Programmatic buying, or automated media buying, is a hot topic around the world.
We have seen a string of mergers and acquisitions in the ad tech space in recent months. Examples include Publicis' acquisition of Sapient and Yahoo's purchase of Brightroll last month, and Facebook taking up LiveRail in July.
Ad tech companies Brightroll and LiveRail are known for their video ad inventory.
What is the potential for programmatic buy in the Hong Kong market and how will the development of this field unfold in the local context? Will we see similar mergers and acquisitions? Find out in this first part of a series on programmatic buy.
What is programmatic anyway?
Programmatic buying is a kind of media buy conducted by machines that allows for audience optimisation, allowing you to track customers during their journeys throughout the web and ideally, towards purchase.
The data made available through tracking users allow for real-time analysis of the performance of display ads and AB testing of creatives. Programmatic buying can be done for all verticals, from display ads on social media and mobile to videos.
Although many associate real-time bidding with programmatic buying, it is just one subset of programmatic buying. Programmatic buying can also take the form of private exchanges and sale of premium inventory one-on-one at fixed prices and in closed environments.
Data about user behaviour help marketers figure out the real age and gender of users and this data can be cross-referenced to customer data.
The data can also be used to target look-alikes with characteristics similar to Internet users tagged with the cookies or a brand's social media fans, allowing for more targeted campaigns.
How prevalent is programmatic buying in Hong Kong?
Yean Cheong, VP of marketing solutions Asia Pacific at Cadreon, says Hong Kong is just beginning to wake up to the idea of programmatic buying, which has been a topic of interest for local marketers for the past year.
“The adoption of programmatic will depend on how fast publishers pick up programmatic and once they do, growth will be exponential,” Cheong said.
“And it’s not far away – overseas markets have been growing programmatic buying for the past three to five years. We predict the timeframe will be shorter for Asia. There is already a lot of activity surrounding publishers.”
Siva Ganeshanandan, APAC digital marketing director at Adobe, believes that it will take another three years for Hong Kong to reach the point where the US is at today with respect to programmatic buying.
“Programmatic buying is niche in Hong Kong, where inventory is mostly owned by broader ad networks,” Ganeshanandan said.
“Digital marketing is led by multinational companies at the moment but we are beginning to see more local companies entering the scene. That’s why we need to work on local inventory.”
Meanwhile, Andy Chung, director Hong Kong at Xaxis, said his current customers come from the travel, commerce, finance and automobile industries.
For Jackson Kwok, CEO at Omnicom Media Group Hong Kong, programmatic buying was discussed by local marketers mostly in the past year and such discussions are confined to real-time bidding for digital ad spaces for desktop PC.
“Three years ago, few people knew what programmatic buying was. Now, more people are talking about it but they haven't taken one step further to embrace it and sell it to clients,” Kwok said.
The traditional display ad is the most established form of ad placed through programmatic buying in Hong Kong, with mobile being the next fastest growing vertical, he added.
Kwok believes Hong Kong is at the very early stage of growth for programmatic buying, similar to mainland China. Programmatic buying is also present in markets such as Singapore, Japan, New Zealand and India.
Cheong says Australia is the fastest growing market for her agency, with Japan and Korea being very digitally savvy markets predicted to grow rapidly in the next eight to 24 months. She says Japan is already ahead of Hong Kong in terms of availability of technology and clients actually conducting programmatic buying.
“There is a recognition that in APAC, growth of programmatic buying will be even faster than that in the US,” Cheong said.
But Ganeshanandan said markets outside of Hong Kong also face challenges when it comes to spreading the practice of programmatic buying.
“Programmatic is not universally accepted everywhere, even if you have premium inventory,” he said.
Large multinational companies have made major forays into programmatic buying in the US and Europe by acquiring ad tech and programmatic buy businesses.
Hong Kong industry insiders do not believe that similar mergers and acquisitions will take place in the local market.
“M&As are happening on a global scale mainly because in the field of programmatic, scale is key, and that’s why this form of consolidation is happening,” Chung said.
“Hong Kong is too small of a market for any M&A to occur at the local level.”
She said acquisitions of ad tech companies abroad were usually done to expand reach – whether it’s to access programmatic buying technology or inventory.
Opportunities for programmatic buying lie in social media ad technology and programmatic buy consultancy work.
