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China's mobile ad market: What you need to know to break into the Asian country

Nov 14,2013 by Francis Bea

inside china's mobile ad industry

We’ve recently announced our “Gateway to China” program that will help foreign developers break into China. But the announcement got us thinking. There are plenty of misconceptions about the mobile ad industry in China, not to mention that few foreign developers even know how it all works.

China is undoubtedly a tough nut to crack, and for those developers living and working outside of the Great Firewall of China, the country’s mobile advertising industry is shrouded in mystery. The Chinese market however is too large to ignore. You’ve probably even wondered to yourself one time or another, “What does the mobile advertising industry in China look like?”

Well, we’ll give you the lay of the land and show you what advertising in China is really like. If you aren’t from China, you’ll be surprised.

Yes, mobile advertising in China is fragmented

If the quintessential model of Android “fragmentation” needed a poster boy, China would be your best bet. The truth of the matter is that while mobile ad networks speckle the country and jockey for the title of “AdMob of China,” an ad network who’s managed to consolidate the disparate publishers including major Chinese tech and telecom companies like Baidu, Qihoo 360, Tencent, China Mobile have yet to emerge.

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At the end of the day, Baidu, Qihoo 360, Tencent, Kingsoft, and other Chinese companies have developed and supported their own in-house mobile ad “distribution channel” that includes an app store. Google Play on the other hand has just a 5.6% market share of China's app store market.

Note that I haven’t referred to these companies as “ad networks.” In China we call these ad publishers, “channels.” The reason is the fact that what mobile advertising really is like in China is not too dissimilar from a developer getting their mobile game published or even agency-mediated advertising.

What mobile advertising in China REALLY looks like

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When we think of mobile advertising, we think of an ad network providing a SDK that you download, while submitting ad creatives at the same time.  

China on the other hand is a totally different beast altogether.

I won’t brush off the fact that CPI and CPC does exist in the traditional sense. A company like Qihoo 360 for example will distribute an ad inside of one of its many proprietary apps and get paid by the advertiser on a per-acquisition basis. If you’ve ever downloaded any one of Qihoo’s apps before, you’ll notice a menu option that opens up an ad format that looks similar to a list ad format.

But generally, advertisers will have to approach these major channels individually and cut deals, similar to what an agency does. This means sitting down in a meeting room (or email/phone) with a business development person and negotiating favorable terms in a deal.

Oftentimes channels may require distribution exclusivity – especially if you’re coming to the table without brand recognition – for all ads published, and ask for 70% (more or less) of all revenue generated from the advertiser’s app (from in-app purchases). In exchange, these channels are responsible for what’s essentially the same thing as publishing your app in China. This may mean they’ll market your app, publish your app in the channel’s app store, promote your app via SNS platforms like Weibo, advertise your app inside of the channel’s proprietary app, or even aggressively push a desktop pop up to users who’ve connected their smartphones to their PCs that recommends users to download your app. The pro is that you won’t have to pay an upfront fee if you’ve negotiated a revenue share.

Of course each channel differs in how they approach the negotiation process. And the terms of the deal also differs on a case-by-case basis, but you should get the idea. The difficulties of breaking into China really is rooted in the coveted relationships with channels that many foreign developers don't have. Managing to get meetings and knowing what terms are or aren't favorable to you is made easier with the help of local partners that have ties to major channels.

Why developers are chasing after China, despite fragmentation

As daunting as promoting your app in China might appear, there are plenty more reasons Chinese traffic is in high demand.

A handful of major channels own most Chinese traffic

The major Chinese channels (including those I’ve mentioned above) are not surprisingly responsible for most of China’s traffic. For example, you’ll be hard pressed to find a smartphone owner who hasn’t downloaded a Qihoo 360 app, or a device that isn’t connected to Baidu. However the challenge is managing to cut deals with these publishers without limiting your reach.

There's an expansive network of smartphone owners

China mapMore importantly, the volume of traffic that you can potentially reach (if you play your cards right) is incomparable to anywhere else in the globe. And that’s a good thing. China boasts approximately 450 million smartphone owners, and an additional 450 million devices are projected to be shipped to China in 2014 according to the IDC. Combine reach and cost, you’ll realize that targeting China might be a great way to pick up a high volume of users quickly.

Acquiring Chinese users is affordable

One benefit to acquiring Chinese users that may catch your eye is that traffic from China is comparatively cheap. If you’ve cut a CPI deal, you may pay just $0.30 per install for Chinese users, as we’ve seen on AppFlood. Compare that to the minimum $1.10 bid for a user from the U.S. Or if you’ve settled for revenue share, you might pay nothing upfront at all.

China has quality users

FlagWearerBut if the cheap cost of acquiring a user isn’t an attractive proposition by itself, here’s some food for though. At least 90% of revenue generated by Chinese traffic comes from in-app purchases, according to Distimo. Ultimately the purpose of acquiring new users is to boost the number of users, but more importantly generate more revenue. So while most users in China aren’t going to end up spending any money in your app, there’s a pretty good chance you’ll bring on board “whales” that have been known to spend thousands and even hundreds of thousands of dollars on in-app purchases. After all monetizing your app from quality users is what you’re looking for.

Billing is no longer an issue

At the same time, more major ad networks are solving the problem of mobile payments through direct partnerships with China’s Big 3 telecom operators including China Mobile, China Telecom, and China Unicom. Credit cards aren’t a popular medium for facilitating online – especially mobile – transactions in China. In fact, carrier billing makes up between 75% and 90% of developer revenue. AppFlood is partnered directly with China Mobile and China Unicom for this very reason.

Then of course new alternatives like Alibaba’s Alipay, an online payment solution, and even mobile payment provider Fortumo, are beginning to gain steam in China.

Chinese channels can oust pirated copies of your app

Piracy is prevalent wherever you go, and Chinese app stores are no different. But if you manage to secure a relationship with an app store or one of the aforementioned channels, you’ll be glad to know that they’ll be willing to remove the infringing copycat from their distribution channels. That means no more lost traffic and revenue.

Consolidation of mobile advertising isn’t going to happen the way you expect it

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It’s hard to say whether the mobile ad industry is truly consolidating in the way that you’d expect it. And it’s too early to tell if an AdMob will emerge in China. To play the devil’s advocate, if you think about the state of the mobile ad industry in China, China’s major app distribution channels like Baidu, Tencent, Kingsoft, and Qihoo 360 have already grabbed the lion’s share of China’s traffic.

However there’s a demand for Chinese networks and mediators like AppFlood, Dianjoy, DoMob, MadHouse, and MobiSage that have managed to bridge the gap between China’s traffic and foreign developers. This might mean getting developer’s ads published in apps with Chinese traffic, or navigating China’s treacherous advertising waters and making deals directly with channels on behalf of foreign developers. This where AppFlood comes in.

If you're looking to break into China, learn more about PapayaMobile's "Gateway to China" program on AppFlood.

If you're interested in advertising in China or getting your app distributed in the country, you'll want to read "How to successfully get your app into China."

Francis Bea

Francis Bea is the Content Market Manager at PapayaMobile. Francis writes about the intricacies of the global mobile advertising industry and analyzes industry trends for AppFlood. He hails from the tech blogging world, where he got his start at Digital Trends, and contributed to TheNextWeb, PSFK, CNET Asia, among other tech blogs, and his reporting has been cited in numerous major publications. Francis holds B.A. in English and Art History from The University of Wisconsin-Madison.Google +