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Why China's Ad Networks Are Different From the West

  |  January 25, 2011   |  Comments   |  

CPM-based ads do not work in China, and here's why.

There are discussions recently about China's online ad network business booming, led by the capital market. At least two new large ad networks in the country I know have received strategic investment from either venture capital or private equity firms.

Generally speaking, ad networks in China either focus on CPM-based or CPS (cost per sale)-based ads. In terms of technology, both use behavioural targeting that promises to give advertisers better profiling of target audience and better returns based on behavioural traits based on audience frequency.

If you are in e-commerce, you must be thrilled to hear this: the CPS-based solution claims to deliver an impressive ROAS ratio at 1:1, meaning for every one ad dollar spent with them, they give one dollar of revenue in return.

Nevertheless, I admit I have doubts about it.

Display ad networks haven't been a mainstream digital ad platform in China. In fact, supply chain of the advertising industry is very different from the West. The ad network business in China is based on a reseller model. An ad network technically is not media. Apart from the technology, it possesses neither ownership nor control of the content. Modern ad networks survive by adding a technology layer to the traditional media rep model. The technology is commonly known as the ad server that manages ad inventory supplied by various media and then adding profiling and targeting features into the solution. Unfortunately, the ad serving technology is hardly a new thing. Can it help China's ad networks become a game changer and what would be its edge?

Ad sales face fierce competition in China. Media owners run their own sales operations and compete with their own media reps. Remnant ads, also known as blind inventory, don't exist in China because no media owner would admit they have remnant ads. Display advertising is still sold on a pay-per-day basis and major media is reluctant to accept third-party ad tags - suggesting CPM-based ad serving exists in name only in China.

Many media friends told me why CPM doesn't work in China. As most online ad salespersons come from print advertising, they are accustomed to the plain and simple CPD (cost per day) model. CPM simply complicates the ad sales process and they are comfortable selling in CPD as long as it makes the sales.

To keep the business alive, ad network vendors actually pay to get a permanent ad space on the media for serving as an ad tag via the advertisement. Most of the cookies are done based on this method as well. If not, it must have gone through a special relationship with the media owners.

Most ad networks in China also keep zero inventory and media placements are carried out on a back-to-back basis. I have not come across a Chinese ad network that is willing to allow its site for third-party optimisation. Also, none of the ad tracking report is real-time. All these practices leave a big question of trust and accuracy to us – the agencies and advertisers.

Don't get me wrong, I like ad networks because they make audience profiling so scientific. I can apply my strategy with the help of the targeting and retargeting solutions. And thanks to the modern ad network, an ad campaign can be optimised according to clickstream and audience behaviour.

Eventually, I believe technology will drive the evolution for a better practice and allow more information to be accessed by advertisers. At the moment, I don't see a market space for blind ad inventory in China due to the business practice and value system of media owners. But it certainly doesn't mean marketers that advertise on China's ad networks should execute their ad campaigns blindly. I like to encourage ad network operators to be more transparent to the agencies and allow them to effectively execute the advertising strategy.

I believe the first ad network to open up more information will be the game changer and win in the market.


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Eddie Choi

Eddie is the founding partner of Frontiers Digital and the Executive Director of Milton Exhibits Group. Although Eddie studied classical theory of sociology in college and has a MBA, technology always has been a passion with him. He believes that a combination of technology and communication is what the modern marketing is heading towards in the future. Eddie is a member of Search Engine Strategies Global Advisory Board.

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