason Killar’s recent visit to Beijing where he announced an impending China launch. Just last weekend Max Levchin of Slide hosted a developer day at the company’s Shanghai office. Who even knew Slide had a Shanghai office? (It’s interesting that Levchin grew up in Soviet Russia just like Google founder Sergey Brin but apparently doesn’t have the same hang up with the Chinese government.) Facebook is reportedly opening an office next and I spoke with several people over the last week who said they had gotten calls from headhunters.

Will Silicon Valley Web 2.0 companies do better than the 1.0 generation? It depends on what the community has learned from such abject failure. A few lessons seem obvious, judging by the new, more cautious approach.

Lesson #1: The Valley learned it can’t be cocky. No one is making bold statements about taking over the Chinese market the way Web 1.0 leaders did. I remember a keynote by Meg Whitman in the early 2000s where she boasted that the “Sun never sets on eBay,” so assured of its future in China. Yeah, that didn’t go so well. No one is swaggering into China with the same bravado today. China has developed more $1 billion-plus Internet companies than any other market and most of them started out as US copycats on features, where they excelled was in process, execution and business models. Today, Web entrepreneurs get that.

Lesson #2: It’s China’s house, you have to play by China’s rules. A lot of people hate this one, but it’s just reality. You know that scene in “Jerry Maguire” where Tom Cruise storms out of the office and says “WHO IS COMING WITH ME?” and pretty much only Renee Zellweger joins him? That’s pretty much what Google’s pull out of the China market in March was. Since that date, Web 2.0 companies have only upped their China hires.

Lesson #3: Hire first, launch later. Most of these offices are just development offices, taking advantage of local talent. But make no mistake: This is a savvy way to asses the market and build connections. Talent isn’t that cheap in Beijing and Shanghai relative to the rest of the emerging world and the price is escalating. Call it the Hulu model– the company had an R&D division in Bejing long before it announced its recent intention to actually launch service in China.

All-in-all these three lessons make for a smart strategy. China is the only country outside the United States that’s given birth to several billion-dollar-plus Internet companies and there’s some $20 billion in venture capital sloshing around this country, by some estimates, that’s anxious to find the next local crop. There’s no question there’s a lot of momentum investing here and a lot of these startups will fail. But whenever you have this much activity and 400 million people online, there will be more big hits too. This is simply not our market for the taking.

But where the Web 1.0 generation was too cocky, the question is whether the Web 2.0 generation is being too cautious. Online games and virtual goods are already big markets in China—bigger than in the US in fact. And there are already big local iterations of things like Facebook and Twitter. Is it already too late for some of these companies?

Clearly, the Valley is still trying to figure out how it plays in China. At least this generation is trying to learn, listen and make friends first and colonize later.

by Sarah Lacy via techcrunch.com

Magna: China Ad Recovery Faster Than Expected

Rebounding rabidly from the global downturn, China saw media advertising revenue jump 11.7% during the first quarter of the year, according to new data from Mediabrands' MAGNAGlobal.

For the full year, total ad revenues should rise by 14.4% -- up from 8.2% last year -- to $21.2 billion, forecasts MAGNAGlobal.

"With a resurgence of foreign investment and employment, China's greatest challenge is not around recovery, but preventing hyper growth and speculation," according to the MAGNAGlobal report. "Exponential increases in real estate pricing have skeptics pointing to a bubble, and China is increasingly facing pressure to moderate growth of exports through a lift on its currency peg."

While TV continues to dominate the nation in terms of media share, growth is most pronounced in digital in China with strong activity happening around emerging media.

Magazines, newspapers, radio and outdoor are expected to continue their double-digit growth, MAGNAGlobal forecasts. As a result, by 2013, China's media economy will be the world's second largest.

Growth in TV -- up by 12.7% in 2010 to $8.4 billion -- is fueled by the rising popularity of regional satellite channels catering to niche tastes. However, increasing regulations and restrictions are restraining that growth.

However, TV faces increasing pressure from online entertainment sources -- while totals for television continue to rise, the medium loses share as a part of the advertising-supported media sector as growth is limited by the government's tight control over the medium.

Within digital - the fastest growing sector of China's media industry -- search is expected to grow 30.9% in 2010 to $1.6 billion.

Google's exit from China solidified Baidu's dominance over the Chinese search market, allowing the search giant to post 59.6% growth in the first quarter of the year.

"While the lack of competition created by Google's departure may hinder expansion of the medium in the short term, the Chinese government's own search engine initiative may prove to be a competitor greater than Google," according to the MAGNAGlobal report.

While other governments around the world have attempted to create competing search engines in the past without commercial success, the Chinese government is more likely to succeed given the vast resources and clout its state owned enterprises currently hold.

Separately on Monday, MAGNAGlobal predicted that German media suppliers will collectively generate 3% growth to about $20 billion this year -- a better than an average "new normal" year based on unprecedented government intervention and easier comparisons to last, during which German media supplier advertising revenue declined 9%.

As in many countries, search will continue to dominate display as the primary online ad platform in Germany with about $2 billion in revenue this year. Overall, online is Germany's fastest growing medium, and MAGNAGlobal estimates it will continue to grow at above market rates through the year. As a result, online will likely account for 20% of total supplier revenues.