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E-Link Age COO Talks Baidu, Google and SEM
 Tony Miao started working at Microsoft (Nasdaq:MSFT) China after graduating from TongJi University and worked with Google (Nasdaq:GOOG) China’s AdWords team in August 2005. At that time, Miao worked on various projects including online optimization for Google China’s then biggest client Taobao.com. JLM Pacific Epoch recently spoke with Miao, who is now the chief operating officer of search engine marketing (SEM) company E-Link Age, to gain insight into the SEM industry and his five-year-old firm.
When was E-link Age established, and how big is the company today?
E-link Age was established in 2004 to provide public relations services via traditional media channels. I joined E-link Age last year to help the company develop its search engine marketing (SEM) business. SEM includes pay-per-click ads and search engine optimization (SEO). We also develop other online marketing forms such as email delivery marketing.
Currently, we have 10 employees, with three people working on SEO and an independent technology team. Our three SEO leaders each go on two client site visits per month.
Can you talk about your clients and charging model?
We have two kinds of clients. Those who want to boost their site traffic and those who want to promote their brand. For websites, we do appraisals of site structure, code, KPI, etc. For brand clients, we mostly focus on SEO.
Each of our clients tends to work with us for about one year.
We started out by charging a 15% service fee, compared to the 30% fee charged overseas, but gradually brought it up to 20% through value-added services. Currently, few SEOs in China are using the service-plus-value-added-service charging model. Some Baidu (Nasdaq:BIDU) and Google (Nasdaq:GOOG) ad agents also charge service fees, but they are small fees that are hard to collect.
We heard that Google's agency discounts are higher than those offered by Baidu to agents that sell both Google and Baidu services. Is that true?
Not exactly. Baidu offers different rates to its agents based on how much direct contact they have with Baidu. Agents working directly with Baidu get a discount of up to 50%, whereas second- and third-tier agents get progressively lower discounts.
Google China offers a base commission to all of its agents and adjusts the rate according to sales performance. In that way, Google agents have more pressure to meet sales targets, which are currently RMB 3 million per month from new and existing clients combined.
So which model do you use?
We do not have a sales team. Instead, we rely on referrals from partners including PR firms like Ogilvy and Dentsu and traditional media such as United Business Media and 21st Century Business Herald.
Are you partnered with Baidu or Google?
We do pay-per-click ads for both Baidu and Google. I’m not too familiar with the Baidu team but have good relations with Google China. I usually fly to Beijing once a month to meet with their team. Google China has more than 30 employees in Shanghai, half of which work for the technology department, but all of their customer service employees, which take up about one floor, are located at their headquarters in Beijing. The company divides its sales department into big clients, resellers and online. As far as I know, Google China defines 'big clients' as Fortune 500 companies with a daily budget of at least RMB 1,500 and sustainable growth outlook.
Chinese media recently reported that The9 (Nasdaq:NCTY) purchased the "World of Warcaft" (WoW) keyword to advertise its non-WoW games on Google China after it had lost its license on WoW to NetEase (Nasdaq:NTES). Is that sort of marketing par for the course?
It is legal and fair competition so long as the listed ads themselves do not use the "World of Warcarft" brand. Companies can use their competitors’ products and brands to do SEM, but not SEO.
Before the release of Phoenix Nest, Baidu did not allow clients to buy unrelated keywords. Now they sell those keywords as right-column placements. However, if no one buys the left-column ad space, the first ad listed in the right column will be displayed on the left.
What do you think of Phoenix Nest?
It should help Baidu increase revenue because it basically opened up a lot more ad space, which is located on the right side of search results. However, I don’t think it will have a big effect on Baidu clients because click-through is lower for right-column ads.
Can you give a general picture of the search market including second-tier search engines like Tencent's (0700.HK) Soso, Sohu's (Nasdaq:SOHU) Sogou and Microsoft's (Nasdaq:MSFT) Bing?
Baidu's search traffic is three times Google China’s, but Google’s AdSense covers more than 70% of the market. Baidu has a higher ROI than Google does for low-end products like stock software because Baidu users tend to have less education.
Different ad content has different rates of click-through, and the top three ads on any site tend to have similar click-through rates, with a maximum variance of less than 5%.
Soso's ads are mostly from Google. Generally speaking, Google China still has some localization problems and relatively weak government relations.
I think Sogou is doing well and has good potential from user loyalty and relatively high ROI.
So what do you see as the future for your company?
We have already been approached by other firms who want to acquire us for millions or even tens of million of dollars, but we have refused. China’s SEM market is huge and still very immature. Who knows, maybe we can become another Allyes [Focus Media’s (Nasdaq:FMCN) online advertising subsidiary].
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