China's Tixa.com says contextual online ads to double by 2006

China's online contextual advertising spending is expected to double to 100 mln yuan by next year from 2005, Tixa.com chief executive Forrest Zhang told XFN-Asia.

"The market size for contextual ads right now is 50 mln yuan per year, and it is expected to grow to about 100 mln in 2006," Zhang said.

"In 2009 it will grow to about 700 to 800 mln yuan and will account for about 30 pct of the whole online advertising space," he added.

Contextual ads are ads which are chosen to match web page's content, so that, for example, a user surfing for information on cars would see ads for car dealerships, car insurance insurance or car-related magazines.

Beijing-based Tixa.com's core business is its NarrowAd product, which uses in-house technology to provide contextual ads on its affiliate network of over 1,000 of China's most-visited websites, including heavy hitters Sina.com, NetEase.com, and Tom Online.

"For the NarrowAd services... we say we can cover 90 pct of all the Internet users in China," Zhang said.

The majority of online advertising, such as banner ads, do not reach their target audience, said Zhang.

He said the click-through rate (CTR) - a measurement of how many users click on an advertisement - for banner ads is around 0.1 pct.

"That means that 99.9 pct of the advertisement, while you cannot say is totally wasted, is mostly shown to the wrong audience at the wrong time at the wrong place," Zhang said.

As a result, contextual ads typically have a CTR 10 times higher than non-contextual ads, according to Zhang, citing company data.

In its first quarter earnings statement, US auction site Google.com, said that revenues generated on its partner sites through its contextual ads product, AdSense, reached 584 mln usd, or 47 pct of the firm's total revenues.

Zhang said its contextual ad's high CTR in tandem with Tixa's pay-per-click payment scheme, have proven attractive for small- and medium-sized businesses who have tighter budgets than their larger competitors.

"For small- and medium-sized companies, they have to deliver their ads to the right people, so these are the customers that we target at first," Zhang said.

The company charges approximately 0.2 yuan for each click, said Zhang, adding that other online advertising companies charged two to four yuan per click.

Zhang said the firm's lower charges helped it to post a revenue growth of 30 pct each month since Tixa.com's launch of NarrowAd last October. He did not provide more detailed figures.

Zhang added that he did not expect contextual ads to eclipse more traditional online ads, such as banner ads, which help in brand-building.

He said the firm was looking for customers with a global reach. It is currently in talks with Dell Inc and Lenovo Group Ltd about advertising through Tixa's affiliate network, according to Zhang.

While Tixa will face stiff competition from global competitors Google and Yahoo Inc -- both have a contextual ad product -- Tixa.com's local status will give it an edge over its competitors, Zhang said.

Chinese government-supported websites, such as Tixa affiliate Xinhuanet.com, are more inclined to sign on with a Chinese company than a foreign player. In addition, China's major search engines are less inclined to use a competitor's technology for contextual advertising, according to Zhang.

But others are less upbeat about the outlook for domestic firms in China's contextual ad space.

"Many domestic players have joined the battle, most of them are search engines. Local resources and experience will help some of them to survive, but the challenge is huge," said Joe Zhou, an analyst with Beijing IT-research firm Analysys International.

"But we are optimistic about the future of contextual ads," he said, adding that he expects contextual advertising to account for 25 pct of all online ad spending in five years.

Source: AFX