There is much confusion muddling China's ad tech market and shaking marketers' confidence in programmatic, which can only be resolved with transparency and clarity about the benefits that a robust system can bring to the local industry.

Speaking to ExchangeWire in a phone interview, iPinYou's co-founder and CEO Grace Huang revealed that some market players were taking advantage of misconceptions and positioning themselves as DSPs or DMPs, but lacked the ability to deliver in terms of performance.

"That's destroying the market, because it destroys the confidence marketers have in programmatic", Huang said, adding that this was the top challenge for any ad tech player serious about growing the China market.

She related how several clients she spoke with about programmatic had tried the platform only to find their experience unsatisfying and, hence, no longer trusted it. The frequency of such anecdotes had increased over the past year with the rapid growth of the technology, she said.

Much of the confusion stemmed from a rash of companies including publishers, such as Baidu, Tencent, and Sina offering DSP services, which operated more like targeted ad platforms within their respective inventory, she noted.

This, she said, had created an image of a market that appeared flooded with DSPs. Furthermore, due to the emergence of the DSPAN model in China, brands had taken to evaluating DSPs based on the inventory they possessed or had acquired.

Stressing the need for a clearer definition of a DSP, Huang said: "Brands and marketers are not sufficiently educated about why they should choose a DSP that's completely independent of publishers and from any ownership of inventory."

iPinYou's co-founder and CEO Grace Huang

This would better enable DSPs to work with all publishers in the industry, accessing a much larger volume of inventory, she said. "iPinYou, for instance, has access to 24 billion impressions, which is much more than any DSPAN or ad network can possess. And yet, marketers will always ask if DSPs have access to certain inventory", she noted.

The independence from publisher or inventory also was critical for DSPs to establish transparency, she said, so brands knew exactly how their budget was being spent, where their ad buys were going, what kind of service fees they were paying for, and so on.

She further noted that, traditionally, most brands were unfamiliar with programmatic and would instruct their agencies to allocate some budget to DSP vendors to manage such buys. These providers typically operated on an arbitral model; so, if the DSPs would keep the margins, they would be able to achieve the client's targeted CPA at a lower cost.

Huang believes marketers should instead be provided a service-fee model, in which they pay a specified percentage to use the DSP system without any arbitrage.

"The transparency model we advocate allows the clients to see whatever bidding [activities] that take place on our system, and at whatever CPM or CPC, on a daily basis", she said, adding that they also would be able to see how much of their budget was directed to the publishers.

This transparency could only be established when the DSP functioned separately from the inventory owners, she noted. "The system has to be transparent and the data has to be real-time", she said, adding that this then would restore marketer confidence in programmatic.

Huang, however, did not agree with suggestions that DSPs and DMPs should operate as separate entities.

She explained that DMP providers had the expertise to process data, build models, as well as optimise data based on campaign performance. Such capabilities should be acquired over time and become part of the core competency of DSPs, she said.

She also dismissed suggestions that marketers must build their own first-party DMPs to use programmatic, noting that this was nice-to-have especially for bigger brands, but not a prerequisite, since the local ecosystem already provided access to sufficient inventory.

According to Huang, the role of DSPs should encompass helping clients build a system to clean and process their own data as well as external data, so they were able to establish meaningful user profiles. Third-party metrics, or performance tracking providers, then should be tapped to measure the performance of the DMP.

She added that, unlike the US market, which had a more vibrant DMP and data market, China currently lacked data providers, giving more opportunities for DSPs to fill the gaps.

Asked if CRM vendors could chip in here, she said that while they also could address the void, these companies often lacked digital marketing and big data experience and would have difficulties converting into DMP players.

She noted that enterprise CRM data typically was smaller in volume and largely accurate. In comparison, data in the digital world was mostly raw and "messy", containing little meaningful information straight off the bat.

Fragmented history repeating itself

Huang also underscored the need to keep things simple for marketers and stop the value chain from getting longer, which would lead the industry back to pre-programmatic days.

"The market is repeating itself, like the US model, and becoming too fragmented", she explained. "The client has to work with five or six vendors just to run a programmatic campaign, which seemed, to me, like we're moving backwards."

She noted that the growth of the China market has fuelled the creation and introduction of many niche players into the value chain; where it would not be uncommon to see clients using an ad service system, a DMP as well as a third-party DMP, alongside a DSP that all had to connect to a publisher. It resulted in an unsuccessful campaign because there was too much data and technical erosion across the different layers, leaving the bulk of data unusable.

"Our vision is to enable clients to use programmatic as easily as search, so they just need an agency, a good system, and good optimisation team, and they can do whatever [they need to] with one system", she said.

In a previous interview with ExchangeWire, Huang had expressed interest in acquiring companies, especially in global markets and games sector. Asked if iPinYou had made any progress here, particularly amid recent news about China-led acquisitions of foreign ad tech companies, she acknowledged the company had yet to make much progress.

Having observed the recent cross-border acquisitions, few of which had turned out successful, she said her team was choosing to take its time and the necessary due diligence before making any decisions. The acquisition, and eventual integration of businesses, would be tougher with cross-border deals and, hence, would require extra caution, she noted.

"We need to be conscious about the profitability of the company, as well as the synergy and cultural integration", Huang said. "I have talked to a lot of companies with operations in foreign markets and the cultural clash is something that comes up frequently."

"We would like to see how far we can stretch with our own organic growth and, hopefully, maybe next year have a more concrete target", she said, adding that iPinYou currently had businesses in the US and Europe. The Chinese DSP also was targeting to open an office in the Asia-Pacific region by end-2016, likely to either be in Singapore or Hong Kong.

According to stats from eMarketer, China would chalk up some USD$41.66bn (£32.09bn) in digital ad spend this year, accounting for more than one-fifth of the total global figure. Alibaba would consume the largest share of the Chinese digital ad market, taking in USD$12.05bn (£9.28bn), while Baidu's digital ad revenue would clock at USD$8.87bn (£6.83bn), and Tencent was expected to take in USD$4.12bn (£3.17bn).