Online advertising surges to $11.7 billion

E-commerce companies become the 'most favoriate' platforms for ads

The turnover of China's online advertising market hit 73.1 billion yuan ($11.7 billion) last year, a jump of 48.4 percent compared with 2011, said an Analysys International report. Online search and electronic-commerce were the biggest contributors.

Internet search engines remained the major profit driver throughout the industry last year but, with the growth rate of Chinese people going online for the first time slowing, online search providers encountered difficulties transferring eyeballs into profits, said the report.

Baidu Inc, the provider of the country's most used search engine, took about 80 percent of the market share in terms of revenue last year, followed a long way behind by Google Inc and Sougou.com, said a separate Analysys International report. Both Google and Sougou took less than 20 percent of the total revenues in the search sector.

Baidu earned more than 22 billion yuan in advertising revenue last year, making it the country's most profitable online advertising platform. Google registered 17.2 billion yuan in advertising revenue during the same period.

Although Baidu was able to dominate the Internet search market in China, it is still worth noting the mounting threat from search engines specializing in the mobile Internet sector, analysts said.

Mobile Internet companies have become strong competitors in splitting traffic among traditional Web firms, said the report. Mobile Internet - as an emerging business - proved to be weak in monetizing the growing traffic.

The e-commerce sector was another major advertising platform in the industry.

Because of robust traffic to websites such as taobao.com and tmall.com, e-commerce companies became the "most favorite" platforms for advertisements, said Beijing-based consultancy iResearch Inc.

Taobao.com, the largest customer-to-customer retail website in the nation, registered more than 17 billion yuan in advertising revenue, making itself the second biggest online advertising platform after Baidu.

Data from China Internet Network Information Center showed that of the 564 million Internet population in China, about 400 million were online buyers.

Research from iResearch indicated e-commerce may contribute more revenue to the online advertising business. Roughly one-third of Internet-based advertising turnover will be generated by e-commerce companies by 2016, making the sector the biggest marketing platform.

The top position is currently dominated by search companies.

Advertisers started to pay more attention to the online video sector as more people started to use the Web to watch video content, according to the report.

The total revenue of the nation's online video market hit 9.25 billion yuan in 2012 with advertising revenue taking nearly 73 percent, iResearch estimated.

The company projected the market could be worth more than 33 billion yuan by 2016 and advertising income will take about 70 percent of the total revenue.

In the third quarter of last year, Youku.com, a video platform operated by Youku Tudou Inc, took more than 21 percent of the market measured by revenues, said Analysys International. Second-placed Iqiyi.com enjoyed 10.3 percent of the markets and Sohu.com ranked third with 10 percent.

However, most of China's Internet video websites are losing money, largely because of increasing operational costs and stiff industry competition.

Tencent Holdings Ltd, the country's No 1 Internet giant, pledged to spend more on content this year, including purchasing copyrights and making its own programs. The Shenzhen-based company expects to make a profit in a year or two despite its video arm only taking 6.5 percent of the market share in terms of revenue.

"The advertising price for China's online video sector is set to increase as more advertisers realize it is a strong platform for brand promotion because the video websites are able to reach as many as 450 million viewers in total," said Yan Huawen, an analyst with iResearch.

"Because there are more people watching online videos than using search engines, video became the nation's No 1 Web service last year. The earnings outlook will become optimistic in 2013," Yan added.

In addition, researchers found large portal sites will find it increasingly difficult to lure advertisers.

Portals such as Souhu.com and Sina.com earned around 2.5 billion yuan respectively from advertisers last year, far behind search engines and e-commerce platforms, according to the iResearch report.

Portal sites contributed 13 percent of the total Internet marketing revenues in 2012, but the proportion is likely to drop to less than 9 percent by 2016, it estimated.