Locking down Sui Media, Baidu outsources video advertising

On November 26th, Intel Capital, Hua Yan-Farillon Fund and Baidu announced that they would jointly invest in the Internet video advertising service provider Suishi Media.

It is understood that this is the first round of venture capital investment for Suishi Media, with an investment scale between $4-6 million. The three investors have roughly equal proportions and there are already relevant agreements for subsequent follow-up investments.

Suishi Media's CEO Duan Jiarui said that this round of financing will mainly be used to increase market investment, allowing "Baidu TV" to quickly capture the market. "We hope to open up a new blue ocean for Internet advertising, just like the competitive bidding ads for search engines did in the past." "Baidu TV" is a new video ad business that Baidu tried out in September within its website alliance system, and Suishi Media is Baidu's exclusive operational partner for this business.

"Baidu TV is the first time Baidu has taken its own brand and network alliance resources and cooperated with another company (Suishi Media) to operate a key product line," said Shen Haoyu, Vice President of Commercial Operations at Baidu. He stated that as consumers' attention shifts from traditional television to the Internet, this trend not only causes a large number of advertisers to shift their advertising budgets to the Internet, but also sees the standard format of advertisements upgrading from text-and-image banner ads to video ads. "Suishi Media has an excellent online video distribution technology platform and marketing team, while Baidu owns about 150,000 alliance partners."

The "long tail" of video advertising

"Suishi Media clearly defined its business model as the complete long-tail transformation of video advertising right from the start of its entrepreneurship."

Duan Jiarui said that two years ago, such an idea had already emerged abroad — breaking down the traditionally creative and professional process of television advertising into a set of video ad material templates placed on the Internet, allowing customers to freely select according to their industry and needs; after selecting a template, customers can add their company name, logo, storefront signs, etc., via voice or subtitles, thereby creating a custom-made TV advertisement themselves.

"Which company doesn't want to air TV ads? It's just that the time, money, and expertise required to produce TV ads exceed their capabilities," Duan Jiarui said. Suishi Media aims to completely place the entire process of customer solicitation, production, and airing of advertisements on the Internet, achieving the most thorough "long-tail revolution."

"The largest shareholder of Suishi Media is Jin Tong Group, which provides streaming media solutions, and there are also several individual shareholders from the fields of network operation services, video content production, and Internet marketing," said Xue Chen, Executive Vice President of Suishi Media. He mentioned that by using precise Internet IP technology, Suishi Media can细分customers' desired advertising audiences based on geography, age, and interest levels, automatically selecting appropriate pages, positions, and times for placement across different types of text and video websites, with real-time dynamic monitoring of effective viewership.

In the advertising production phase, customers can submit their own filmed video materials online or entrust one of the 60 local film and television production companies signed with Suishi Media to shoot the materials on-site. After collecting them online, Suishi Media processes them according to their refined standard templates, producing a 30-second video ad within an average of 4 hours for a fee of only 3,000 yuan.

Xue Chen said that currently over 90% of the entire business process can be controlled remotely online. The server, bandwidth, and material resources that are typically problematic in network video can all be resolved through cooperation followed by profit-sharing with regional partners. What Suishi Media needs to focus on is R&D and market expansion.

Despite its advanced business model, Suishi Media's progress in customer acquisition has not met expectations.

"Ad customers care most about 'cost per thousand', they need a wide-reaching broadcasting platform. But it is difficult for Suishi to build a widely covered network broadcasting alliance, hence the cooperation with Baidu," said Xue Chen.

Xue Chen added that in the "long-tail revolution" of text ads, it was search engines like Google and Baidu that matched text link ads with search results, attracting user clicks. "Baidu has accumulated enormous network resources, Suishi has a clear business model and an advanced broadcast monitoring platform, Baidu TV is the product of complementary resources from both companies driving the 'long-tail revolution' in video ads."

The network version of Focus Media

"To put it simply, Baidu TV is an attempt at a video-related ad business within Baidu's advertising alliance system."

Shen Haoyu said that Baidu currently has about 150,000 alliance partners, with over 5,000 Baidu ad clients promoting various forms on these alliance sites, "If each page of Baidu's ad alliance sites is seen as a wall, what Baidu needs to do is choose the most suitable walls, install displays on them, and let users watch Internet video ads like they watch TV."

According to Baidu's latest financial report, alliance partners earned nearly 80 million yuan in revenue sharing in 2006, and in the first two quarters of 2007, the shared revenue was already close to the level of the whole year of 2006. "This is still just the number before the launch of Baidu TV, after its launch in September, this figure will bring a leapfrog change," Shen Haoyu said.

As for why Baidu chose a strategic partnership plus strategic investment rather than a controlling stake or acquisition, Shen Haoyu said, "Baidu takes search as its core competitiveness, cooperating with companies in other fields and effectively extending into those fields is a win-win way that is more sustainable than acquisitions tied by strong capital."

"If each website is compared to a building, and each city has 1,000 such buildings, the quantity of Baidu's ad alliance is equivalent to the client's ad covering over 100 cities overnight," Ding Chun, the head of Hua Yan-Farillon Fund, took Shen Haoyu's analogy further. He pointed out that virtual "buildings" on the network differ greatly from real-life buildings - they can distinguish people with different lifestyles based on the content of every different webpage within a site, offering the opportunity to create a more precise targeted media.

Ding Chun said that this "Internet targeted" media form not only maximizes the value of ad placements for advertisers but also significantly enhances the media value of the network platform itself. "Suishi Media, as the actual carrier and operational platform of Baidu TV, has broad development space. We invested from the first round and hope to have opportunities to increase investment in every future round."

Intel Capital's Asia-Pacific Director Zhang Zhong also said that previously, they examined many video-sharing and P2P projects, but due to unclear profit models, they haven't yet invested in the Internet video field. "Baidu provides brand and market resources, Suishi Media builds the Baidu TV operational platform, this is a business cooperation suited for China's Internet video ad products, and this kind of innovation is something Intel always encourages and is willing to participate in."

Duan Jiarui pointed out that globally, Google, Baidu, and Yahoo are the most qualified to introduce the "network targeted" model, reforming the original unit-based placement of websites on the Internet and transforming it into a target audience-based placement. However, only Baidu has recognized the greatest advantage of search engines, simultaneously building a large Baidu alliance while choosing an ad model that brings high conversion rates to media - Baidu TV.

"Traditionally, media has only three dimensions, and advertisers evaluate media effectiveness accordingly," said Liu Xinhua, Chief Strategy Officer of Sunya International Communications. These include breadth, the degree of audience coverage; height, whether the media's brand image can enhance ad value; and depth, whether it can deeply communicate and fully express information.

In the Internet era, two new dimensions have been added - interactivity and relevance. Viewers can immediately engage in further activities online after seeing an ad, and the content users browse can be effectively matched with the ads they view.

"Baidu TV is a new attempt by the Baidu Alliance to develop multi-dimensional ad spaces, and Ali Mama, which has been in trial operation for a hundred days, should still be targeting Baidu Alliance as its direct competitor."

A senior executive from Ogilvy NEO believed that Ali Mama aims to establish a transparent self-selection ad platform. Based on Alibaba Group's understanding of small and medium-sized enterprises and individual consumers, the open and highly free Ali Mama performs better in attracting long-tail populations compared to the closed organizational form of Baidu Alliance. However, Baidu is already leveraging its alliance advantages to advance new dimensions in network video ads, and Baidu TV could potentially become a new hotspot for alliance ad revenue.