China's online ad income soars

China's online ad market is expected to grow at least 30 per cent this year

China's online advertising market is growing strongly, according to the latest financial filings by local internet companies.

The country's online ad market was worth almost $120m last year, and is expected to grow at least 30 per cent this year, analysts predict.

Illustrating this trend, Tencent reported that its online advertising revenue more than doubled year on year, nearing $5m in the fourth quarter and surpassing $14m for the whole year. The company's total 2005 revenues were $176.8m, up 24 per cent year on year. 

Tencent operates a plethora of internet and mobile phone services in China, including instant messaging, a web portal, games, social networking, auctions and a newly-introduced search engine. Most of these are marketed under its very popular QQ brand.

China's relatively affluent urban young are particularly attractive to advertisers, analysts believe.

"Tencent's advertising grew 8.6 per cent quarter-on-quarter over a strong third quarter of 2005," commented Deutsche Bank analysts in a research note released on Friday. 

"This was on the back of a general industry uptake and the attractiveness of Tencent's young QQ community to advertisers in IT, games, e-commerce, telecoms and electronics."

According to research firm Analysys International, China's online ad market generated almost $120m last year. Of this, $80.5m was from online banner and button ads, and $27m from keyword programmes like Google's AdWords.

The market will continue to grow 30 per cent each year for at least the next three years, Analysys International forecasts. However, the research firm warned that competition will intensify as the size of the market attracts new entrants.

As a result, Analysys predicts that website operators will soon face increasing pressure to introduce more pay-for-performance advertising, similar to Google AdWords, in which they only receive payment from the advertiser when a user clicks on an ad and visits the advertiser's site.