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Google Finally Leads in China -- in App Ad Sales

August 21, 2012

Google Leads in App Ad Sales Amid Elusive Search in China

Google has failed to catch homegrown favorite Baidu Inc. in computer-based search, and two years ago moved its search servers out of the mainland in a censorship dispute with the government. Photographer: Keith Bedford/Bloomberg

After years of seeing its China strategy hobbled at almost every turn, Google Inc. (GOOG:US) has finally carved out a market niche where it’s the leader: ads aimed at mobile phone applications.

App developers and corporations such as Bayerische Motoren Werke AG (BMW) and Shanghai General Motors Co. (GM:US) are turning to Google’s AdMob unit to reach Chinese smartphone users on the go.

Google’s strength in mobile ads stands in contrast to its search-engine business in China. The global leader has failed to catch homegrown favorite Baidu Inc. (BIDU:US) in computer-based search, and two years ago Google moved its search servers out of the mainland in a censorship dispute with the government.

“Since 2010, Google has been trying many things to keep its presence in China,” said Steven Chang, chief executive officer of ZenithOptimedia’s China division, which buys advertising from Google and Baidu. “AdMob now has quite a significant share of the market.”

Revenue in China’s mobile-app ad market will probably more than double to about 1.8 billion yuan ($283 million) this year, exceeding the 1.2 billion yuan from mobile-search queries, according to iResearch.

In mobile-search advertising, queries from users generate related ads, while app-based marketing automatically sends ads to mobile users playing games, viewing videos, or using applications on smartphones and tablet computers.

Thousands of Developers

AdMob says it has more than 10,000 registered developers in China. The unit, which Google acquired for $750 million in 2010, says its servers get 7.9 billion requests a month to show ads to mobile-app users in the country.

China will overtake the U.S. as the world’s largest smartphone market this year, with shipments climbing 52 percent to 137 million, according to market researcher IDC.

AdMob’s key advantage is its reach across smartphone technologies, covering iPhones and iPads as well as Android devices, said Chen Haozhi, chief executive officer of Chukong Co., a maker of mobile games in Beijing.

Chukong, whose “Fishing Joy” game was ranked China’s most-popular for Android users in the first quarter by iResearch, is spending more than $1 million on advertising through AdMob this year, Chen said.

“Mobile advertising is better at targeting users than desktop-based ads because they can be more personalized,” he said.

Olympics Boost

Hylink Advertising Co. bought most of AdMob’s spots in China during the London Olympic Games to meet growing demand for mobile promotions, said Su Tong, chief executive officer of the digital marketing company.

The deal allowed Hylink to resell the space to clients such as BMW’s China unit and Shanghai General Motors, a Chinese venture of General Motors Co., Su said. The Google-run advertising includes a banner ad for GM’s Chevrolet brand, seen at the bottom of the screen in the mobile edition of China’s state-backed Global Times newspaper.

“At the moment, in the field of mobile Internet, Google has a clear advantage,” Su said. “The market is heading the way of mobile.”

Besides AdMob and search, Google also generates sales in China from its display advertising business, which helps clients market on the websites of partners such as Sina Corp.

Internet-search advertising contributed 96 percent of Google’s $38 billion revenue last year, according to data compiled by Bloomberg. Google, based in Mountain View, California, doesn’t break out earnings from mobile ads or revenue generated in China, where its main search business is overshadowed by Baidu’s.

Trailing Baidu

Beijing-based Baidu had 78.6 percent of China’s search- engine market by revenue in the second quarter, versus 15.7 percent for second-ranked Google, according to Analysys International.

Google began losing ground in China’s search-engine market in January 2010, when the company said it was no longer willing to comply with government regulations to self-censor Web content. Two months later, it began redirecting Chinese users of the Google.cn search-engine service to a Hong Kong site. The company has also been a target of hackers based in China.

Google’s leadership in Chinese mobile advertising faces a challenge from domestic rivals such as Baidu and Tencent Holdings Ltd. (700) as they develop services for smartphone users.

Baidu is working with developers to help them design and market apps and has yet to deploy resources “full scale” in app-based advertising, said Kaiser Kuo, a company spokesman. “Mobile search will continue to be important.”

Mobile search contributes as much as 4 percent to Baidu’s revenue, Nomura Holdings Inc. estimates. Kuo declined to comment on the figure.

Lack of Content

Baidu’s ability to generate revenue from mobile services is lower than that for PCs because of a relative lack of content and information on the Internet that is tailored for phone users, Chairman Robin Li said last month.

Tencent, China’s biggest Internet company, sells advertising on its mobile Web portal and platform for wireless apps. A small share of Tencent’s online advertising sales come from mobile, spokeswoman Jane Yip said without elaborating.

Google sends about five times as many phone ads to iPhone and iPad users as Domob, the closest competitor in China, according to iResearch.

In the researcher’s survey in March of 60 free mobile apps in Apple’s China App Store, almost 45 percent of ads displayed were generated by Google versus 9 percent for Domob.

“In app-based advertising, Google’s AdMob has an advantage,” said Ada Wang, an analyst at iResearch in Beijing. “The technology has developed longer and is being used in other markets.”

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net


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