"One bus on a major route can reach many, many eyeballs, much more than the Internet," says Kam Ling, co-managing director of Hong Kong-based Top Result, which part-owns or manages advertising on about 1,800 buses in a dozen Chinese cities, as well as the Beijing subway.

But while the Internet is driving a spending frenzy that's profiting low-tech businesses, the online picture isn't so pretty. Online advertising in China was a paltry $9.5 million last year, or less than one per cent of advertising spending overall, according to research firm IDC Asia Pacific.

While long-term projections are inevitably rosy, start-ups face at least another two years of intense struggle in a small and fragmented market, analysts say.

Most striking, many start-ups that count on online advertising for revenue spend little on online ads themselves. "On the online side we've spent almost nothing," says Faith Huang, vice-president for marketing and sales at eLong.com, which runs online city guides and has budgeted $3 million to advertise on subways, buses and bus shelters this year. "We tell advertisers who want to do banner ads that they aren't that effective." That's bad news for the thousands of Chinese sites that have sprung up in the last year.

From celebrity chatrooms to sites on child-raising to a gaggle of portals devoted to women, China's multiplying universe of Web sites caters to an Internet population that numbers about 12 million and is doubling every six months.

User demographics are stellar: educated urbanites in their 20s and 30s with money to spend. But while the majority of Websites in more developed markets like the US no longer count on advertising for the bulk of their revenue, most Chinese sites from the biggest portals on down still see online ads as key to their bottomlines.

Over time, many start-ups say, electronic commerce will replace advertising as their main source of revenue. But the absence of efficient national distribution networks, along with consumer discomfort at buying goods sight unseen, has hampered e-commerce's growth. E-tailers rely on cobbling together a mishmash of distribution networks, including the postal service and squads of deliverymen on motorcycles and bicycles. That makes setting up the infrastructure for e-commerce a laborious city-by-city effort.

Meanwhile, China presents unique obstacles to the growth of online advertising. Because of the country's vast size, varying consumer tastes and fragmented distribution, many advertisers prefer to use regional campaigns to promote their products and brands. The Internet, with its limitless reach, is a waste of resources.

And while established businesses elsewhere have folded the Internet into their sales and marketing strategies, in China the Internet phenomenon is still largely confined to dotcoms. Many traditional industry clients don't know what the Internet is and aren't willing to throw money at it. With little experience in sales or marketing, Internet executives just tell these clients, "This is digital time, you are too old and must move fast," says Paul Jin, a top executive at the portal Sina.com, which doesn't advertise online but has blanketed buses and bus shelters in major cities.

Companies that offer online advertising services are moving away from an exclusive focus on it. Earlier this year, the bus-advertising company Top Result set up a separate unit to act as an agent for clients placing online banner ads. It has since dropped that effort in favor of offering a broader range of media planning services in which the Internet is just one part.

ELong, which earlier focused on selling banner ads, now offers clients a range of options, including offline services like on-the-ground surveys and direct-marketing. "In a way we've become a marketing company," says eLong's Huang. "To rely on banner ads for revenue is pretty difficult."

In the offline world, Internet companies are shaking up China's staid advertising industry, supplanting the standard product pitch of company logo and sound-alike slogan. Sina, for example, turned heads late last year with an oddball television and print ad for its search engine that featured a large woman pasting a sign on a wall labeled "Lost Dog." As she walked away, the dog was seen stuck in the recesses of her tremendous backside. Ads for a site that operates online auctions featured young people shouting slogans reminiscent of the Cultural Revolution.

ELong even clashed with authorities over an irreverent subway ad that asked commuters, "Are you tired of living?" The State Administration for Industry and Commerce fielded complaints from consumers over the ad's perceived negativity.

"It didn't promote positive living," explains Top Result's Kam. The company pulled the ads after a month.

Long term, most in the industry still see promise in Internet advertising of the online kind. IDC forecasts that online advertising will reach $250 million by 2004. But the market's take-off is still two to three years away, when electronic commerce will start delivering real revenue and even profits, predicts Matthew McGarvey, an Internet analyst at IDC. "Long-term it's positive, but there are some dark days ahead," he says.

-- The Wall Street Journal