Gone are the days of manual ad purchases requiring human negotiations and pre-set prices. Over the last few years, programmatic marketing has started to become the preferred method for digital ad purchases, and this trend is only going to continue to rise. China’s programmatic advertising market has recently started to gain traction, but the market is growing at an accelerated pace especially with the country’s huge investment into consumerism. If you’re not familiar with this form of advertising, it’s worth taking the time to get yourself acquainted to make the most out of your advertising campaigns.
What is programmatic advertising?
Programmatic advertising is the automated process of purchasing and selling available digital advertising space. Advertisers then bid for the ad space; the winner of the ad space will have their ad displayed by the time the page finishes loading. This process speeds up the ad buying and selling process, benefiting both advertisers and the publisher by cutting out administrative costs and making it more flexible. Even though the majority of purchases are made through real-time bidding (RTB), also known as open auction, there are other ways of programmatic advertising.
Open Auction/Real-time bidding (RTB): Advertisers bid against other advertisers and negotiate with publishers for ad spaces in real-time, or through the direct purchase of guaranteed or fixed-rate deals.
Private Auction (PMP): Publishers send a private invite to other advertisers and require partners to place their bid on the available inventory. This makes the deal safer than RTB.
Preferred Deal: This method bypasses auctions altogether. This allows publishers to sell ad space at a negotiated minimum cost per mile (CPM) to selected advertisers and provides a controlled revenue stream for publishers.
Programmatic Guaranteed: This method is where the buyer directly buys inventory from the publisher at a fixed price. The publisher delivers a guaranteed amount of impressions.
Making sense of programmatic advertising tools: DSP, SSP, DMP and Ad Exchanges
What is DSP?
A demand-side platform is a tool or software advertisers use to automatically buy and manage ad placements such as banner ads and in-stream video ads on websites, mobile apps and mobile websites. This type of software has audience targeting capabilities and real-time insight on campaigns to optimize results.
What is DMP?
A data-management platform is a tool or software, typically connected to a DSP to sort data to help advertisers make more impactful advertising decisions. DMPs retrieve raw data from marketers, advertisers and other channels. Targeted user information provided can include natural attributes such as age, gender, occupation, income and etc., and social attributes such as social interactions, hobbies, and purchasing habits.
What is SSP?
A supply-side platform or sell-side platform is a tool or software publishers use to facilitate the sale of ad inventory through Ad Exchanges. SSPs offer services such as minimum bid requirements for publishers to maximize how much ad spaces sell for.
What is Ad Exchange?
An Ad Exchange connects the advertisers (through a DSP) to publishers (through an SSP); essentially acting as the “middle person” to help publishers sell and advertisers buy.
Understanding the programmatic advertising ecosystem
The demand side platforms (DSP), supply side platforms (SSP), data management platforms (DMP) and the ad exchange are all integral parts to digital advertising. They operate together to enable the automated buying and selling of advertising. All of the targeted audience data that a brand needs is organized all in a DMP. Once the brand decides who to target in a specific ad campaign, the DMP will feed the information to a DSP, which will then go through the ad exchange and connect to an SSP. The SSP offers various options to reach the desired target audience at different prices, and then the DSP will automatically determine the most appropriate purchases based on the information gathered from the DMP. Once a brand is satisfied with a price and offer (via the DSP) by the publisher (via the SSP), the exchange is confirmed and the ad is purchased.
Why bother with programmatic advertising?
The traditional process of manually buying and selling advertising space leaves a lot of room for human error, high administration costs and an oversupply of unsold ads. The automatic process of RTB allows for better, quicker targeting that enables ads to be bought and sold at a per case basis. With the flexibility of targeting the right audience on the websites they’re most likely to engage with at the time they’re most likely to engage, smaller brands are able to compete with companies with bigger budgets.
Ads are typically charged on a CPM basis. The higher the quality and specific your targeting, the higher the price. However, the prices can vary depending on the industry, device, format and page placement. In addition, programmatic advertising can help you stretch your ad budget; the average costs for programmatic ads are between US $0.50 to US $2.00 CPM compared to human trading prices starting at around US $10. Programmatic advertising platforms also give brands the freedom to take their ad buying in-house.
Programmatic advertising in the Chinese market
Even though programmatic advertising is at its early stages in China, it appears to be growing at a faster rate than that of Canada, the United States and the United Kingdom. In 2017, China saw revenue of RMB 26.3 billion from programmatic purchased ad space. This growth is expected to reach RMB 67 billion in 2019 with a 7-year CAGR of 98.63%.
Although these figures exhibit an optimistic future for programmatic advertising in China, it’s important to understand that it works a little differently in China due to its unique digital landscape.
DSPs in China
With the tech industry dominated tech giants, BAT (Baidu, Alibaba, Tencent), the automated buying and selling market isn’t as transparent and straightforward compared to other countries. The aforementioned BAT account for 90% of the programmatic market in China, with Alibaba accounting for approximately 60% of all programmatic advertising. The BAT companies are also the main DSP owners in China, along with several independent DSP companies (iPinYou, Limei, AdSame).
DMPs in China
Large companies such as BAT and JingDong (JD) collect, sort and analyze their own users’ data through information collected from their browsing history, device data, consumption behavior, interests and preferences. The sharing of this data is strict and very limited if any.
SSPs in China
The majority of SSPs are owned by major Chinese apps (YouKu, Tencent Video, Momo and iQiYi) and independent companies. Large publishers tend to build their own SSPs to sell traffic at the highest price possible.
Ad Exchanges in China
Alibaba, Tencent, Sina, Baidu and other domestic internet companies built their own Ad Exchange platforms. The largest Ad Exchanges are owned by Alibaba, Taobao Ad Network and Exchange (TANX), and Tencent, Tencent Ad Exchange (TAE).
The benefits of programmatic selling in China
The benefits of automated ad buying and selling are similar to those in other countries: the ability to expand the transaction scale and optimize the effectiveness of advertising. RTB, in particular, allow for better segments of audiences, more accurate target, more options for pricing due to flexibility in time and regions. In addition, advertisers can receive real-time feedback from media platforms.
The downside of programmatic advertising in China
- Some local companies act as both DSPs and SSPs without being transparent about the fact; presenting as a possible conflict of interest. Many local DSPs own ad networks consisting of their own app traffic and ad inventory purchased from a public ad exchange, and publishers tend to build their own SSPs.
According to ADBUG’s 2017 Q1 China Media Report, out of 12 billion impressions, China saw an average of 29.5% invalid traffic and only a 25.5% viewability rate on PCs and mobile websites. In addition, an article by Accenture mentions that 10 to 30 percent of online advertising slots are never seen by consumers because of fraud, and it is forecasted that marketers could lose as much as US $50 billion a year by 2025.
With the dominant players, BAT, acting as their own DMP by acquiring information through their own social media platforms and channels, smaller companies find it difficult to gain large-scale data due to the limited sharing of data.
Even though China’s digital ad market can be confusing and has its complications, it can still be very beneficial for your brand. The ad market in China is expected to reach US $122 billion by next year. And since more than 800 million people in China are active internet users, it would only make sense that the future of advertising in China takes place online as well.
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