Internet company profit model for e-commerce

Chinese Internet companies listed in the United States, the recent year, the price of a lot of jump, a lot higher than the same period, the stock valuation expensive surprising.

Is there a bubble in Chinese internet?

　　recently, Beta The article, published in the Wall Street Journal column entitled "China Internet: A bubble in advertising," said that "if there is no innovation in the business model, and still rely on advertising, then the market capitalisation of Chinese Internet companies can be said to be overdrawn for years of growth, the bubble has slowly formed."

Is there a problem with this judgment? If there is a problem, the problem must be "if". In fact, e-commerce is replacing advertising as the mainstream profit model of internet companies, and the Internet business model is changing in a subversive way. The development that this change brings to the entire Internet industry will be explosive, probably beyond the imagination of people.

The evolution of Internet advertising model

The change of Internet profit mode from advertisement to electronic commerce is based on the evolution of advertising mode.

From the birth to the present, Internet advertising has three kinds of typical business models: 1. CPM (cost per impressions), each thousand people access costs, according to the number of display fee; 2. CPC (Cost per click): Each click costs, according to the number of clicks, 3.CPS (cost per sales) to the actual sales of the number of products to convert the amount of advertising, that is, the actual transaction pay.

From the corresponding development stage of the Internet, the CPM model appeared earliest, the portal site is its synthesizer. The main profit model of the portal is: aggregation of massive information and processing, through a large amount of information to bring a huge amount of users, a huge amount of users bring advertising display revenue. Therefore, the CPM model is also considered to be a direct translation of "traditional advertising" to the network, and its inherent logic is still to obtain "impression points" through the display, and thus affect the user purchase behavior. CPM class on behalf of the company, foreign for Yahoo, the domestic Sina.

After the portal to lead the development of the Internet for search mode, through the keyword more accurate matching user information needs, the corresponding advertising model for CPC. Different from the brand of CPM, the CPC is further, the network users (traffic) directly into the main advertising store (website), the effect is more direct. For example, you buy a search engine "notebook" this keyword, so many people want to buy notebook users will find their own, and do not have to go to the portal to post "hit very bad" ads. The CPC creates a greater market capitalisation than CPM because the CPC pays a wider range of subscribers. In the past, only a handful of large companies to do CPM, and after the CPC era, a large number of small and medium-sized companies can choose keywords, advertising in the region, the precise placement of the crowd.

Back to the nature of advertising, any business owner who is ready to advertise (or is) in fact has only one purpose: to sell goods. If in the "advertising-traffic-conversion sales" This link will be "traffic" cut off, then is not more direct? That's the CPS model. The CPC model is flawed by the fact that perhaps tens of thousands of users click on your product, but the final order may be hundreds of, and the CPS model solves the problem. CPS means that only when the purchase behavior, advertisers need to pay for advertising, at this time, you can no longer understand the CPS as an advertisement, can be understood as a sales commission by the channel, it is E-commerce.

The following report will cite data to show that: with the Internet advertising model from the "Cpm-cpc-cps" Evolution, E-commerce will replace advertising as the main profit model for Internet companies, and create more value than advertising, the potential of a greater industry. If the CPM, CPC as "traffic porters", then CPS is undoubtedly "banknote printing machine", when an internet company's profit model from advertising mode (CPM, CPC) evolved to E-commerce, its profitability will be doubled.

Second, CPM-CPC: The influence of profit model innovation on the revenue and market value of listed Companies

The evolution sequence of "Cpm-cpc-cps" is mentioned above, but it should be noted that the three patterns are not a completely substituted relationship. When the CPS model finally more mainstream mode, CPM, CPC will still exist, but the former can create the market value will be the latter two n times. To illustrate the different profit model to promote revenue growth, first of all, "CPM-CPC" change to promote the changes to Baidu, Sina as an example.

