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China

Bill Bishop’s estimate of 2007 China Internet Advertising Revenue

By thomascrampton ⋅ October 28, 2007 ⋅ Post a comment

Aiming to settle the discussion on this blog about Chinese Internet advertising statistics, Bill Bishop offers numbers he compiled from the annual reports of publicly listed Chinese Internet companies.

To Bishop, his numbers (shown and explained below) prove at most US$850 million in Chinese Internet ad revenue for 2007, significantly less than the US$1.3 billion (10 billion RMB) predicted by Nielsen Online.

Update on Nov 8 with context: Research firm eMarketer this week forecast spending on Internet advertising in the US will surpass $21 billion this year and double by 2011.

Anyone else have an estimate?

Picture 47

Based on his experience in the China market
Bishops was a cofounder of www.marketwatch.com and ran the consumer internet business, including ad sales, from 2002-2004, when we sold to dow jones for 500m. His current company, Red Mushroom, is doing Baobao Bengbeng, the kids virtual world, that will eventually have advertising.

Bishop criticizes Nielsen Online’s calculation method
“They are counting the number of ads they see, multiplying by some discount off of rate card, and extrapolating the size of the whole market. Unless they disclose what discount to rate card they are using, whether they apply it universally or have site-specific discounts, I think their numbers are not too credible. So many deals are barter, or, in the case of someone like China Mobile (regularly listed as one of the top online advertisers), gifts to keep China Mobile if the site has wireless services like ringtones, etc,” Bishop said.

warns that the current lack of data hurts development of China’s Internet
“Chinese publishers are hurting themselves by not working together to come up with legitimate usage metrics. In spite of the massive internet market here (172 million at last count), how many are desirable consumers for the big brands advertising online?” Bishop said.

offers an alternate calculation method
“I have been tracking the ad revenue for the public internet companies in the attached spreadsheet. The numbers are what have been reported thru q2 2007, then estimates (with the exception of the Baidu number) for q3 and q4. Even in the most bullish fantasies i don’t see how 1.2 billion is possible, barring a 30% rmb revaluation. I believe that 90%+ of online ad spend goes to the top handful of portals. Even if you assume that the public guys are only getting 70% of the overall ad pie, you are still looking at US$850 million or so for 2007, and that is very very aggressive,” Bishop said.

that has self-confessed shortcomings
“Yes, it is missing Google and Yahoo China revenue. I have no idea what Google china revenue is, but I would guess they are somewhere around a quarter of Baidu’s given their lower share, weaker distributor network, and less aggressive monetization tactics (they do not comingle ads in search results like Baidu). Yahoo China is also a total guess. I believe it is doing under 20m in real ad revenue,” Bishop said.

Bill Bishop’s underlying numbers (Click here for a full sized version)

Picture 49

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Discussion

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  • thomascrampton
    @Jan: You can check out that number with Bill Bishop's estimates above.
  • In a paper I wrote in february 2006 the figures I used were usd 500 million for online ad spend and usd 50 billion for total adspend in China. Only was roughly 1% fo that total. I wonder whether the authors have any idea what the total ad spend this year should be?
  • (Youtube is back)

    Krapax.
  • mark simon
    So in other words, if you take all of the most optimistic projections of Chinese internet ad revenue you still get about one month of the Guangzhou province print market.
  • thomascrampton
    Scott,

    Yes, I did make a typo on the currency in an early version of the posting (now corrected).

    Thanks for the detailed analysis that combines iResearch data with Bill Bishop's methods to arrive at Morgan Stanley's results!

    Does iResearch have their own market size estimate? Anybody out there know the right person at iResearch for this data?

    Be interesting to do a league table.

    Tom
  • I think you've got your currencies mixed up? I'm assuming Bill's numbers are actually in US$ so it would be RMB6.3bn which is in line with Groupm's (WPP's media division) prediction of RMB6.2bn. Totally agree with Bill's critique of Nielsen's methodology.

    As for the other data points in Bill's analysis I think i saw some research from iResearch which said the major portals (assume Bill's Big 6) now account for 60% of online ad revenue with major verticals such as PConline etc taking 25% and the rest taking 14%.

    On the 07 predictions he makes I had a look back at Richard Ji's (Morgan Stanley)predictions for these companies in 07 and the totals were as follows:

    Netease: $35m in advertising in 07, $50m in 08.
    Shanda: he doesn't break out ad revenue
    Sina: $170m in 07, $263m in 08
    Sohu: $119m in 07, $170m in 08
    Tencent: $67m in 07, $128m in 08
    Baidu: $229m in 07, $427m in 08
    Tom - not covered

    So actually using Richard's numbers and Bill's methodology you actually get close to RMB7bn, even if you use the iResearch 60% share figure (which I may be remembering wrongly) you get RMB8.15bn still short of Nielsen's ambitious target.

    Hope the above helps.
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Thomas Crampton was a correspondent for the International Herald Tribune and The New York Times for more than a decade, reporting from five continents, writing a column on Asia and covering Asian politics, economics and culture. Currently based in Hong Kong, he writes here about China, the Internet and New Media seen from Asia, while also advising companies on digital communication strategies. For more information click here...