Programmatic in China Part 2: The Preferred Deal

In part two of this look at programmatic buying in China, columnist Charlie Wang looks at the preferred deal models in China.

In my last article, I covered programmatic premium models in China. Today I will talk about preferred deal.

13jan15-charlie-wang-programmatic-in-china-part-2
First, let’s wrap our heads around the terminology. Like programmatic premium, preferred deals also have various names: “Private Access,” “First Right of Refusal,” “First Look,” and “Unreserved Fixed Rate.”

Amongst these terms, the simplest one describing the model is “Unreserved Fixed Rate.”

From a publisher’s perspective, inventory is unreserved/non-guaranteed, but publishers still charge advertisers a fixed cost per mile (CPM). Compared with programmatic premium and direct sales, preferred deal inventory has a lower priority, but is still higher quality than the impressions released to private auction and open exchanges.

So another way to describe preferred deal inventory is that it is the top layer of the remnant of unsold inventory. From an advertiser’s perspective, large advertisers will get the first pick of preferred deal inventory before it is released to private auctions, hence the term “First Look.”

But keep in mind it’s still only the “First Look” of the unsold inventory. The model here is very similar to retail. For example, an ice cream brand will first sell the majority of its product to large convenience store chains like 7-Eleven, with fixed price and volume.

This model is the equivalent of programmatic direct buying (PDB), which I covered in my last article.

If the ice cream brand produced extra cones that didn’t all get sold to 7-Eleven, then it will offer it to mom-and-pop stores which it has a good relationship with. The catch is pricing can be fixed based on the good relationships, but volume cannot be guaranteed.

Hence if one month, 7-Eleven bought 99 percent of all its product, then only 1 percent will be released to the mom-and-pop stores.

Which Brands and Campaigns Should Use Preferred Deal?

Now that we understand the model, let’s see what type of brands and campaigns this model of programmatic is most suitable for. I will give two examples below of the circumstances in which it would be suitable:

1. SMBs:

As you gathered from my retail example, one use of this model is for small and medium-sized businesses (SMB) that wish to purchase quality inventory but with no specific reach/traffic goals.

SMBs do not have the procurement power of bigger brands, so if they also want to reserve premium inventory, then they will have to pay a high fixed CPM. So if the small brand is simply looking to associate with a particular premium publisher, but with no reach or traffic goal in mind, then this model can satisfy that need.

2. Big Brand:

Besides SMBs, the model can also be used for bigger brands, but under very specific circumstances. Usually big brands will have several bursts of activity every year – these type of campaigns require a guaranteed reach/traffic goal.

Given the non-guaranteed nature of preferred deal models, it’s definitely not suitable for the main burst durations. However, if the brand wants to maintain a minimal level of activity all year round, then preferred deal models can help bigger brands sustain some voice on the market through quality inventory and publishers.

Preferred Deal in China

Comparing the preferred deal model between China and the West, there are both similarities and differences.

In both markets, the smaller publishers do not really have this model. They simply have a two-tier system of direct sales, and remnant open exchange inventory. Hence, the smaller publishers will release their remnant inventory into the open exchanges like Google AdX.

The bigger publishers will build their own private exchange, which encompass both preferred deal and private auction models. Inventory will simply flow down the tier, from preferred deal, to private auction, finally to open exchange.

So from a conceptual level, both markets operate on the same principle. However, the execution level of a preferred deal is where the two markets differ.

In the West, most publishers will connect through a third-party technology vendor, which will manage the deal’s execution.

Google DBM’s private market place (PMP) offering allows advertisers to set up a preferred deal with many premium publishers, plus the use of Google’s data management platform (DMP)/Audience Segments.

This model works in the West because most publishers are open to connecting with Google. However, the common theme between publishers in China is that they want to become a one stop shop for brands. Hence, they’re more reluctant to connecting with Google. Instead of providing only the inventory, publishers in China attempt to move up the value chain by offering a complete programmatic stack. Some examples of these publishers are below:

Sina

Companies like Sina differentiate their programmatic solutions through two products: Fuyi (扶翼) and Longyuan (龙渊).

