CHINA REPORT: The next frontier in demand-side platforms & real-time bidding

Unlike in the West, the Chinese online advertising market is still evolving. DSPs (demand-side platforms) and RTBs (real-time bidding) are only now starting to enjoy a high level of interest from advertisers, even though few companies actually have capabilities and practice in this area.

The interest comes as advertisers begin to better understand these platforms’ functions. In the past, some publishers defined their own sales platforms or ad networks that offered behaviour targeting capabilities through selected profiles at agreed CPM (cost per thousand) rates — taking a very literal interpretation of the term ‘DSP’s, believing: “It’s a platform and it’s aimed at the demand side, therefore it’s a DSP.”

Now, a DSP has come to be understood as a specific piece of the real-time buying ecosystem, namely the bidding engine, Yean Cheong, head of digital at IPG Mediabrands Asia-Pacific, says.

Put simply, publishers can feed their inventory into an exchange, which runs an auction for each impression. DSPs calculate the value of the offered impression for their respective clients based on what’s known about the user, then submits a bid in real time. Such a practice has dramatically improved agencies’ ad placement effectiveness. And it’s only recently that this type of technology has emerged in China. As such, there are a few companies that can make a justified claim that they offer DSP technology, Yoyi and iPinyou being some of the forerunners in this.

Jing Pan, AdChina’s marketing vice-president, says that how well these companies’ technologies perform at scale is the most important thing. “A DSP should be more than just RTB buys,” she says. “The fundamental function of a DSP is to enable automatic audience-centric media buying for improved efficiency.” RTB only exists when there are multiple bidders in the market for a large volume of inventory, but today, RTB media volume as a percentage of total media trading volume in China is still negligible, she explains.

Cheong expects to see swift growth in players in China in the coming months, creating a “groundswell that will hit tipping point in a shorter period of time than perhaps the West has taken”. Long-tail and remnant inventory will consolidate in relatively fewer general exchanges, such as Google’s Ad Exchange, Taobao’s TANX, and Tencent ADX.

Until then, advertisers face some challenges. For example, there are large inventory volumes available in China, but most are not RTB-enabled. According to Cheong, the biggest challenge is to convince publishers to feed their inventory into an RTB system. “For some, the technology is simply too new. So there is a need for more education and evangelism of RTB. For others, especially premium publishers, they are more concerned their CPM rates may suffer when competing in an open auction, which becomes a barrier to participation”.

Other challenges of a more technical nature include brand safety and how to calculate the value of each impression if it takes multiple impressions and includes a video and a search ad before a user converts, for example. “To ensure inventory quality, we work with extensive proprietary black and white lists; and third-party content verification services. However, a DSP’s ability to categorise pages by content and quality is also an important factor,” Cheong adds.

There is a lot of inventory duplication in each DSP, says Arlene Ang, CEO of digital at Omnicom Media Group. The majority of RTB inventory is still remnant simply because publishers are not yet seeing revenue from this model.

There is little collaboration between local DSPs, while commercialising data is not a common practice due to trust issues and cultural reasons in China, explains Pan. “Every DSP has its own pieces of data, but a platform with a universal view of internet user behaviour, from visitation, interest, demographics, to especially purchase, is yet to emerge. DSPs in China are desperate for such giant-volume data to help them boost targeting efficiency,” she says.

Without access to such data, DSPs are competing on their own data mining capabilities, to the detriment of the industry in general. “When we run campaigns, we will not be turning on two DSPs at the same time and end up bidding against ourselves. Therefore, it will be better if all ad-networks and publishers work together to build liquidity in the market,” Ang adds.

Against all the odds, both Pan and Cheong feel that China will take about two years to get the market’s RTB up to par with their US and UK counterparts. At its core, this technology is enabling advertisers to buy targeted audience versus just buying impressions. But it takes time to explain this to clients who have a different mindset.

But Ang is optimistic: “Once clients witness the ROI, they will make the switch”, and following simple market dynamics, as more demand shifts to the RTB model, supply will follow.