A DSP/Ad Exchange Discussion: Improvement or Hurdle to China Marketers?

If you have followed my previous columns, you would’ve noticed I started my career at Real Media, an ad serving and media rep firm. It shaped my career-long love in ad serving and real-time optimization. It’s not that complicated.

You serve your ads through a third-party server and get to rotate and test creative before wasting too much time or opportunities. You can tailor your creative and copy when served in different geo-markets and/or across different times of the day. It makes your ad more relevant to the audience and a better reason for them to engage. No rocket science at all.

Ad exchange is nothing new. However, not well known to everyone in China. I would call it a product derived from ad serving technology. With the technology in place, we will be able to build a platform that allows advertisers and media owners to play around their demand and supply in ad inventories. If you look at Wikipedia, you get a straightforward introduction to DSP – the demand-side platform.

“A demand-side platform (DSP) is a system that allows digital advertisers to manage multiple ad exchange and data exchange accounts through one interface. Real time bidding for displaying online ads takes place within the ad exchanges, and by utilizing a DSP, marketers can manage their bids for the banners and the pricing for the data that they are layering on to target their audiences. Much like Paid Search, using DSPs allows users to optimize based on set Key Performance Indicators such as Cost-per-clicks, and Cost-per-action.”

If you ask any China brand advertiser now, ROI and cost efficiency are always the frequently mentioned phrases. Marketers negotiate “the best resources, at the right prices.”

Theoretically, ad exchange or DSP (with a foundation of ad network) contributes to higher media efficiency by allowing more accurate audience reach through geographical and/or contextual targeting and therefore should be the marketer’s new best friend.

Uh, nah-da!

Before we further understand why ad exchange is not commonly applied, we need to crack down first why ad networks are not growing significantly in this market. Let’s investigate their business models and opportunities.

In mature markets, ad networks represent website ad inventories exclusively. There is only one sales force selling the inventory.

However, media owners in China hire their extensive sales force to sell all ad inventories in the site. By “extensive” I mean the internal sales force is generally separated into two competitive teams – the “direct sales” who contact brand advertisers and the “channel sales” who deal with agencies. These two teams are competing for sales orders so ad networks will literally become the third sales force for the same pool of inventory.

Most of the time, ad networks can only represent the less-premium inventory thus less appealing to advertisers. Brand advertisers do not see the true benefits of dealing with ad networks over directly with site owners. If you ask me why – it’s because most brand advertisers do not have clear and measurable campaign goals when it comes to display advertising on websites.

Instead, I have come across lots of clients committed to dealing only directly with media owners for different reasons. Top on my list includes the belief of spending advertising dollars in exchange for positive editorial and publicity. Without having website traffic and number of conversions as campaign goals, advertisers or agencies are not motivated to optimize through campaign period. The benefits of using ad network in terms of driving quality traffic are overshadowed by possible PR management with media owners.

Ad exchanges or DSPs require brand advertisers to be fully aware of what kind of audience traffic they are looking for as well as having basic knowledge of how to measure the implications of more-targeted audience reach, e.g., conversion tracking on their websites. Except brands with e-commerce business, I don’t think Chinese advertisers are up for the game.

A track record of historical cost-per-click and/or cost-per-conversion is required to analyze and define an acceptable range of cost-per-thousand impressions for your real-time bidding in resources. At the moment, most advertisers are still struggling with having their current display campaigns monitored by third-party companies, not to mention holding media accountable for their delivery.

As much as DSP is demand-driven, China is a supply-dominated market. Media owners have to accept the fact that their inventories are to be sold based on audience targeting. It may mean out of 100 impressions on one page, only 70 percent of inventory is on-target and therefore “demanded” by conversion-driven advertisers. It is simple math to them.

For instance, currently one particular placement on a home page is selling at RMB 50,000 a day, covering all-people of 10 million impressions. The non-targeted all-people CPM is 5 RMB. With 30 percent loading, brand advertisers can buy on-target impressions based on cookie matching.

Brand advertisers are paying RMB 6.50 CPM for probably only 30 percent of original all-people impressions, paying a total cost of 19,500 RMB. The remaining 70 percent impression inventory is up for sales for other advertisers wishing to reach a different audience group.

However, only another 30 percent is up for grabs. Therefore, the total revenue for that particular placement is 39,000 RMB, even with the 30 percent loading charge. China media owners are not willing to take the risk with their ad revenue.

You can say this is a very short-term belief to media owners not hoping to improve in audience targeting and I am with you completely. However, with most of the top China media sites being listed on Nasdaq and quarterly financial reports are up in their ass, I can’t say I blame them.

My solution? Take them off Nasdaq and let media owners refresh the initial idea of setting up their sites. Media is meant to provide sufficient and relevant content to its audience. DSP or ad exchange helps to send through only relevant ad messages to the right potential customer.

Bringing in ad exchange or DSP to China is definitely beneficial to brand advertisers. However, if media owners are not playing a fair game with us, this will not go anywhere as smooth as expected.

Working under my agency group’s online buying house in China, I truly hope we would be able to identify a win-win situation working with media owners to activate the DSP for most of our clients. As of today, we have lots of hurdles to overcome!

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