Interview with Alimama.com, one of the most popular online ads trading sites

Alibaba Group's online advertisement trading platform Alimama.com held a conference in Wuhan on June 28 for local small-and-medium-sized website owners to learn about how these website can make money by selling advertisement inventory via Alimama. Wuhan was the fourth stop on Alimama's nationwide conference tour in ten cities this year. Over 500 website owners had invitations to the conference, and there were many more people in the standing-room only crowd who showed up without invitations. Alimama's network includes 400,000 websites and 200,000 blogs with a total of 3 billion daily page views by the end of June.

JLM Pacific Epoch spoke with Alimama senior director Wang Yi, who is in charge of Alimama's strategic cooperation, during the conference.

JLM PE: Who are the major advertisers on Alimama?

There are basically three kinds of advertisers: First, advertisers who already have a lot of experience doing online ads; second, advertisers that are just starting to do new media ads and are allocating 5%-10% of their total ad budget to online; third, local advertisers, such as language training schools and cleaning companies, that only want to do very local ads.

JLM PE: How do advertisers buy online ad space via Alimama?

There are two ways to purchase ad space via Alimama. First, the direct or customer-to-customer (C2C) model, where advertisers design online ad campaigns and select ad space by themselves and make a transaction with a website publisher directly; Second, there is the business-to-customer (B2C) model, where Alimama puts together online ad inventory with a targeted audience, and then sells that to advertisers as a package. In this model, Alimama salespeople negotiate with potential advertisers and their agents.

JLM PE: Advertisers from which industries are purchasing the most ad space on Alimama?

The most popular sectors are IT and digital products, software and other Internet-based services, cosmetics, and women's underwear. Recently, training school, study abroad programs, and other private education institute are very active because students just finished their exams and have started the summer holiday.

JLM PE: There are over 400,000 websites and nearly 200,000 blogs offering 1.26 million ad spaces on Alimama. Are you guys finding that Alimama obeys the 80/20 rule, where 20% of the sites are generating 80% of ad spending or revenues?

It is actually more even for us. What Alimama wants to do is provide an opportunity for small websites scattered all over China to monetize their traffic; therefore, Alimama¡¯s model is designed to not let ad trading become centralized on a small portion of websites.

JLM PE: Of all the sites listed on Alimama, what portion has actually sold ad space via Alimama? Which percent have made money from the ads [some sites may run Alimama ads, but if there are no clicks on the ads, the site will not receive any revenue]? What portion of publishers can generate stable revenue from Alimama in the mid-to-long term?

Except for about 10% websites that are still in the verification process, all sites have had ads published on their site. The high percentage is because we have over 20 advertisers that have chosen to publish their ads on every single Alimama site. Of the 90% of sites that have run ads, 70% to 80% have actually made money. However, only 20% of the 90% can actually generate stable revenue from the ads.

JLM PE: Alimama provides different types of advertising sales models; which are the most popular?

There are five kinds of sales models on Alimama: cost-per-click (CPC), cost-per-time (CPT), cost-per-thousand impressions (CPM), cost-per-sale (CPS) and cost-per-action (CPA). Different advertisers prefer different kinds of ads. Large advertisers prefer CPM ads, while small advertisers like CPC and CPT ads. Since advertisers are afraid of click fraud, CPT is the best choice for most small advertisers currently.

We have a sales team in charge of CPS and CPA ads. Advertisers from the e-commerce sector prefer this kind of ads model. One of Alimama's CPS ads is called "Tao Ke Tui Guang", which is designed for Taobao sellers who want to purchase online ads to promote their Taobao store and listings. However, the service is not available to sellers of other C2C platform such as Eachnet and Paipai.

The B2C ads service "Quan Guo Lian Bo" is in CPM model, charged at cost-per-billion reach.

JLM PE: How much commission does Alimama charge for online ads sold via Alimama?

We charge a 10% commission on CPS ad "Tao Ke Tui Guang", and charge a 15% commission on CPC and CPM ads; there is no commission for CPT ads. However, we are considering not charging any commission for all ads through the C2C ads trading platform. Alimama will only charge for ads sold via the B2C platform.

JLM PE: Which advertisers use Alimama's B2C ads platform?

