A Peek into China’s Unique Programmatic Advertising Landscape
In previous blog posts, we’ve mainly focused on the various features and aspects of apps that the Chinese regularly use.
What we haven’t yet touched on is the other big player in the game: programmatic advertising. It is a powerful tool for digital marketers to reach a massive target audience.
Not quite sure what programmatic advertising is? We’ve included some definitions at the end of this article to help you become familiar with programmatic advertising.
But first, let’s start off by looking at China’s unique programmatic landscape.
Think you know programmatic advertising? Not until you meet China
By the end of 2019, eMarketer forecasts that programmatic display ad spend in China will reach USD $29.61 billion, representing 69% of China’s total digital display ad spend. This is just behind the US, the world’s largest programmatic market, which is forecasted to reach USD $57.35 billion by the end of 2019, representing 84.5% of the US’ total digital ad spend.
What’s more interesting is that China’s programmatic ad spend is increasing at an enormous rate.
At its predicted spend of USD $29.61 billion in 2019, it will nearly double the amount of programmatic ad spend in 2017 (USD $16.69 billion).
With the rise of China as a ‘mobile nation’, users spent an average of 27 hours per week on the internet in 2017. The dominant channels of internet usage are reflected in the diagram below, which also depicts the ad spend distribution.
Newsfeed, social media, and ecommerce will continue to dominate as channels, while newsfeed and social will gradually take a bigger piece of the ad spend pie.
Diagram: Proportion of Online Advertising in China
Source: iResearch China’s Annual Monitoring Report on Online Advertising Market
China has an entirely different digital landscape from the western world. Because of China’s Internet Censorship Policy, a multitude of websites are blocked in China, limiting Chinese people’s access to a wide range of apps and sites, including global powerhouse platforms like Youtube, Facebook, Twitter, Google, Whatsapp… and the list goes on.
It is therefore necessary to look towards Chinese programmatic platforms for answers on how to advertise on China-specific domains.
More Mobile, Less Desktop
In our previous post, we discussed how Chinese users rely heavily on mobile—from social media to booking tickets and more.
Diagram: The Scale of Mobile Internet Users (blue bar) and Their Proportion in Total Internet Users in China (light blue line). Scale: 10,000
This graph by CNNIC is a strong indicator that Chinese people rely heavily on mobile phones (787 million are in use in China, to be exact) representing a whopping 98.3% penetration rate among the total internet users. Many even own mobile phones as their only source of internet access. Interesting fact: typical mobile phone screens are often as big as a mini iPad to emulate a desktop screen.
China has great potential for growth as its current internet user penetration rate is just 57.7% of the total Chinese population.
Compare this to the US, where mobile users have reached 247 million people, which represents an approximate 90% mobile penetration rate, and almost 80% of the US population has internet access.
As mobile apps in China are rapidly evolving to serve more demand, mobile usage in China will continue to grow. Targeting should be shifted heavily toward mobile rather than desktop.
BATT: Operational Silos
Luckily, the duopoly of Facebook and Google is not in the equation when it comes to a share of China’s digital advertising. However, China’s programmatic advertising marketplace has its own dominant players. Baidu, Alibaba, Tencent, and newcomer Toutiao. This group is also referred to as BATT. BATT dominates search, e-commerce, social, and news information, respectively.
Unlike in North America, where publishers plug in to a third-party technology vendor to manage the ad sales process, in China, publishers build their own programmatic ad technology. As BATT consists of the dominant publishers in China, they each have their own platform to control advertising, and they operate as silos independent of one another.
Difficulty Obtaining and Sharing Data
While dominant players like BATT have developed sophisticated ad-buying technology, they have individually formed their own closed ecosystems. Therefore, ad campaigns cannot be fully optimised due to the difficulty in sharing various data across platforms.
An Opaque Market
In China, the market is more opaque than the western world.
Ad networks in the west generally charge transparent service fees and allow real-time bidding on their platforms so that ad impressions are bought based on market prices.
In comparison, in China, ad exchanges are mainly private, where the ad impressions are less open to real-time bidding, allowing publishers to earn higher profit margins.
A Less Standardized, More Fragmented Market
Inferencing from the above, we can already tell that China has a complex media environment. In this complex media environment, where publishers like to own their ad exchanges, there is no one way to manage all advertising activities across one single platform. This market fragmentation also means that ads can come in many different shapes and sizes.
Ad frauds are a well-known fact across the programmatic industry, and China unfortunately shares that limelight.
Ad frauds happens in many forms, including:
- Bad bots that fake ad exchange impressions/clicks
- Ads that are stacked on top of one another with only the top-most advertisement visible to users
- Fake ‘ghost’ sites that look as close as possible to a real website to get approvals from ad networks to have ads displayed on their site
Over the past couple of years, the ad fraud rate in China went as high as approximately 40%. In Q1 of 2018, ad frauds in China accounted for 28.8% of the total advertising spend. Contrastingly, it is estimated that in the UK, ad fraud accounted for just 9% during the same period.
iPinyou is the programmatic giant that connects into the ad exchange of BATT.
