Mediasmith's president and CEO reports on a "mind boggling" day one of ad:tech Shanghai.

I am not sure what I expected out of ad:tech Shanghai. But one thing for sure, just being here is mind boggling. Urban legend has it that over 70 percent of the building cranes in the world are in Shanghai. That may be close to true. Whatever the number is, this is a boom town. And China is definitely on the fast track to go from the third world to the first world, skipping the second. This is a very sophisticated city. All the best stores, great hotels and restaurants and easy to be in. The organizers went to the trouble to ask each person whether they were presenting in English or Mandarin. Then they rented headsets to everyone. True to form, the greeting was in Mandarin. Then the headsets went away and the translator has not had much business as the whole conference has been in English.

The internet? It is booming here too. The official internet population is over 100 million in China, which makes it the second most populous internet crowd in the world. More on that later. What is amazing is the penetration among young folks and the IM usage. There are several IM companies in China with 50 to 70 million unique users. MSN launched a few months ago and started with only IM and a shell website. Their IM is growing rapidly, but even though their site (by their own words) is nothing special, they have had cumulatively over 50 million uniques to their site since launch.

According to the recent Synovate “Young Asians Study 2005,” an astounding 39 percent of 16- to 24-year-olds media usage is spent online. That’s web and wireless IM combined. And wireless IM is huge here. It is a major component in the whole mix. The mobile web is driving a lot of growth and they are currently wrestling with the issues of audio and video attachments via IM, et cetera.

Web is growing rapidly

While China seems to be behind the United States with less than 10 percent of the population online, the way they are doing it is leapfrogging much of the rest of the world. In much the same way that South Korea, Japan and many other Asian countries are.

Over dinner last night, some of us were ruminating about the meaning of all of this. The numbers are sketchy as the web has snuck up on the researchers here and we don’t have the same documentation that we might in other markets. That said, check out these numbers: If there are over 100 million on the web right now in China from a documented standpoint, the number in actuality is much higher. At under 10 percent penetration, it stands to reason that whole family units (and China is definitely a place where extended family is under one roof), are using one PC and a single IP address. Add to that the extensive use of internet cafes. It is conceivable that the actual Chinese internet population has already surpassed the United States' and thus is the LARGEST in the world! And growing at a 20 percent clip each year.

The advertising angle

Ad sales in China are in the early stages. Everyone wants the home page of the portals. So you might see 15 ads on a home page as they want to be able to see their ads at all times. As such, many of the buys here are not impression based but time based. (I call it CEO targeting.) CPM purchasing, combined with buying the long tail will come in time, but not right away. Right now it is all about real estate. In Hong Kong, 60 percent of the people are online but it still only represents one to two percent of ad spending. And, it is clear that multi-national companies are still learning how to tailor messaging for each country in Asia, all of which represent unique markets. Pay for performance is growing but many companies do not yet have good metrics or goals in place so the hybrid buy is common in performance marketing.

Six hundred people are expected to attend the conference and trade show and the expectations are definitely aspirational. The best and the brightest of the U.S. internet brain trust are here to discuss our process and educate. But the Chinese and HK agencies are quick to point out the differences over here and are proud of their rapid growth and accomplishments. And there is the predictable battle between the big multi-national U.S. and Europe-centric agencies (with their traditional media strategies) vs. the local, internet-centric work done by the domestic companies. And TV and radio are still growing here, too. Print, however is predicted to have a hard time over the next several years.

The local Interactive agencies are open about their needs for talent. And they are not parochial about it. There are more than a few westerners making their mark alongside Chinese counterparts. The future is indeed bright here. To paraphrase one speaker yesterday, internet oxygen is driving the consumers and the marketplace.

David L. Smith is CEO of Mediasmith, an Integrated Media Agency based in San Francisco. He speaks regularly at industry events including ad:tech and iMedia.