I recently was in Beijing to moderate the keynote session for ad: tech’s Beijing digital marketing conference. I sit on ad: tech’s Board of Advisorsout here along with Michael Tong, COO of Netease (NASDAQ:NTES), SY Kau EVP of Tencent, and Chris Reiterman, President of Ogilvy One China, (NASDAQ:WPPGY). It is a fun time going to these conferences as 2000+ people show up, so it is a great place to catch up with old friends and to network.
Aside from the social aspects, there were some very good take-aways from the conference that bode well for investors in many Chinese stocks as it is clear the boom in advertising will continue well-beyond the Olympics, as I wrote about in Knowledge Wharton a few months ago.
1) Most marketers like Johnson & Johnson (NYSE:JNJ) view the Beijing Olympics as just part of a long-term marketing campaign in China. In other words, marketing budgets for China are going up but will not drop after the Olympics as some skeptics argue as companies want to target China’s emerging 250 million strong middle class. With companies like KFC (NYSE:YUM) making considerable profits in China, MNCs are not going to reduce marketing expenditures here in the near-term post-Olympics. Advertising companies JC Decaux, Focus Media (NASDAQ:FMCN), and Clear Media all can take advantage of these increased expenditures as can the service companies like WPP who help MNCs figure out how to tap into the wallets of Chinese consumers.
2) Many companies are starting to allocate more money to internet and mobile phone advertising in China as a ratio than they do in other parts of the world in order to tap into Chinese youth consumers. My firm estimates that there are now 176 million internet users, with over 65% of them between the ages of 18 and 28 with the majority spending 20+ hours a week online. Chinese youth spend more time online than they doing watching TV as Chinese TV is just too boring.
Chinese baby boomers are a core target for companies like Pepsi (NYSE:PEP), Motorola (MOT) and Nike (NIKE) who will continue to spend add dollars here on the internet and on mobile phones. China Mobile (NYSE:CHL) and China Unicom (NYSE:CHU) will be the big beneficiary for mobile phone advertising as marketers try to leverage China’s nearly 500 million mobile phone users.
3) Many start-up internet companies are sprouting up and trying to take advantage of the increase marketing dollars being allocated in the sector. However, the ones that command the eyeballs, like a Sina (NASDAQ:SINA) or QQ will do the best and squeeze out the smaller players. Investors should keep their eyes on those companies that have and continue to have the stickiness factor – i.e. the reasons for consumers to keep coming back. With Sina’s strong lead in blogs and QQ’s instant messaging and game communities, look for these two players to continue to attract ad dollars. I just do not see the smaller players being able to make much headway as everyone is trying to make money through ad sales.
4) Marketers have tended to prefer to work with Netease and QQ because they call the teams “more professional” and “easier to work with” than some of the other firms based on interviews I conducted at ad: tech. While more dollars are being spent on Baidu (NASDAQ:BIDU), many executives complain at how “difficult it is to work with them” and they “never get responses” from Baidu’s sales team, even when it is a Fortune 500 company. Baidu really needs to work on improving their client service if they are going to continue to sustain their absurdly high valuation right now. While Baidu is a pretty good company, it is no Google (NASDAQ:GOOG) and Google continues to make great strides in China.
Sohu (NASDAQ:SOHU) also got low marks from many executives for being “difficult” to work with even though most companies still “expect to allocate more money to Sohu” because they do get a lot of web hits.
All in all, the conference showed that the digital marketing sector is still going to be hot in China going forward well past the Olympics. It is just too short-sighted for pundits to argue that China’s economy will somehow collapse after the Olympics. China’s economic growth is for real and smart investors will look at companies with the best exposure to attract digital marketing dollars.
Disclosure: Shaun Rein owns shares in Focus Media, China Mobile.