As shown in the figure above. Sina is the first listed portal company in April 2000, the 2001 annual revenue of 26.68 million U.S. dollars, Baidu August 2005 listing, the year's annual revenue of 39.55 million U.S. dollars. 2 years later (2007), Baidu revenue that quickly overtook Sina. By the end of 2010, Sina after 10 years of development, 2010 annual revenue of 400 million U.S. dollars, Baidu 2010 annual revenue of 1.19 billion U.S. dollars for Sina nearly 3 times times. How did all this happen?

As the Internet portal, Sina ads for the basic brand display ads, brand display advertising itself weak Internet properties, but also limited by the advertising position. Portal high flow of the location of the main focus on the home page and news pages, usually with scarcity, in the high rate of sale, it is difficult to increase the income significantly (advertising prices are not persistent). In other words, with limited portal advertising, Sina's revenue comes mainly from a limited number of big customers (currently around 1000).

Then look at Baidu, Baidu revenue from the bidding rankings, customers pay to buy product names and other keywords, Baidu according to its pay high and low to the company to sort, and the results of the ranking will be presented to the vast number of users of the Internet search. As the number of keywords on the internet tens of millions of customers, Baidu's customer number greatly expanded, the CPC's low threshold also allows its advertisers to extend from large companies to small and medium-sized companies. The number of active users has grown rapidly, from 2005 to 76,000 to 276,000 in 2010, according to statistics on Baidu's annual earnings.

If another angle, from the position of the Advertiser, CPM brand shaping role is not measurable, the CPC traffic import is real; CPM effect is vague, but the CPC effect is accurate, real-time. For a larger number of small and medium-sized companies, their first priority is usually not the brand, but the sales, the CPC's channel function is revealed undoubtedly. The following chart shows the difference in market value created by CPM and CPC (take Baidu, Sina as an example):

(Note: 2010 years ago, Sina's portal business is more stable than the imagination, the stock price is flat; instead, Baidu's share price has risen steadily.) Sina's share price began to rise until 2010, when it was influenced by micro-blogging products.

Based on the above analysis, you can make a small summary: from the CPM to the CPC, the number of users of the site to expand the scope of the advertising more accurate and effective, the creation of revenue, market capitalisation is also greater.

Third, Cpm-cps: the Electronic Business of network media try

May 29, 2011, SINA le Habitat launched China's first integrated real estate E-commerce channel, in the online sale of Kunshan Station project 601 sets of houses, opened 2 minutes to sell 180 sets. Prior to this, Le Ju and Soho China together in the online auction two shops, Pan Shiyi public in micro-blog for online buying house to attract customers.

(Screenshot from: Pan Shiyi Weibo)

Time to backtrack, January 11, 2011, Sohu announced in the World Marketing Conference, will be through the layout of Sohu media platform, Entertainment, automotive, focus, finance, wireless and WEB2.0, to achieve from the media platform to the Marketing Strategy Center structure transformation. This means that "the portal is no longer simply a platform for the dissemination of news information, but the pursuit of important market segments to provide users with a comprehensive depth of service", soon after Sohu auto investment billion to build 50 City service center.

From the provision of real estate information to direct online purchase, from the provision of automotive, financial and other information directly into marketing sales ... You may not be aware, but "media computerization" has begun. The internet is accelerating to the CPS model, all types of vertical web sites undoubtedly serve as a pioneer in this transformation. In the future, you will be able to buy a house on a real estate site (such as Le Ju), buy a car on a car site (such as Auto), and buy an investment banking product on a financial site. In the past, advertising as the main source of revenue for the vertical type of Web site, will be due to the transformation of the electricity business and revenue doubled. In this transformation process, vertical type of Web site directly facing the accurate audience, the first complete from the media platform to the marketing platform transformation.

When the media after the electronic business, the media can rely on the user information collection, analysis, directly to provide users with the goods to buy, shorten the purchase process for users to create value while intercepting more multi-channel value. In CPS mode, users do not need to jump from one site to another, but simply enjoy a single stop shopping experience. For example, when I search for information on the car web site, the car network directly recommend to me the favorite vehicles, under the Italian car is the "buy" button, this experience of course, than the search for a large amount of information, and then go offline to buy more convenient. Therefore, it can be said that the CPS model essentially changes the "aggregated traffic-trafficking advertising" model, if the CPM, CPC as a highway toll, then the CPS itself is a high-speed road.

