Chinese Chicken and the Egg
Last year, one of the predictions we made was that someone would create the X10 equivalent for Chinese traffic. Someone would create the ad that would not only monetize any remnant but signal a new dawn of advertising. With so much growth going on in the country, it seems a matter of when, not if, the first really big ad campaign to help monetize Chinese traffic will take shape. Unfortunately it didn’t happen in 2006, and while it still seems so promising, it might not happen this year either. As of this moment, the Chinese marketers don’t want our Chinese traffic, and the small number of CPA programs that will accept Chinese traffic barely make a dent in the overall inventory. From a US perspective, it doesn’t make much sense. But, therein lies the problem. Approaching Asia from an American or Western point of view won’t work.
International monetization might not have seen the light of day last year, but that pales in comparison to other failures of Westernism, chief among them Google, Yahoo, and eBay. Arguably among, if not, the three most significant Internet entities, each has thus far failed to capture market share on its own. Google has become second to local search engine Baidu; Yahoo invested in Alibaba rather than continue solo, and most recently, eBay announced a withdrawal from the Chinese market. Except for eBay, the others have done well, but they haven’t done as well as they thought they would. If you’ve checked the valuation of Baidu, you know the answer to this must stem from something other than a lack of opportunity. It most likely comes from a lack of understanding what makes up the opportunity, the Chinese market.
As a friend of mine says, you can’t figure out China from the United States. And, even if you go to China, you can’t figure it out with a US mentality. You can do very well by taking proven Internet models to China, but you must do more than make them in Chinese. If a foreigner tries to enter the Chinese market without a local presence, continues the wisdom of my mainland friend, it doesn’t matter what comes first – the chicken or the egg, you (the foreigner) won’t be able to tell which is the chicken and which is the egg.
Not having a true understanding of the Chinese market accounts for only a partial explanation. The other piece stems perhaps from many companies not understanding their Chinese competitors, namely underestimating what those within China can build – their level of sophistication and ambition. For years, China only made cheap stuff; goods that cost less but defined the saying you get what you pay for. Today, China still makes cheaper stuff, but unlike years past, knowing that a product came from China has nothing to do with its quality. So much has changed that those under 30 most likely do not even remember the "old" Chinese goods. That is how much has changed, and as a result, how ubiquitous their manufacturing is.
The cost of labor might have attracted much of the early manufacturing work, but in order for China to keep that work and attract more, it had to become competitive in areas outside of price. It’s the biggest paid internship in the world. Companies have paid China to become better, helping improve the way they do business. They have paid China to become as good as they are. As a result, China has one of the most skilled workforces for making some of the most desirable goods. Is it any surprise that some entrepreneurs have decided to simply start their own brands rather than act as the behind the scenes players? While not a serious threat for most products (curious though that they call their domestic car brand Chery), I would not want to bet against them.
The lesson here is not just that China presents a large opportunity; it’s that China presents a real opportunity and that means taking it seriously in terms of understanding the market and understanding the ever-increasing spirit of capitalism driven by the most powerful force of all, the desire to prove to the world they can compete. By no means is it too late to enter China nor should you stay away; just make sure to have some good local allies and be ready for a good fight.
