Online Advertising Potential

In past commentaries, I wrote about the investment opportunities in China and the need to have some capital invested there. GDP growth is stellar and the country is seeing growth opportunities across many areas from commodities to staples to technology. It was just released that advertisers spent $190 million on online ads in China for the period from May to July 2006, according to online-research company Nielsen/NetRatings. The report said the expenditure represented a mere 3% of the total amount spent on advertising in China during the three-month period. In the United States, spending on online ads represent 6% of total advertising.

 The numbers indicate that there is vast growth potential in online advertising in China. Consider that China currently has the second highest number of Internet users in the world, trailing only the United States. China had about 111 million Internet users in 2005, according to the China Internet Network Information Centre. Broadband in China is also on the rise, with broadband access surging over 50% year-over-year in 2005 to 64 million, according to China Internet Network.

 Given these types of growth metrics, the trend for online advertising in China is something that could generate some strong growth possibilities for some major U.S. Internet companies such as Google Inc. (NASDAQ/GOOG), Microsoft Corp. (NASDAQ/MSFT), and Yahoo! Inc. (NASDAQ/YHOO), all of which have a growing presence in China in spite of the censorship restrictions existing there.

 The projection for the online advertising market in China calls for it to rise to $258 million for the first half of 2006 and rise to $575 million by year-end, according to China-based iResearch. The 2006 estimate represent year-over-year growth of about 47% over the approximate $390 million in 2005 and about 800% over that of 2001.

 The growth potential cannot be ignored. The question is can major U.S. Internet companies break through successfully? While it may be difficult to emulate the success in the U.S., don’t ignore the potential in China in online advertising.