Fuyi is their private auction product, and Longyuan their preferred deal product. However, the way that Sina defines Longyuan does not exactly fit the preferred deal model. From an inventory perspective, Sina guarantees both Longyuan pricing and volume.

Instead of being remnant inventory, Longyuan takes a first cut of direct sales inventory and reserves it in its media pool. So in essence, it’s a hybrid of preferred deal and PDB models, because the preferred deal can never guarantee volume, and only PDB can reserve inventory.

Looking at Sina’s Longyuan product, it doesn’t make much sense as to why a publisher would do this. Because direct sales usually generate the highest amount of revenue, so there is absolutely no reason why Longyuan should take the first cut of the inventory pool if there are outstanding direct sale requests.

My take on Sina Longyuan is either the internal team is truly confused about programmatic models, or they are simply trying to ride on the programmatic wave by packaging a preferred deal product.

Youku

Video platform Youku is another premium publisher with a clear programmatic offering. It offers PDB, preferred deal, and private auction models through its Yitian (倚天) ad platform.

For a publisher with premium video content, preferred deal models makes a lot of sense for Youku. Under their definition, PDB inventory definitely consists of the most premium contents like hot TV shows. When this inventory is left unsold, preferred deal clients will get the first look before it’s passed down to the private auction. However, there is some content that will stay at the preferred deal tier, and never make it down to private auction.

This type of inventory is usually top content that Youku has spent money to procure, for example popular American dramas like The Walking Dead or entertainment shows like The Voice of China.

Even though these types of content will usually get sold directly, there are a few circumstances under which it becomes remnant. Youku will only release it to premium advertisers to protect its own brand equity as well as to charge a higher CPM.

Publisher preferred deal products above all have one problem in common: transparency. Without a technology company to verify the inventory priority, it’s essentially the same as a direct sale deal packaged under preferred deal.

Another issue is that advertisers will likely have multiple preferred deals with different publishers. With every publisher offering their own programmatic stack, there’s no way to manage it under a single platform, let alone conducting cross-publisher frequency caps or single DMP based buying mechanisms.

Preferred deal models in China have the same issue as previously covered PDB: transparency and publisher silos. All this is rooted in the publisher’s focus on short-term gain instead of long-term programmatic growth. So if the publisher decides to stop building full programmatic stack and open itself to other ad-tech companies, then we’ll see preferred deal models take off in China.

*Learn more about China’s unique programmatic ecosystem at ClickZ Live Shanghai (May 26-28, 2015).

**Homepage image via Shutterstock.

Subscribe to get your daily business insights

Whitepapers

US Mobile Streaming Behavior

Whitepaper | Mobile US Mobile Streaming Behavior

5y

US Mobile Streaming Behavior

Streaming has become a staple of US media-viewing habits. Streaming video, however, still comes with a variety of pesky frustrations that viewers are ...

View resource
Winning the Data Game: Digital Analytics Tactics for Media Groups

Whitepaper | Analyzing Customer Data Winning the Data Game: Digital Analytics Tactics for Media Groups

5y

Winning the Data Game: Digital Analytics Tactics f...

Data is the lifeblood of so many companies today. You need more of it, all of which at higher quality, and all the meanwhile being compliant with data...

View resource
Learning to win the talent war: how digital marketing can develop its people

Whitepaper | Digital Marketing Learning to win the talent war: how digital marketing can develop its people

2y

Learning to win the talent war: how digital market...

This report documents the findings of a Fireside chat held by ClickZ in the first quarter of 2022. It provides expert insight on how companies can ret...

View resource
Engagement To Empowerment - Winning in Today's Experience Economy

Report | Digital Transformation Engagement To Empowerment - Winning in Today's Experience Economy

4w

Engagement To Empowerment - Winning in Today's Exp...

Customers decide fast, influenced by only 2.5 touchpoints – globally! Make sure your brand shines in those critical moments. Read More...

View resource