Founded in 2008, it is one of the first companies to bring programmatic buying to China. iPinyou is China’s largest independent DSP (demand-side platform), accounting for 59.8% of China’s programmatic buying market serving branded advertisers. It now serves an average of 24 billion ads daily.
Headquartered in Beijing, with offices in Shanghai, Guangzhou, and Silicon Valley, it owns the largest and highest quality DSP in China available within and outside of China.
iPinyou’s success is thanks to its foresight.
Above, we mentioned that the big BATT publishers are unwilling to share data across platforms, and they work very much in silo. There’s good news here though. As iPinyou is a DSP and not a publisher, it is able to work closely with search giant Baidu and other such internet giants in China, including (but not limited to) ecommerce site JD.com and OTA sites Ctrip and Qunar.com. Such close partnerships allow iPinyou unique access to data so it can perform cross-data analysis to better optimise ad spend across the iPinyou programmatic platform.
China’s advertising world is constantly challenged by transparency due to the deeply embedded fraud network. A lot of times, information is not honestly disclosed. Promoting a clean and transparent digital advertising environment, iPinyou was the first to launch Optimus Prime, a fully transparent trading platform with integration of third-party monitoring and safety companies, i.e., IAS and Grapeshot. With zero tolerance for fraud, it develops products based on big data and artificial intelligence to work towards solving inefficiency.
Getting into the China market is not as daunting as it seems. Working with the right platforms is critical. With iPinyou as our DSP partner, we help advertisers outside of China connect to the lucrative and eager audience inside of China. Learn more with us.
What is Programmatic Advertising?
In a broad view, programmatic advertising is the automation of media purchase and advertisement placement. This all happens in the digital sphere.
Before programmatic advertising came into the picture, digital ad placements were bought and sold manually by humans. Programmatic advertising eliminates the need for sales resources. Through machine learning, it optimises the performance of ad space allocations, increases cost efficiency, and reduces human error.
By replacing manual labour with programmatic capabilities, humans are able to save the time that used to be meant for preparing insertion orders and ad tagging to produce better quality work and spend time on better optimisation and strategic campaigns.
What is a DSP?
A DSP, or demand-side platform, is a centralised automated tool that allows advertisers to purchase, serve, and track ads across the entire media landscape. It plugs in to ad exchanges and ad networks, where a wide variety of publishers make their ad inventory accessible.
DSPs help to optimise their ad inventory by
1) analysing the impressions SSPs put out and
2) often performing real-time bidding (RTB) to purchase on behalf of advertisers.
With DSPs, advertisers are able to take advantage of a wide availability of ad inventory to narrow their target audience on a huge scale, reaching a large target audience in the most optimised way possible.
What is an SSP?
An SSP, or supply-side platform, works in a similar way to DSPs, but think of it as a platform built for publishers instead. Publishers use SSPs to place, manage, and optimise their online ad inventory. Publishers can also maximise revenue by setting price floors, a minimum price at which they are willing to sell their impressions to specific buyers or through specific channels. Likewise, SSPs plugs in to ad exchanges and ad networks, connecting to DSPs.
Imagine a department store where many different brands are available within the one store. The shoppers in this case are the advertisers, while the brands are the publishers.
An ad network is akin to a department store, but it exists digitally.
For publishers, they use ad networks to sell their left-over ad inventory. They will sell in as many ‘department stores’ (ad networks) as possible to maximise their sales.
For advertisers, ad networks help them to connect to as many ‘brands’ (publishers) as possible. Because the ad inventory is segmented to different targeting specifics (age, location, gender, etc.), advertisers purchase ad inventory based on their desired target audience on a wide scale. This is something that would be extremely time-consuming if done manually.
While ad networks are a simplified way to buy and sell ad inventory, publishers are still faced with a large pool of unsold ad inventory. Hence, ad exchanges were born. This is where a large pool of impressions sell on a real-time basis, commanding a market price. Publishers are exposed to who is buying their ad inventory, while advertisers are exposed to insights of impression-level data. This leads to an improvement in price and knowledge transparency.
Imagine a market place where auctions are ongoing. That is what the ad exchanges essentially are. It is where DSPs, SSPs, publishers, advertisers, agencies, and ad networks buy and sell ad inventory. Through a process called real-time bidding (RTB), ad inventory is sold on a ‘per-impression’ basis, where the highest bidder wins.
To publishers, ad exchanges help maximise their unsold ad inventory.
To advertisers, because targeting specifics are more honed than in the ad networks, they are able to bid for impressions based on behavioural targeting. This allows advertises to maximise the value of their ad spend.