It is a market all major players want to penetrate, but China's unique environment presents challenges that have created an unhealthy focus on where an ad is placed, rather than its eventual impact, as well as a breeding ground for ad fraud.

In this week's industry byliner, David Chen, Publicis Media's China managing director of data, technology, and innovation, highlights key barriers hindering programmatic from reaching its full potential in the country and urges the need for the local community to drive transparency and establish local standards.

His insights are especially timely in the leadup to ExchangeWire's ATS Singapore 2016, on 4 July, where a panel discussion has been dedicated to the Chinese ad tech market.

Conversations around China have proved extreme, with one side claiming the country is heading into an economic crisis and the other vehemently dismissing such claims. Either way, the numbers don't lie. There has been some cooling off in the Chinese economy, and this is causing concerns for businesses that have a stake in the nation, and marketers are no exception.

The slowdown might not be a bad thing, though, or at least, not for digital marketers that have invested in China. While we are seeing a general trend in marketing spend being cut, this is not so much an indication of diminishing ad spend, but rather a consolidation of funds into mediums that generate the most mileage. Fortunately, digital is in a position to gain from the situation.

While traditional media budgets, such as print and OOH, are being slashed, and TV is flattening, digital has found the opportunity to step in as the new star of the show. According to eMarketer, China alone accounted for 20% of global mobile internet ad spend, and 45% of the total ad spend in the country. Our own data suggests digital spend has grown 20% year-on-year, and we remain cautiously optimistic about this upclimb.

David Chen

While the stocks have gone into bear market several times, we're seeing marketers react realistically and pay closer attention to what is moving the needle for them. As the rest of the economy struggles to find its footing, we believe mobile will have a significant impact on the regional superpower.

China's 500-million-strong mobile internet users are spending an increasing amount of time on their devices. The amount of time spent with digital media has grown from approximately one hour and 47 minutes in 2011, to an estimated three hours and five minutes in 2015, accounting for just over 50% of total time spent a day across all media platforms.

Last year, the average time spent per day with digital media grew 6.8%, which was more than double of other media. The sheer scale of the local economy, coupled with the unique composition of China's tech space, grants marketers an opportunity to engage and relate to their audiences.

With a slimmer wallet, there will be renewed calls for investments to carry their weight. We can expect to see a larger slice of the pie dedicated to mobile in the coming year, with brands finding new ways to innovate their mobile strategies and drive the effectiveness of their campaigns.

Programmatic challenges in China

Programmatic spend in China continues to grow at a steady pace, not because it's the trendy thing to do, but because it works. However, there are a number of factors preventing programmatic from reaching its full potential here.

The presence of the Chinese government in the online space has created a unique programmatic ecosystem like no other in the world. For starters, the global giants – namely, Google, Facebook, and YouTube – are all but nonexistent. Instead, they are substituted by local players Baidu, Alibaba, and Tencent, which are dominant players in the China market. Unfortunately, for the ad tech community, they keep data to themselves; and, if you remove them from the equation, China's programmatic still has much catching up to do.

There also is the issue of value and transparency. As China's programmatic growth is driven by brands seeking direct conversion, they are not looking at potential downsides of buying into remnant inventory. In the chase for clickthroughs, things such as viewability and brand safety are often not taken into account. This has created some of some of the lowest tier platforms, sold at an equally low price in China.

It creates an opportunity for players, like us, to educate the brands and highlight that the machine-gun approach may not be the most efficient way of approaching programmatic. It is more important to have a targeted approach that gives quality clickthroughs instead of quantity.

China's programmatic market also lags behind in terms of data analysis infrastructures. Similar to Southeast Asia, internet adoption here took off a little later, missing the 'Web 1.5' boom that mature markets, such as the US and Western Europe, experienced. As such, content went straight to closed walls behind the likes of Facebook, Twitter, and Instagram, resulting in a lack of quality long-tail publisher inventory. In China, similar walled gardens exist with Baidu, Alibaba, and Tencent.

Amid these factors, and the predominant focus on where content is placed rather than the impact of the buy, coupled with the mindset prememptively prepared for some programmatic buys to be lost in the process, China has cultivated a breeding ground for ad fraud.

Addressing key issues in programmatic

The biggest problem with brands focussing on quantity rather than quality is that it undermines the importance of analytics in programmatic; and continues to contribute to the myth that programmatic is a simple case of setting parameters and letting the software deal with the rest. When it does not translate to real business benefits, brands start to question the technology. What they fail to realise is that successful programmatic campaigns can be achieved by a team of experts that analyse the data generated from serving these ads, then make the necessary adjustments to deliver the desired results.

Programmatic is still new in China, and this gives marketers the opportunity to correct misconceptions before they become detrimental for the industry.

Proper education in the industry is necessary to help brands refine the process and improve efficiencies in the digital space. This ultimately will drive the programmatic landscape.

Brands, currently, are still focussed on the number of times an ad appears across different platforms, which is not the objective of programmatic. Instead, they need to understand the need for analytics and why it is important to have someone distill the data from the campaign and provide recommendations on the most efficient way forward.

Furthermore, dominant players in the market need to open up and be willing to share their data. The technology in programmatic is data-driven and, without sufficient data in the market, the full potential of programmatic cannot be realised. Moving away from the traditional method of advertising, especially when it comes to pricing, is a vital step towards addressing transparency issues. The industry has been so used to a markup model that this is being brought over to the programmatic space, which needs to be eradicated, because it is not healthy for brands.

So, what is next for China? With more ad spend coming into the mobile space and, inevitably, programmatic, marketers in the Asian market will start seeing more integration with international standards. Due to fragmentation in ad formats and ad-serving technologies, we need to adhere to international standards to streamline the practice.

China is starting to lead innovations globally, especially in mobile and social applications. Given the country's programmatic ecosystem is comparatively different from its global counterparts, however, unique standards need to be imposed, for instance, in the case of adserving.

It will be interesting to see how the market evolves over the next year, as it opens up to more dialogue and sharing of ideas. China's economic climate may be at a low point right now, but this merely signals a focus on efficiency and productivity. As marketers move more of their budgets into the digital space, and as local players get more involved with the outside world, we hope that some of the attention will go towards refining the process.

After all, why invest in efficiency if it is not backed by results?