Then what happens after the internet media is electrically commercial?

Internet companies in the overall electronic business. After the vertical media will be the portal, such as Sina split out the Le Habitat, the future may also be dismantled car, Sohu let channel comprehensive transformation, embarked on the road of marketing. After the portal, it will be a social network (microblogging, SNS), such as Facbook, Twitter. The advent of social networks, which makes information more interactive and localized, is naturally compatible with the CPS model. Think about it, do you see the advertisement of the Sha County snacks under the office building? Most people will be negative answers. But social networks will change that, and on social networks, Sha County snacks bosses can pinpoint ads to surrounding buildings and provide direct meal services. Compared with CPC, CPS will attract long tail customers, including Sha County bosses, causing the number of customer groups to explode.

In short, the era of CPS will eventually come, and social networks and mobile Internet will magnify their growth effects. Kleiner, a well-known venture-investment agency, said in the mobile Internet Trends report that mobile Internet will change the way of trading, including: location-based Services (real-time retail), transparent prices (local + online price comparison), discounts (local retail store discounts), instant gratification (digital products + content delivery). For mobile internet users, will be more inclined to use the application, rather than landing WAP sites, in response to this, CPM, CPC will be abandoned. CPM and CPC are also limited by the small number of mobile screens and poor sensory experience. Instead, users prefer online check-in to win coupons and instant parity purchases, which is undoubtedly a CPS world.

Iv. Cpm-cpc-cps: The mode of electric business will become the mainstream

Bayes assumes that the Chinese advertising market will grow by an average of 10% in the next 5 years, with internet advertising taking 8.5% of the overall advertising cost, and that the next 5 years the Chinese Internet advertising market would have a combined growth rate of 18% years, and the introduction of an inability to support Internet company valuations. The above inference ignores the three-level fact that is occurring (or is about to happen): 1 traditional advertising is accelerating to the Internet advertising transfer, and network advertising from CPM, CPC to CPS mode transfer, 2 of all offline sales to the online transfer, the electricity dealers will cover all industries; 3) as the first two booms converge, the following will emerge, That is, almost all internet companies will be e-commerce companies, they will direct sales and positioning of their own products, replace the traditional sales channels, and obtain explosive growth. Specifically:

1. Traditional advertising to the network transfer CPM to the CPC, CPS transfer

First of all, to see a 2011-year media procurement plan from the HNA interior, in this procurement plan, the network media advertising has occupied the absolute bulk. The documents show that HNA will invest 13 million yuan in the network media in 2011, only 1 million yuan to the paper medium. In the network media advertising, but also to the Web portal ads, up to 5 million yuan.

According to IAB's latest report, the United States 2010 Network advertising revenue of 26 billion U.S. dollars, successfully surpassed the newspaper (newspapers) 22.8 billion U.S. dollars. 2009 Network advertising revenue for 22.7 billion U.S. dollars, newspapers for 24.6 billion U.S. dollars. According to Dcci forecast, China's online advertising revenue will exceed the newspaper income in 2012 years, the more crucial point, its income growth shows an accelerated trend, as follows:

According to the current growth trend, it can be expected that the future of Internet advertising is likely to surpass television advertising, jump advertising revenue mainstream model. and the development of mobile internet and social networking drives this shift, as mentioned above, as the mobile Internet and social networks incorporate a wider range of people into advertising coverage, while making it impossible for advertisers to advertise, and the advertising industry is making huge increments.

