December 3, 2007 -- Hangzhou-based Alibaba Group, the largest e-commerce company in China, announced the official launch of Alimama, an online advertising exchange which allows web publishers and advertisers to trade online advertising inventories. The announcement, made early last week, came after Alimama emerged from a 100-day beta period as China's largest advertising exchange platform.

The new website (www.alimama.com) allows small- and medium-sized web publishers and owners of personal blogs to sell advertisements on their sites. Since launching the beta version in August of this year, Alimama has gathered over one million registered users with an inventory of just under 400,000 advertisement positions.

"Alimama will monetize the website traffic on China's small- and medium-sized websites, which we estimate account for 80 percent of the online traffic in China," Porter Erisman, vice president of corporate affairs for Alibaba Group, told Emerging China. "Until now, only the large portals had the resources to negotiate deals with advertisers."

Businesses and publishers can sign up for the new service for free, while Alimama charges a commission for each advertisement sold through the platform. Commission fees vary, but Erisman noted that 8 percent is the general standard.

Alimama's main competitor in China's online advertising field is Baidu. Baidu, the country's biggest search engine, works with smaller Chinese websites who join the company's advert sharing revenue program. Baidu places customers' adverts amongst related search results or to the right of search results. Users then click on company links and customers are charged by the number of clicks. Google offers a similar service, but only places adverts above or to the right of search results.

Alimama is aiming to provide a different service from either competitor. The company's core business will be the direct selling of advertisement positions.

"The difference is Alimama will specifically target advertising services," Liu Ban told Emerging China. Liu is a new media analyst with BDA China, a telecommunications, media, and technology consulting firm. "If corporations want to find advertising positions, they will use Alimama's services; search results will only contain marketing and advertising positions available in certain websites. It's different from traditional search engines, which provide direct links to websites."

To use the service, publishers register on Alimama to provide a description of the advertising inventory for sale, as well as pricing models based on which the inventory can be sold, such as pricing based on impressions served, clicks or other actions by Internet users. Advertisers review the information posted by publishers, along with independent website traffic data. Once they decide to buy the inventory, they can purchase ad space and follow steps to upload their ad.

"Our platform is more flexible," said Erisman. "It is more community oriented and allows many different advertising formats, such as a wider range of display advertising formats."

The service is new to China but is already widely practiced in several developed markets.

"This is how people sell on the Internet in the United States if they don't have an affiliate network of their own," said Chandler Jurinka. Jurinka was one of seven founders of Performics, an online advertising exchange in the US that was bought by Doubleclick. Jurinka now heads Local Noodles, a social networking site in Beijing. "Alimama's matrix has to be dead on. If advertisers come to Alimama with, say, a credit card campaign, they need to push to people in the cities with a good credit record, not to kids or to people with low incomes."

Problems could occur if information provided by publishers is inaccurate or incomplete. If a web publisher with a cooking website, for example, indicates visitors to their website are city dwellers with good credit histories, that information could be a direct match with the demographic being targeted for a credit card campaign. But credit cards and cooking are not necessarily related.

"In some ways, this platform is less transparent [to advertisers] than Google's or Baidu's," said Jurinka. "Google and Baidu make sure all adverts are relevant." That is, shoe store adverts appear when users search for shoes or credit card adverts appear when users search for credit card rates.

Nevertheless, Alimama has already attracted some large name advertisers, such as Bank of China and CITIC. Overall, industry analysts appear optimistic about the new service.

"I think in the near term it will be a promising business," said Liu. "There are many websites in China that have ad inventory. For them, it is good to have a platform to sell that inventory. But the challenge is how to let the corporate clients, Alimama's target customers, know about it. It is a new service in China and corporate users won't be familiar with this online platform."