China's Internet advertising market is undergoing a period of rapid increase and the 2006 financial reports of China's leading portals, Sina and Sohu, have shown that Internet advertising is the main source of these portals' revenues.

For the fiscal year 2006, Sina reported net revenues of US$ 212.9 million, compared to US$ 193.6 million in 2005. Advertising revenues for this year totaled US$ 120.1 million, an increase of 41% from 2005, accounting for 50% of net revenues.

As for Sohu, total revenues for the fiscal year 2006 totaled US$ 134.2 million, compared to US$ 104.5 million in 2005. Advertising revenues for 2006 totaled US$ 91.8 million, up 29% from US$ 70.9 million in 2005, accounting for almost 70% of total revenues.

As government departments and mobile operators have increasingly exerted strict management on the wireless value-added business, the wireless value-added business of these portals has witnessed a decline. However, the business of Internet advertising has grown rapidly in its place.

China has 137 million Internet users who browse news online, use search engines, send and receive e-mails, play online games, purchase online, read and write blogs and chat online. This offers a huge space for the development of Internet advertising which has even started to infringe on traditional media advertising.

"In 2006, our investments have begun to gain returns regarding news, sports, finance, entertainment, technology and automobiles. Among these channels, the browse flow of the finance channel has increased by five times, which brought more than double increase in advertising revenues for the fourth quarter of 2006 compared to the first quarter," said Cao Guowei, CEO of Sina. He also stated that the channels of real estate, automobiles and IT are where advertisers most frequently invest.

The sports channel has also seen rapid growth in advertising. Sohu has gained increased video flow due to the 2006 World Cup and NBA. As a network partner for the Beijing 2008 Olympic Games, Sohu is anticipating the arrival of the Olympic Games.

In addition to information content channels that can attract advertisers, blogs, which rose last year, have also contributed a lot to Internet advertising.

Since the second half of last year, these portals have begun to attach enough importance to video contents. Podcasters on Sina have 15,000 new videos to upload per day. "We believe that podcast will become an important driver to promote advertising revenues in 2007," said Cao.

According to a survey of the CCW Research, a Chinese leading IT market research and consulting company, revenues in China's Internet advertising market for the year 2006 totaled to approximately RMB 5 billion (US$ 645.8 million), still maintaining a 40% to 50% increase. With increasing investment of Internet advertising in traditional industries, besides China's major portals like Sina and Sohu, some other large enterprises like Yahoo, Goolge and Microsoft will also benefit.

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