Marketing in China: Programmatic Advertising Faces Hurdles - eMarketer

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Marketing in China: Programmatic Advertising Faces Hurdles

February 12, 2016

Charlie Wang

ReachMax is a programmatic ad technology platform that delivers programmatic advertising for online video in China. Its core competency is programmatic direct ad buying, but it is expanding its offerings to services similar to those performed by an agency trading desk in Western countries. eMarketer’s Haixia Wang spoke with Charlie Wang, ReachMax’s COO, about adoption of programmatic advertising in China and the problems that automated ad transactions face.

eMarketer: What are the factors that will drive programmatic advertising in China in the near future?

Charlie Wang: The biggest driver is having more data for programmatic targeting. There are so many third-party data management platforms [DMPs] in Western markets, but in China, there aren’t as many third-party DMPs. Baidu, Alibaba and Tencent (the BATs) are hoarders of data, and currently they’re not very open about using that data outside their ecosystem. So data is both a driver and an inhibitor of programmatic.

The reason that the BATs don’t like to open up their data is because they’re worried that once they open it up, somebody may take it—cookie-level data is very easy to steal. This is also a concern because all the demand-side platforms [DSPs] have a DMP offering. As a data provider, they’re very worried that another DMP or even another BAT will just steal their data and then they won’t be able to make any money from it.

“The reason that the BATS [Baidu, Alibaba and Tencent] don’t like to open up their data is because they’re worried that once they open it up, somebody may take it.”

The second obstacle for programmatic is the whole issue around transparency. Ad networks’ way of making money is essentially arbitraging. They buy low and sell high, and that’s not the way a DSP is supposed to work. Most of the DSPs on the web charge a transparent service fee, but when ad networks in China evolved into DSPs, they kept their old way of arbitraging—which means the pricing is not transparent and prices are not that low. So DSPs and ad exchanges are the middlemen making the money, but the brand advertisers suffer.

eMarketer: Is a large portion of the inventories of big online video platforms like Youku Tudou transacted through private marketplaces?

Wang: For Youku, I would say it’s less than 10% of their overall revenues. It’s very low at the moment. And it’s mostly remnant inventory because most of the bigger publishers, especially online TV publishers, have a policy forbidding the accounts that have a direct relationship with them to invest in the real-time bidding [RTB] channel.

So for example, if Netflix has an annual commitment with Youku, if they see that Netflix also invests in DSPs on their private exchange, they will have two options. One is that they will set the floor price to equal the direct procurement price of Netflix for that DSP, meaning that you cannot buy inventory from the Youku private exchange with a lower price than if you go to Youku direct. They have to protect their direct deals. Another route is that if they find out that the advertiser is investing in a DSP on Youku’s exchange without telling them, they will just completely block it out.

“You have to book in advance or there won’t be enough inventory because so many advertisers target these Tier 1 cities.”

eMarketer: So there are limits to the type of video ad inventory offered via programmatic means?

Wang: If you look at Tier 1 cities—Beijing, Shanghai, Guangzhou—that type of inventory is not available through the exchanges. That inventory gets booked up every month. You have to book in advance or there won’t be enough inventory because so many advertisers target these Tier 1 cities. Most of the remnant inventory goes to their private exchange, which consists of second- and third-tier city inventory, and also more of your long-tail content inventory.

Most of the advertisers view video as an extension to TV. The whole concept is that an impression on TV and an impression on online video should be treated equally. So when you’re planning, you’re no longer planning TV. You’re planning video, which can take the form of TV, online TV and also outdoor multimedia TV as well.

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