The future of digital advertising in China

As of June, the number of internet users in China hit 668 million, with 594 million of those using mobile devices to go online.

With high internet penetration and consumer engagement, digital media has become the Holy Grail for brands and marketers to win over consumers in the China market.

China’s digital advertising landscape has seen a rapid growth as more and more brands and companies are shifting their focus and money to digital. According to GroupM's latest forecast, China’s online advertising market will increase 36% this year, reaching RMB 208.8 billion.

It is approximately 33 times the volume in digital advertising than 10 years ago.

The rapid growth of digital also generates a tremendous number of data and platforms. The key to success in today’s advertising landscape, therefore, is lying on how marketers integrate all sorts of resources to get useful insights and cut through the cluster.

Marketing spoke to Nils Roehrig, GroupM China’s chief digital officer, during the Group M Digital Momentum Conference in Shanghai last week, to learn more about the current situation and how brands can stay ahead in what is now a highly competitive market.

Given the rapid growth of China’s online advertising landscape, is all adspend going digital?

I won’t say all. Even the youngest generation born after the year 2000, they still listen to the radio and watch television. However, the time spent on traditional media is significantly smaller than the amount of time that they are consuming digital media and it is a very “super-mobile” generation – everything is mobile-related. So logically, yes, the ad spend follows that kind of media usage.

The digital spending in our group is also increasing exponentially and overtaking that of traditional media. By 2017, the majority of advertising within our group will be digital advertising.

With high usage of mobile devices, especially among the younger generation, how is it affecting the world of marketing and advertising?

It affects in many ways. From our perspective, a mobile device is simply a mobile device. It is a channel and it does not necessarily differentiate to other channels from an advertising standpoint. What you do on a mobile device versus what you do on a PC can be more or less the same advertising. But it is two changes that affect our business directly.

One is the share of ad spend is massively shifting to mobile devices. On the other hand, this offers completely new opportunities because you are using many kinds of platforms mainly on the mobile devices.

From an advertiser perspective, people use mobile devices mainly because it is dominated by social media platform. For example, the usage of WeChat messenger allows completely new forms of m-commerce.

This change is happening very fast in China while other markets need a much longer time to adopt and follow that kind of media usage.

Why do you think China's ad market is growing so fast?

I think in a way it is a cultural factor. Chinese people are more open to changes than westerners. In China, change is a good thing; whereas in the western context, change is a bad thing. I think the adoption speed is specifically related back to that kind of cultural momentum.

Secondly the digitalisation of people’s lifestyle is even implemented into governmental programmes like the “internet plus” concept and programme, which is the only nation in the world where I am aware of that kind of programme.

The third reason is the growth in the market. Even though China seems to be a little sad in the moment about its economy growing only by 7% (The Guardian, 2015), this is by far the biggest figure of developed countries. In other countries we are happy if we grow by 1% or 1.5%. So China still has a very high momentum in growing its economy and its growing middle-class.

All this is driving consumption of goods, and most of the consumption is purchased online, either e-commerce or m-commerce. This coming together creates an incredible growth year by year. So, we are in a way riding the wave of digitalisation – explaining a bit about the growth in digital advertising.

Do you think China’s political issues, policies and regulations will affect the advertising industry?

My answer would be: not really. Advertising agencies always work localised, and it’s all about local infrastructure, local population, local digital space, and local clients. If we don’t localise we will not succeed in advertising, in planning and in optimisation of media and would be stuck in some kind of habits from the rest of the world, which will not work.

There are always rules and guidelines for certain products like alcohol and pharmaceuticals. This is not conflicting with our business. We simply have to deal with it.

How important is personalised and customised content in today’s advertising landscape?

Younger generation loves to interact with content and they have an active behaviour in media. Ideally, you give them something that they can play with, and then they more directly interact with your brand. This can be a more efficient method to transport your brand message rather than directly selling something.

Embedded into a holistic paid, earned, and in this case, owned media strategy, it is a very powerful approach to reach consumers – even those whom you normally can’t reach easily.

Facing so much information, how to leverage big data and to cut through the cluster to get useful insights?

