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The changing climate of native programmatic advertising in China

The changing climate of native programmatic advertising in China

Native has been touted by industry leaders as the future of the advertising industry. This is especially true (if more challenging) for programmatic.

As a mobile ad tech company with a stake in the Chinese market, we are witnessing an infatuation with the concept of native. The integration of native ads within Chinese apps has been faster than in leading markets like the US and UK. There are many reasons attributed to it, and the performance of these ads has disappointed many. In fact, there is a gradual shift from native and a diversification of ad units with the goal of optimizing revenues – calculated as a combination of eCPM and fill rate. In this article we’ll analyze the recent, current and future trends related to mobile native advertising in the Chinese market, and the factors affecting them.

Native is one of the more discussed topics in programmatic conferences worldwide. This is often explained to be a result of four major reasons: It is noticeable, viewed more as content, built for branding and, in the case of eCommerce, has a higher purchase rate than its non-native counterparts.

While native is a hot topic in the industry, its actual successful implementation in the programmatic ecosystem has been slower than expected, especially in the case of display. While publishers seem interested in implementing the concept to some extent, advertisers are more apprehensive. Our CBO once joked that native in the industry is like the old office joke of everyone seeking to apply for gym membership, but very few do. The main reason is due to the challenge of scaling programmatic native ads, which are supposed to adapt to the look and feel of an app or mobile web’s environment. This has been more challenging than initially expected, and few ad tech companies have succeeded in providing the necessary fill rate to enable a publisher to purely rely on native for his revenue. The main exception has been Facebook, and this is where the Chinese market comes in.

A majority of Chinese publishers, especially the ones who have focused on gaining users overseas, have chosen Facebook as their first monetization partner. Facebook’s success in programmatic native has created what may be considered as an overly positive impression about the ad type’s maturity in the global market, thus when integrating additional ad tech partners into their monetization waterfall, the results have been disappointing. There are several reasons for that:

First and foremost, according to IAB, there are a number of specific types of apps that can maximize the benefits of native advertising: Social, News and eCommerce. In short, apps that have an in-feed environment.

These apps often provide a lot of content whereby ads can be adapted to them. This is critical for native, and we are witnessing a certain misconception where local Chinese publishers view native simply as an ad that ‘looks good’, i.e. includes a white background, download button and ad disclaimer. Simply placing such an ad in a utility app, for instance, will not significantly increase the conversion rates, critical for an agency or ad-platforms assessment of how much he is willing to pay for it. Simply placing a native ad in an app that cannot harness its benefits will not significantly increase revenue (if it all). Indeed, it seems that many of the local partners we’ve spoken to voiced a concern that eCPM rates for native ad units are falling.

Another issue comes from the advertiser side, where mobile native creative ads have not yet been widely implemented. The low level of global programmatic native demand coupled with the high level of enthusiasm for native by Chinese publishers with global traffic has created a unique challenge for ad-tech companies trying to bridge this gap and provide adequate service for their clients. Some have resorted to approaching their advertisers one by one and convincing them to create a ‘native feel’ ad, graphically adapted from its original form, and are serving it programmatically to publishers. This has been somewhat of a stop-gap solution yet it is very hard to scale and does not provide an adequate fill rate.

Then there is data. User targeting parameters are critical in order to provide the relevant user profile so that the right native ad will be displayed. Targeting parameters like gender, age, GPS location and interests are generally not sent to the ad platforms servers. While the in-feed experience of Facebook is seamless it has yet to be unlocked, for example, by utility apps that have grown in popularity in recent years.

Facebook has been incredibly successful in harnessing the benefits of native ads programmatically to optimize revenue. This is especially true within its own ecosystem, where it could use its treasure trove of data to target each individual user with native ads that adapt to its feed and blend into its environment. While they have been less successful in doing so as a platform serving native ads to apps, their data, technology and coverage has at least enabled a moderately high eCPM level over non-native ads with a decent fill rate. Despite all of this, the results were not significantly better than regular programmatic ads. However, they were good enough to convince many local publishers to adopt a ‘native only’ approach under the misconception that there is no better alternative. This was also true amongst utility app publishers in China (who mostly do not have a content environment which is critical for native).

The results have been lower than expected CVR, eventually affecting eCPM levels making them similar to regular ad units like 300×250, but with a far lower fill rate. Thus, this misconception may be holding back many publishers from developing a more diversified approach to monetization that could significantly raise their overall revenue

In conclusion, non-content centric apps should take note that in many cases native ads:

  • Are native only in name
  • Do not provide a better user experience in their current form/placement
  • The expected returns have yet to materilalize

So what is the solution?
While the easy answer to this problem would be to temporarily replace all native ads with regular ads that provide higher fill rates and are easier to integrate, this should not be the case. This is because of the following reasons:

  1. Native will start scaling eventually, and publishers should be ready to scale with the market
  2. For some specific partners native does produce better results

Rather than replacing native ads, publishers should supplement them. The publisher should do their best to integrate non-native ads into the same original native placements, and prioritize them in the waterfall according to price. In other words, a publisher’s waterfall could include both native and non-native ads that provide a good fit for the same ad placement (with 300X250 and outstream Video). Integrating native with the few ad tech companies that can produce good results coupled with a larger number focused on the non-native units presented above. This approach – harnessing native when possible combined with alternative ad units in lower tiers can and should break the revenue ceiling.