Recent comments by Chinese research firm Analysys International cast doubt over the short- to medium-term growth prospects of the Chinese search engine marketing sector.
According to Analysys International, dissatisfaction with search engines in China – both from the searcher and advertiser sides – is rife, resulting in a reluctance of small and medium-sized companies to use pay-per-click advertising.
During the recent Search Engine Strategies conference held in Nanjing, China, last month, Edward Yu, CEO of Analysys International, stated: “China’s search engine industry will face a sharp slowdown in the coming 18 months. The actual performance of search engines is far from people’s high expectations. Poor user experience, unstable advertising effects, and some irregular channel operations make the small and midsize enterprise customers of search engines suspicious of this new kind of advertising, which will lead to a slowdown in the growth of the search engine industry.”
This slowdown, however, is only expected to be temporary, with the acceptance of paid search engine advertising growing amongst small and midsize companies as the usability and relevance of search engines and the reliability of advertising platforms increases.
After all, the growth potential of the Chinese search engine industry is phenomenal. China currently only has an Internet penetration of less than 10%. With a population of 1.3 billion, this still means that close to 120 million Chinese are online, and 800,000 new Internet users go online every single week.
One of the biggest challenges to doing business online in China is the fact that China continues to be a very cash-based economy and only a small fraction of Chinese have credit cards. Still, e-commerce sales reached over US$68 billion in China in 2005 (up 58% compared to 2004), helped along by the introduction of the PayPal and Alipay payment systems.
For Western companies, market entry into China can be daunting – cultural differences, a maze of regulations, risks to intellectual property and patchy infrastructure all pose significant challenges. However, investment-friendly revisions to Chinese company law and anticipated policy changes lifting restrictions on the importation of goods to China should increase the attractiveness of China as a market for small and medium enterprises.
January’s BusinessWeek article “Meet the Small-Biz-Friendly China” contains some inspiring examples of successful small businesses, and the US-China Chamber of Commerce has resources aimed especially at small businesses interested in operating in China.