Alimama believe that clients of China's business-to-business (B2B) sites are a major potential group of advertisers for Alimama's B2C platform. For example, among Alibaba.com's B2B customers, there are over 10,000 companies with over RMB10 million in annual net profits just in Zhejiang province. The majority of them only buy offline ads currently. Alimama's ad service will be provided to these Alibaba.com's customers as a value-added service.

JLM PE: How much advertising budget do these Alibaba.com customers have on average for purchasing Alimama ads?

About RMB20,000 to RMB50,000 per campaign, with each campaign lasting a week on average.

How do you charge for the ads sold in B2C platform?

We purchase ad space on sites in a certain category or with a certain audience and pool them for sale to advertisers. We pay three to five times the quoted price to the publishers. We make money on the difference in price we charge to advertisers. Since we just started the model, there will be some ad space that we purchase but are unable to sell. We will spend RMB200 million to purchase and create different ad packages this year. Alimama will also help advertisers produce ads.

We have not determined price of these ads packages yet, and will not announce the prices publicly in the future.

Alimama is recruiting agents for the B2C platform; are there any special requirements?

Alimama does not plan to recruit a large number of agents; we are only recruiting agents in several major cities now. Most agents we have signed are already agents for Alibaba.com. The price of ad packages will be the same whether advertisers purchase from agents or from Alimama directly. Alimama will not give discounts to agents, but will pay them commissions after the sale. Alimama will work with large advertisers, such as Fortune 500 companies, directly.

Has Alimama started managing online ad sales for Alibaba Group's other websites after Alibaba Group merged its media sales department into Alimama?

Yes, Alimama is acting as the agent for online ad sales on Alibaba.com, Taobao.com, China Yahoo! and other Alibaba Group websites. However, this ad inventory is separate from Alimama's C2C and B2C platform. The CPM for ads on Alibaba.com's Chinese website is RMB10 to RMB20.

How will Alimama's online ad network in Internet cafes work?

We will be in 70,000, all in first and second-tier cities, of the over 120,000 legal Internet cafes in China. We will work with Internet cafe management software providers to place ads on Internet cafe PCs; we will not work with Internet cafe owners. Software management systems are installed on each PC in Internet cafes. There are three types of Internet cafe management software: software that calculates how much to charge users for using the computer; software that downloads online games and game updates; and third, software that provides movies, videos and music. Our online ads will be displayed through this software and we will pay the software providers.

Who will advertise on Alimama's Internet cafe advertising platform?

Currently, online game companies are the biggest advertisers on China's Internet cafe network followed by food and beverage brands. However, we entered this market because we see Internet cafes as a local media because their users are people who live near the cafe, so we think there is a big market for local advertisers, such as salons, massage parlors and restaurants.

What is the competition like between Baidu Union, Google Adsense and Alimama?

Many of China's small and medium website owners are using the three services simultaneously, as well as many other smaller online ad unions. It is a fact that many websites use Baidu for a large part of their advertising, because up to 80% of traffic for these sites can come from Baidu.

JLM PE: Many large advertisers prefer advertising on portals such as Sina and Sohu for brand awareness advertising. What is Alimama's advantage over the portals?

The audience for sites in the Alimama network is a good complement to that of the portals, and, with our database of sites, Alimama can offer a more targeted audience than the portals. One important reason that advertisers choose large portals instead of the thousands of small websites is because they simply can not find and talk with that many different sites. If there was someone who would find and package these websites for them, they would buy ad space on the small websites as well. Actually, Alimama does not want to compete for large advertisers that use the portals; we want to serve advertisers who do not have the budget to buy ads on portals or advertisers who have never tried buying online ads.

What is the relationship between Alimama and Focus Media's online ad subsidiary Allyes?

It's mainly one of cooperation. Allyes purchases ad inventory from Alimama and also sells its own unsold inventory from the portals via Alimama. Alimama and Allyes are the only two agents for Taobao.com's online ads. Allyes has established good relationships with and has rich experience selling ads for the big portals. Alimama has started talking with portals besides the four big portals (Sina, Sohu, Netease, Tencent), but we will try to establish cooperation with the big portals also in the future.

What are Alimama's future plans?

Alimama's initial mission is to become "China's largest online ad trading platform". Our mission now has changed to try to become "China's largest online trading platform for advertisements", which means that Alimama will be an online trading platform for both online ads and offline ads in the next three to five years.