In order for programmatic to grow significantly in the Chinese market, publishers need to buy into the model - accessing and embracing the technology is the easy part.
I recently attended the Google Marketplace Conference in Beijing, where the core topic was centered on private marketplace (PMP) opportunities for both publisher and ad buyers. While the Google and agency trading desk (ATD) executives are filled with optimism, my chats with publishers and clients conveyed mixed feelings as well as realistic execution difficulties. Personally, I'm a firm believer in programmatic media's future, but we cannot ignore the executional elements, especially in the complex Chinese market. So I'd like to reflect and focus on the "not so cheery" bits of the conference, for that's what I believe to be the key barriers for programmatic growth in China.
Many big brands will often commit an investment level annually with a publisher for a guaranteed lower CPM rate. So, one of the first questions I asked Youku/Sohu/Tencent was, "Can PMP investments (including preferred deal and private auction) be counted toward my annual commitment?" This is an especially important point for me as an agency because I have to ensure that the client hits the annual commitment level, or else the CPM will adjusted to a higher level. The publisher's responses are a unanimous "no." For publishers, PMP investment and direct investment are two completely separate pools, affecting many internal policies such as sales quotas and commissions. So the incentives for publishers are definitely still focused on direct sales, hence they do not want clients/agencies to redirect their investment through PMP for a lower CPM. This point is a show-stopper for me as well as the client that accompanies me, because we have to protect our direct buy CPM rates, where the inventory is more at a premium.
Regardless of preferred deal or private auctions, PMP inventory is still left over from direct sales. So, for bigger brands that still want maximum inventory control and fixed CPM guarantees based on volume, PMPs are a risk both in inventory and non-fixed pricing. Instead, programmatic direct gives maximum control to big brands and their agencies. We can still go through our direct buy channel where resources are pre-selected, the only difference being cross-media ad serving based on target audience (TA) cookie match in the brand's DMP. Publishers also prefer this model of programmatic because it doesn't affect their direct sales channels, and they don't have to fight the internal battle between channel sales and the programmatic product team.
In a preferred deal model, inventory is released to brands on a per-impression basis. If the brand decides the impressions do not fit their TA based on their DMP data, then those impressions are "sent back" to the publisher. Now, this is fine with the PMP model, as the inventory is largely remnant and if left unsold it can be released again to the open exchange. Applying the same model to programmatic direct, publishers will have to release two or three times the amount of impressions to clients. Then, the brand can pick and choose amongst the impressions based on their DMP TA segments. From the client's perspective, this concept is extremely beneficial, as they can control the CPM just like direct buy, and can still use the programmatic element to determine if the impression is indeed their target audience.
On the other hand, premium publishers like Youku think this is an annoyance that will affect their direct sales. Because if every client wanted to buy impressions this way, then they'd lose the direct sales revenue that can be monetized based on the "returned impressions" even if the impression is sent back on a real-time basis. Another element is more of a political nature. If multiple clients are using this model of programmatic direct, who gets first dibs on selecting the impressions? This is even more of a conundrum if there are competing brands trying to target the same audience segment. Hence, here is where the human element has to intervene. Factors like investment level, as well as channel sales relationship, will most likely determine inventory hierarchy as opposed to purely programmatic.
The biggest worry publishers have about open exchanges are direct sale cannibalizations. They are especially focused on the biggest brand advertisers that invest hundreds of millions on their platforms every year. Hence, all ad materials are audited carefully by the publisher team through the programmatic channels. If they see a brand advertiser that invests directly is going through a DSP, then they will raise the CPM level of that campaign equivalent to the direct buy rates. This way they can ensure the brand can never get a lower CPM by investing through a third party. This manual intervention is bad news for independent DSPs like iPinyou and Yoyi, but it's actually good for PMP developments in China, because if the brand wants to buy remnant inventory, they can at least get the first look through preferred deals directly with the publisher.
As you can see, the majority of these challenges are all centered on publisher programmatic receptivity and internal policies. Technology is the easy part, but in order for programmatic to flourish in China, publishers have to buy into the model. However, in the past year I have already seen many publishers open up to programmatic, from allowing ad serving to experimenting with inventory policies. So it will take time, but I do believe that China will eventually develop our own flavor of programmatic that's unique in its own right.
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Currently the digital partner for Mindshare, looking after the digital and search team in Beijing. Charlie is an experienced digital marketing professional with strong IT consulting background and a passion in data-driven marketing. He has more than seven years of digital marketing and consulting experience across U.S., Hong Kong, and China. His areas of expertise focus on direct response, lead generation, e-commerce, CRM, and programmatic media. An active advocate of data-driven marketing in the China market with various speaking engagements and publications on digital analytics and programmatic media. His client portfolio spans across IT, B2B, and FMCG.
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