The Status and Trend of China's Programmatic Media Buying

Spending on online display ads in China will hit USD$14bn (£9.9bn) this year, with programmatic accounting for more than 20% of these buys, according to the research firm Forrester. The Forrester analyst noted that China’s programmatic buying was small, but growing rapidly.

The programmatic advertising landscape in China has seen gains in recent years, with eMarketer estimating a triple-digit growth rate in 2014, followed by a growth rate of nearly 50% for 2015 and 2016. While total programmatic ad spending in China outpaces that of the UK, the share of digital display ad spending transacted via programmatic means in China (51.0%) in 2016 is forecast to trail the US (67.0%) and UK (69.7%) by significant margins.

Baidu, Alibaba and Tencent are playing a role in China that is similar to the one Facebook and Google play in the US and UK. When the BAT players are put to one side, China's programmatic ad market lags significantly behind that of the US, with fewer players and a smaller ecosystem. Alibaba alone is a juggernaut in China's programmatic landscape, accounting for about 60% of all programmatic advertising. When counting Baidu and Tencent in, the BAT companies take up about 90% of the market.

However, programmatic advertising also faces hurdles in China. There are so many third-party data management platforms (DMPS) in Western markets, but in China, there aren’t many third-party DMPs.

Baidu, Alibaba and Tencent are hoarders of data, and currently they’re not very open about using that data outside their ecosystem. So data is both a driver and an inhibitor of programmatic. The reason that the BATs don’t like to open up their data is because they’re worried that once they open it up, somebody may take it—cookie-level data is very easy to steal.

The second obstacle for programmatic is about transparency. Ad networks’ way of making money is essentially arbitraging. They buy low and sell high, and that’s not the way a DSP is supposed to work. Most of the DSPs on the web charge a transparent service fee, but when ad networks in China evolved into DSPs, they kept their old way of arbitraging—which means the pricing is not transparent and prices are not that low. So DSPs and ad exchanges are the middlemen making the money, but the brand advertisers suffer.

Even if facing hurdles, Programmatic Buying was still increasing fast. In 2015, spending on programmatic mobile ad buying reached 3.37 billion Yuan in China, soaring 762.9%. The explosive growth of the programmatic mobile ad buying was attributed to the fast development of mobile Internet economy, programmatic purchasing companies’ devotion and exploration of mobile business in 2015 and advertisers’ increased budget on mobile ads. Programmatic buying captured expanding share of display ad spending on mobile and even some multi-screen demand-side platform companies’ direct contribution exceeded 50%. iResearch conservatively estimated mobile programmatic display ad spending will grab over 35% of display ad spending on PC and mobile in 2016.

Real time bidding (RTB) was the key way to buy mobile display ads programmatically in 2015 and accounted for 71.8% of all the ways in 2015. However, programmatic direct buy and non-RTB developed fast; non-RTB got increasing share for its high quality media traffic. iResearch anticipated that mobile programmatic display ad buying transacted via non-RTB will obtain more than 30% share in 2016.