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The rise of China’s auto.coms

As China becomes the world’s second largest automobile market, related industries have been developing at a rapid speed. One of them is a group of auto-related websites, or auto.coms.
 
In 2006 advertising money invested in auto-related websites reached ¥500 million ($65.8 million), up 118 percent over 2005, according to iResearch, an online market research firm. It became the second biggest online advertising spending after that on IT products, iResearch says.
 
In 2006, auto.coms in China provided advertising services for 132 clients, of whom 43 were new.
 
The sharp increase in auto-related online ad spending has been due mainly to two reasons, according to iResearch.
 
Firstly, as more car models are launched in recent years, online advertising has gone up since there is online advertising budget for every new car model launched. Also, with China’s auto market experiencing an explosive growth in recent years, most automakers now make far more profits than before and are willing to promote their products online.
 
Secondly, in recent years, more people gain information from the auto.coms for their decision making on a car purchase. In fact, aside from hard advertisements, many automakers now place a great number of soft advertisements – seemingly objective articles – on auto.coms to influence prospective car buyers.

Online ad spending on auto and related services is up

Not only has the number of firms who buy auto-related online advertising increased, but average spending of these ad buyers has gone up, too.
 
According to data from iResearch, average annual spending of auto ad buyers rose from ¥3.84 million in 2005 to ¥6.13 million in 2006. See table below for automakers’ online ad spending.
 
Online ad spending by make

Jan.-Nov., 2005

Jan.-Nov., 2006

Ad buyerSpending (in ¥ million)Ad buyerSpending (in ¥ million)
Nissan Motor

20.95

Toyota Motor

41.59

Shanghai-GM

19.2

Nissan Motor

39.91

Dongfeng-Yueda-Kia

17.24

Shanghai-GM

35.72

Shanghai-Volkswagen

15.68

FAW Car

32.95

FAW Car

13.7

FAW-Volkswagen

27.58

FAW-Volkswagen

11.48

Shanghai-Volkswagen

24.77

Brilliance China

10.46

Dongfeng-Citroen

21.86

Toyota Motor

9.95

Dongfeng-Honda

18.12

Ford Motor

9.34

Guangzhou-Honda

17.19

Guangzhou-Honda

7.28

Dongfeng-Yueda-Kia

16.51

 
In the United States, the auto industry’s Internet ad spending has always been the bellwether of online ad spending as a whole. Marketers of autos and auto-related services in China had been fairly cautious about spending advertising money online until 2006 when traditional ad buyers represented by automakers had been awakened to the opportunities and effectiveness that Internet advertising delivers in reaching and engaging their customers.
 
China’s fast-developing Internet industry lays a solid foundation for the growing prosperity of commercial websites. According to the 19th China Internet Report by the China Internet Network Information Center (CNNIC), by the end of 2006, the number of Internet subscribers in the Chinese mainland had reached 137 million, or one-tenth of the population, and the number of computers linked to the Internet was 59.4 million sets, up 23.4 percent and 20 percent respectively over a year earlier.

How auto websites make money

One group of auto websites makes money by mainly selling auto-related advertising space. Representatives of this group are auto.sohu.com and auto.sina.com.cn. In this group are also specialized auto websites including auto.163.com, auto.tom.com, pcauto.com.cn and che168.com. At present these websites make the most money and live most comfortably. These websites, however, compete against one another with roughly the same kind of content and format.
 
Another group of auto websites make money mainly from auto dealers. They recruit dealers as their members and collect membership fees. In return, these websites provide price-quoting services for the dealers. Websites of this kind that now operate on a fairly big scale are bitauto.com, cheshi.com.cn and chinacars.com. They also sell advertising space.
 
Yet another group of auto websites make money mainly from car owners. They recruit car owners as members and collect annual membership fees. In return they offer a variety of services, including towing, auto maintenance, insurance intermediary service and hotel reservations. These websites serve as online auto clubs. In other words, auto clubs directly operate them. Well-known websites of this kind include uaa.cn (United Automobile Association), baa.com.cn (a site under bitauto.com), caa.com.cn (China Automobile Association) and cars.com.cn. Usually a call center as well as the Internet site itself provides instantaneous communication between an online auto club and its members. Clearly, the American Automobile Association (AAA) serves as a model for these Chinese auto clubs and auto websites.
 
Some websites are devoted to providing information on used cars such as 51auto.com and 273.cn.

Venture capital investment

Running a website is a costly business. 51auto.com, for example, employs a lot of people gathering information on used cars. But venture capital has shown great interest in auto websites. Over the last couple of years, $124.4 million of foreign venture capital has been invested in a few promising auto.coms. Details are shown in the following table.
 
Venture capital investment in auto.coms
 
WebsiteRoundTimeInvestmentInvestorsFounder(s)
Cars.com.cn3rdJune 2007$25 millionWaldon InternationalLin Zhen, Shi Lei
2ndSeptember 2006$15 millionWaldon International, DT Capital Partners
1stDecember 2005$2 millionFortune Venture Investment Group
Uaa.cn2ndJune 2007$13 millionKleiner Perkins Caufield & Byers, Creative Circle Advertising Solutions, Inc.Lu Zhengyao
1stJune 2006$8 millionLegend Capital
Chinacars.com2ndAugust 2006$25 millionGoldman, Sachs & Co., Granite Global VenturesZhang Xiaochuan
1stOctober 2005$8 millionGranite Global Ventures
Bitauto.com2ndSeptember 2006$10 millionNippon Venture Capital Corporation, Doll Capital ManagementLi Bin
1stOctober 2005$3 millionLegend Capital
51auto.com1stMarch 2006$5.4 millionDragon Groove Inc., Doll Capital ManagementLi Haichao
Xcar.com.cnAcquiredJuly 2006$10 millionCNET NetworksCheng Haozi
Total investment  $124.4 million  
 

Auto services market

In 2000, according to a study by Shanghai Automotive Industry Corp. (SAIC), China’s automotive industry produced an output value of ¥350 billion. The auto services industry, which usually accounts for roughly one-third of the automotive industry’s total output value, thus had a market size of ¥100 billion in that year. According to the same SAIC study, China’s auto services industry is expected to have a market size of ¥540 billion in 2015 since in that year China’s automotive industry as a whole is predicted to produce an output value of ¥1.462 trillion.
 
It is to claim part of this growing business pie that auto.coms have emerged. And it is the size of this auto services market that has attracted foreign venture capital to the auto websites. With China’s automotive industry continuing to grow, auto.coms are likely to see better days ahead.

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