Guest Post: major growth ahead for mobile advertising in China, but fragmentation looms

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Editor’s Note: Mingge Ma is the Head of Advertising of CocoaChina. Prior to CocoaChina, Ma led the development of ad delivery and targeting systems at Yoyi, a major Chinese online advertising firm. Ma also held a senior technical position at Youku, responsible for their video transcoding and advertising systems.

With the rapid adoption of smartphones by consumers around the world – 87 percent of the world’s population used mobile Internet by the end of 2011 – there is an ever-increasing demand for mobile apps. Currently, there are over 700,000 mobile apps available worldwide, which have been downloaded over 100 billion times. Instead of traditional desktop and laptop computers, people are quickly adapting to using their mobile phones to access the Internet and use apps, and they’re spending longer periods of time doing it.

With the growth smartphone and mobile apps, we are witnessing a diverse and rich ecosystem take hold in the mobile advertising space. As China represents an exploding market, let’s take a closer look.

An industry in its infancy

iResearch results showed China’s mobile advertising market was valued at 1.74 billion RMB (~$273 million) in 2010, a 93.3 percent increase from the year before. In 2012, analysts predict the overall size of China’s mobile advertising market will be worth up to 5.52 billion RMB (~$867 million). Chinese smartphone users have downloaded more than three billion mobile apps, and downloads are expected to reach beyond 20 billion in the future.

The red line in the chart below details the year-over-year change of China’s mobile ad market size. The market has increased 73 percent since 2011.

It is evident this market will grow considerably larger than the traditional Internet advertising market. However, with the high demand for mobile Internet comes the lower cost of producing smartphone devices and the proliferation of various types of devices. Unfortunately, this results in major fragmentation of devices and apps, particularly on the Android platform.

Fragmented Android market poses challenges for ad operations

To give you a sense of the fragmentation in the Chinese smartphone market, a game utilizing the simplest touch feature could potentially be played on 3,878 different devices (including iOS) in China. Imagine the different processors, devices, sizes, and screen resolutions advertisers must deal with. Ad specifications are in no way standardized as they are for traditional Internet advertising. Ad images must be dynamically allocated, which requires the advertising system to be extremely flexible. Targeting is based on a variety of different resolutions, and CPU processing capacity factors in to the optimization of the advertising image so that users see the most appropriate ad images.

The same ad image may appear fuzzy on one mobile device and clear on another, but take up significant CPU processing power and dramatically slowing down the speed of the program the user is using. This could have grave consequences for developers because over time, users might get impatient with the slow speed and ultimately uninstall the app. iOS obviously has less devices, is relatively more easy to deal with and benefits everyone including the advertising platform, developers, advertisers, and users.

We believe the market in China will grow considerably larger than the traditional Internet even though challenged by fragmentation of devices, app stores and apps. Increasingly, the mobile ad market will become strategically important for international ad platforms, agencies, and advertisers hoping to reach Chinese consumers