Also from the DCCI data show that 2010 search engine advertising scale reached 10.83 billion yuan, and comprehensive portal advertising scale of 6.02 billion yuan, the future years of the search engine advertising scale and integrated portal gap, will be more and more, as shown in the following figure:

In the integrated portal ads are mostly display-oriented advertising (CPM mode), and search engine advertising for Pay-per-click (CPC mode), which can be concluded that the network advertising is accelerating to the CPC model transfer. And with the advance of time, network advertising will start a new round to the CPS transfer process. The transfer of the CPC-CPS model can be cited as an example of a guest. At the end of 2009, Analysys published data show that the 2009-year advertising example of the total price of 1.896 billion yuan, but then soon, the old revealed that every guest in fact only to invest 200 million yuan advertising, which means that every customer 200 million yuan of input to obtain 1.896 billion yuan network advertising effect. Investigate the reason is: Every customer's ads in accordance with CPS model to settle, consumers only enter the customer and produce purchase behavior, where customers will pay for advertising. After the guests, a number of electrical dealers began to imitate their own CPS advertising alliance to achieve more significant sales results.

2. Offline sales to the online transfer of electricity dealers covering the entire industry

(500 strong list of the US online retail photo Source: Internetretailer)

"China online retail Top 30 list", published in June 2010 at the end of the consultation, will be compared with the famous American e-Commerce Research Institute Internetretailer, "the US online retail 500 strong list" In contrast will find: in the top 20 of China's list, Traditional enterprises to enter the Internet sales only Su ning and Gome, and two companies only accounted for the total sales 1%~1.5%, the share is very low; in the top 20 of the US list, the real channel is strong, and the traditional businesses that carry out E-commerce include Stamper (Staples), Apple, Wal-Mart, Sears , Victoria Secret and so on, occupy more than half. This means that with the development of E-commerce, more and more companies in China will be online sales.

Compared with the online E-commerce site, offline traditional companies not only have a brand advantage, but also has a strong supply chain resources, and has the advantages of logistics distribution, as they become familiar with online e-commerce skills, improve consumer network shopping experience, the future is bound to get the rapid growth of online sales. In fact, since 2009, a large number of companies have entered the e-commerce market, such as suning easy to buy, Kappa, Li Ning, love, nine shepherd King and so on. Suning easy to buy February 2010 online, the main sales of goods in addition to suning appliances in the traditional home appliances, 3C products, since then gradually expanded to the department stores, daily Chemicals, books and other commodities. According to the official data, Suning Tesco has sold for 2 billion yuan in the past year, with sales doubling in 2011.

Traditional offline Company "net" another form of direct access to the existing network platform, such as Taobao Mall, Jingdong Mall, or when shopping malls, Fank v. Van v President Zhong Xin to I said that the July 2010 began in V sales, up to the current number of sales orders close to 7,000, the highest sales of nearly 1 million yuan. Between the two sides are expanding cooperation, the V single platform for the sale of goods will have at least 5~10 times growth.

Whether it's your own website sales, or ride the existing E-commerce Web site, you can expect that the next offline sales will experience the "net" process, and the electrical business will gradually cover all the traditional industries, whether it is a company with real goods, or to provide virtual products and services companies. The reason is simple, traditional brand company net will greatly promote the industry and the future development of the company.

3. Who will be the beneficiary of the CPA model

Traditional advertising to the online transfer, advertising mode from the Cpm-cpc-cps evolution, offline sales to the online transfer, the ultimate result will be: Internet companies will become E-commerce companies. As the third part shows, internet companies (such as vertical web sites) will sell direct sales to their own location-related goods and replace traditional marketing channels. In the process of changing the profit model, internet companies will gain an explosive growth.

The evolution of the above profit model can also be collectively referred to as "the overall electronic business of internet companies". The real estate vertical website For example, in the Sino-House Letter Test Water E-commerce, its revenue mainly from information consulting services fees, other services (advertising, promotions, etc.) charges, and these 22 aspects of income and sales of income compared to the natural difference between the great. E-commerce lets the room letter become the seller directly, but is no longer the intermediary, it eats will be the whole marketing channel expense.

Finally back to the beta article, the original logic of the music is not wrong, but did not notice the entire Internet advertising industry itself has changed.

(I U.S. stock taller)