Programmatic in China Part 3: The Private Marketplace

The last two programmatic models that I covered focused on fixed price deals that are very similar to direct sales. You can read part one here, and part two here.

Today I will be covering the first layer of the auction-based programmatic model: private marketplace.

As always, the ad-tech sphere is filled with jargon that often means the same thing.

Private marketplace has several names: “invitation-only auction,” “private auction,” “closed auction,” and “private access.”

Amongst these, the term that best describes the model is “invitation-only auction,” where the cost per mille (CPM) is floating based on bidding price, and only the invited brands can participate in the auction.

Hence, think of this model as a member’s-only club that doesn’t allow everyone in the door, as opposed to an open auction where both big and small brand owners can participate in the bidding.

Therefore, the inventory is considered more premium than open exchange, but also comes with a higher price tag (floor CPM).

The major difference of this model with programmatic direct buying PDB and preferred deal is the usage of real-time bidding (RTB), where the highest bidder wins the impression chance.

A lot of times, we tend to over-emphasize on the concept of RTB and some even directly associate RTB with programmatic. But RTB is completely irrelevant for fixed price programmatic models like PDB and preferred deal.

There has also been some confusion around the term “private marketplace,” especially in China, because some ad-tech companies and trading desks use it to describe a combination of different programmatic models.

For example, Google PMP, which stands for “Google Private Marketplace,” is an offering, which essentially covers both preferred deal and invitation-only auction.

Some trading desks in China also use the word “private marketplace/PMP” to describe a bespoke disclosed trading desk created for a specific brand. In this case, private market place (PMP) essentially covers ALL the programmatic models from PDB to open exchange. So the word “private” here really means brand bespoke, instead of “invitation-only.”

It’s important for marketers to understand this difference, and clarify the exact meaning when someone mentions private marketplace.

So to reduce confusion, from here on I will only be using the word “invitation-only auction” to describe this model.

Invitation-Only Auction in China

To understand this model in China, let’s first compare it with the West. If we examine invitation-only auction in the Western ad-tech space, one of the first products that comes to mind is Facebook Exchange.

It offers display and native formats within Facebook using an auction-based buying model. Now, being a premium and hugely influential channel, they will not release any inventory into the open exchanges such as Doubleclick AdX. This protects their inventory with a controlled floor price, and the inventory is accessible through a multitude of demand-side platforms (DSP) on the market.

Numerous other premium publishers in the West like Conde Nast have also built their own private exchanges to follow the programmatic trend, and protect their advertising brand equity.

Now let’s compare this with China’s model. The big publishers in China have also built their own private exchanges, such as Tencent AdX, Sina AdX, and Youku AdX. Some publishers will also release remnant inventory from their private exchanges into the open exchanges like Taobao AdX, Doubleclick AdX, Baidu AdX, and Miaozhen AdX.

Most local DSPs out on the markets connect to both open exchanges and private exchanges to maximize inventory volume. Hence when buying through DSPs, there’s the option to pick and choose open/private exchanges. While this part is quite similar to the West, the key difference comes in the form of “value added products” that Chinese publishers build on top of their private exchanges.

From my previous columns on programmatic in China, there’s a common theme in the ad-tech space locally: publishers like to own the whole ad-tech stack by providing one-stop shop solutions. And this point is no different for the invitation-only auction model here in China.

Most big publishers in China are not content just offering inventory at an exchange level; they often attempt to move up the ad-tech stack through the following ways:

1. Bundling exclusive access to private exchange inventory with a self-owned DSP, hence no other independent DSPs out on the market can get access to that inventory.
2. Bundling second party DMP data with a self-owned DSP for targeting. This is quite a selling point given that there are no third-party DMPs like Bluekai available in China.

Some examples of these publishers are below:

Tencent

Tencent’s ad-tech stack consists of three different products: Tencent AdX, Tencent Guangdiantong (广点通), and Tencent Tenguo (腾果).

Tencent Adx is their private exchange product, it offers inventory from the entire Tencent ecosystem such as QQ Music, QQ Portal, and QQ IM.

Tencent Guangdiantong is an ad platform built on top of Tencent AdX, it offers a Web-based bidding platform that’s very similar to Baidu’s Adwords bidding system. The point of differentiation for Guangdiantong is that there are exclusive native formats within Qzone (Tencent’s social networking site) that’s purchasable only through this format or direct sales.

So no other DSPs out on the market can get access to this native format, hence it’s essentially a closed version of Facebook Exchange that connects to no one but itself.

Tenguo, on the other hand, is Tencent’s DSP product. It connects to other private and open ad exchanges, also. The main selling point on Tenguo is that they have exclusive access to Tencent’s DMP.

Now the entire Tencent ecosystem covers almost the entire Chinese Internet population, hence having that data is a very powerful targeting tool. Especially since there are no third-party DMPs in China.

Renren

Renren is the first Facebook clone in China and has maintained a steady position with the college crowd locally. Their invitation-only auction offering comes in the form of a DSP/Private Exchange hybrid. Above all, Renren does not have a standalone private exchange offering, because they do not connect to any DSPs out on the market.

Instead, they sell their inventory exclusively through their own DSP. On top of their own inventory, Renren also connects to other private/open exchanges out on the market, but they allow the usage of Renren’s DMP data for targeting across other exchanges.

The uniqueness of Renren’s DMP data lies in the fact that it’s very similar to Facebook, the information on this real name social media site is consumer provided, instead of inferred based on browsing behavior. So their DMP also has a clear selling point. In essence, this model is a combination of Tencent Guangdiantong and Tenguo, because it offers both exclusive access to inventory as well as Renren’s DMP data.

Looking at the above publisher offerings, we’re once again reminded of China’s unique ad-tech space. Products like Renren DSP is quite perplexing to me because if the selling point is exclusive access to Renren’s inventory, then why connect to all the other exchanges out on the market? By doing that, they place the focus less on inventory exclusivity, but more on being able to use Renren’s DMP for targeting on other exchanges.

But if the selling point is Renren DMP, why not just open up their DMP to the entire China ad-tech space by creating a third-party DMP? I think this unique situation in China is rooted in the below issues:

1. Chinese publishers just aren’t the sharing type. They realize the value of their data and will not open it up to anyone for monetization.
2. DSPs have higher profit potentials than private exchanges, because a DSP product has significant mark-ups on top of exchange CPMs.
3. Monetizing DMP is hard. Publishers do not have a clear pricing strategy for selling data. Also, marketers in China aren’t accustomed to the concept of paying for data. Hence a true “Bluekai” hasn’t developed locally.

Homepage image via Shutterstock.