It’s not new to us to integrate data. We have been doing that for ages. How to utilise all these data has already become second nature to us. The challenge is the number of data sources drastically growing. It is no longer possible to integrate all data sources due to limited maintenance resources. We need to identify the best and most scalable data sources to integrate into our existing stack of tools and technology. That is why we currently have a half-year evaluation cycle – because the best data sources today may not be the best data source tomorrow, and if this is the case, we change them.

The whole digital advertising business is enabled by technology, but people drive it. You need the smartest people. At the end of the day, the decisive factor is still human. Even picking the right technology is a human decision.

How is GroupM overcoming talent issues?

All participants in the digital market are facing the same problem where they cannot find skilled, educated talent. The reason why we are in a better position than other companies is firstly because we are a part of a very big global network. So we do get a lot of support and input from outside.

Secondly, we provide various and practical trainings for our current staff to enable them to adapt to the fast changing digital world. We also provide intern transition programmes (from offline to online), educational programmes for fresh graduates that we recruited, high potential fast track programmes and recruiting senior staff with different backgrounds. GroupM believes in investing in people.

How do you see the three powerhouses of China's market - Baidu, Tencent and Alibaba - changing the landscape?

When my former colleagues asked me how to describe China from a digital market’s perspective, I told them to imagine Google in the market and to multiply that by three. Then you have a perception of the market structure.

Of course these three companies are real powerhouses for the market and what is making them really unique is that they’re all much more heterogeneous than Google in what kind of platforms they own and the data resources they combine. I think they are even better, to be honest, in building strong offerings. Due to their good offerings they are very likely to attract a good portion of the advertising money.

But this does not change our role – which is to find the best possible allocation for the media money of our clients. We normally use them all for our clients and it’s unlikely that we only focus on one of the three platforms.

In this new ecosystem, what is the role of advertisers, publishers and brands?

Even though we have a lot of technical stuff in there and many changes, it doesn’t change the roles. An advertiser is still an advertiser who wants to sell products and allocate media spending in the smartest way. A publisher is still the owner of the inventory and data whose only interest is to monetise his assets in the smartest way. It has always been a multi-channel optimisation challenge and it will continue to be so in the future, with a growing number of channels and these new platforms presenting different digital advertising perspectives. Our agency role is to manage this complexity by integrating multiple data sources and using multiple technologies across all types of media and within digital across all channels to plan and optimise holistically on behalf of our clients.

What is the stage of adoption of programmatic buying in the China market and what is it heading to?

Programmatic buying adds two completely new things to the way of media buying. The first is to automate the buying process. The second is to add data into the decision process.

The United States is the world’s biggest market for programmatic buying. It took seven years to integrate video inventory and eight or nine years to integrate mobile inventory into their programmatic ecosystem. But this is already happening in China, after four years. So I could say in terms of structure, China has easily doubled the speed than the western markets.

We expect programmatic buying shares in China to massively grow in the next few years, doubling each year with about 40% to 50% of all our display will be programmatic buying.

The reason for that is not really the inventory or supply side but more the data side. China is by far the market with the richest data assets in the world that we can leverage very efficiently, especially in the programmatic buying environment. This is why we believe that China might even be the most advanced programmatic market in three or four years’ time.

Most of the clients still don’t do programmatic buying. I would say half of our clients do programmatic buying, but most of them only in a small scale. They are careful and only want to test it a little bit to see its potential. I would say around 15% to 20% of our clients do it in big scale. These companies are normally the big brands who have significant volume already.

My main message is that all companies should at least test it. Use all the data you have, get access to the best third-party data which will be gained through publishers.

Do you think China’s ecosystem represents the future of marketing?

I think China will definitely be a blueprint indeed for future digital marketing segments. If it’s coming to e-commerce or m-commerce or mobile advertising, China is already edgy. It’s already the most innovative market in the world. And I heavily believe that China will even start to export this kind of innovative ideas and platforms to the rest of the world. So yes, they will be a leading party. However, they still have to catch up in other segments such as the programmatic space I mentioned before, or the ad serving or tracking space, which is four, five years behind the other markets sadly.