Few homegrown companies in Hong Kong and Singapore have these things on offer on a mass scale, although they do have a mix of technology and inventory on a smaller scale.
“You won’t see cases such as Yahoo’s acquisition of Brightroll among local homegrown companies in Hong Kong or Singapore but in the future, it depends on the objective of acquiring capabilities for the acquired,” Cheong said.
Meanwhile, Kwok said if there will be mergers and acquisitions in the local Hong Kong market, it will be limited to the supply side where more inventory can be acquired, rather than on the demand side such as programmatic agencies.
How will the programmatic buying market develop and what are the potential drivers of such development?
The first batch of inventory that will hit the market for programmatic buy will be non-premium inventory that’s hard to sell, according to Ganeshanandan.
“In Hong Kong, publishers are off to a slow start. Certain premium spots, such as the homepage banner of Apple Daily.com will remain cash cows for publishers and traditional media buyer. People are putting up inventory that is difficult sell for programmatic buying first,” he said.
Meanwhile, Cheong predicts that growing digital expenditure will in turn drive growth in programmatic buying.
The obvious driver of growing digital spend is the migration of customers online. Because programmatic buy helps target online customers increasingly segmented by platforms, it is assumed to be an attractive form of buying for digital marketers.
The second reason for a rise in digital marketing expenditure is the importance of digital in giving extra reach when used in combination with TV.
With the popularity of online videos and the trend of active consumers accessing digital content on multiple screens and the rising costs of placing ads on terrestrial TV in Hong Kong, marketers are increasingly looking to digital marketing.
TV is a marketing platform capable of hitting the masses with marketing messages. However, as consumers go multi-screen, the reach of TV for every extra unit of TVC displayed decreases, with marginal profits plateauing after the masses are reached.
This makes TV less capable of reaching light users, who are frequenting digital channels.
Kwok said, “Heavy users are easy to target and it’s easy to over-target them because they are almost always watching TV. Examples are stay-at-home mums and grandmas."
“Light users of TV are harder to reach because they are on a lot of other platforms. These are people who marketers want to target because they are active consumers.”
This is where spending extra on digital platforms after showing a TVC brings more reach than if the same amount of money was spent on TV.
“Say you spend your budget on TV, you can reach 75% of your audience. But if you invested a small part of that on digital on the side, you can reach 78% of your audience,” Kwok said.
“Programmatic is attractive at that point because it makes that small amount of digital spending even more efficient.”
Chung agrees with Kwok, also seeing enormous growth in programmatic buying for video and mobile ads because of the reach digital can offer as a complement to TV.
“The growth of branded videos now makes up over half of our activity across APAC,” he said.
“This comes from investments from large FMCG, auto and entertainment clients using digital to extend the reach of their traditional TV campaigns and reach audiences that are moving away from TV to mobile devices.”
In the future, we can expect multiscreen campaigns where a tablet ad could be triggered after a TVC is broadcast on television.
Factors in the external business environment matter for the future of programmatic buying in Hong Kong for Kwok.
In the past, marketers and agencies have not really pushed programmatic buying. However, with business lost due to Occupy Central, publishers, agencies and marketing clients are reconsidering automated media buy.
“At this moment in time, media vendors, which experienced bad business due to Occupy Central, need to sell their inventory and are looking towards programmatic buying. Meanwhile, agencies want growth and clients need to justify their ROI and are willing to spend less on TV,” Kwok said.
For programmatic buying to take off in Hong Kong, Kwok says the media buy industry needs to educate their staff, clients, and media vendors or publishers about the value of programmatic buying.
Next, there is a need to localize by building up local teams of staff knowledgeable about programmatic buying. Finally, companies need to invest in the technology needed to carry out efficient programmatic buying.
It will also be easier for agencies to start off by offering public exchange and real time bidding services, before moving on to offer private exchange and premium inventory programmatic buying.
As the programmatic buying market matures, Kwok predicts that most services in the field will be hybrids of real time bidding, private exchanges and premium inventory programmatic buying.
"We need hybrids so that we can develop more complex media buy strategy and advertising mixes where we use different types of programmatic for different parts of the same campaign," Kwok said.
"It will be just like offering media buy packages."
A final driver for the rise of programmatic is the thirst marketers have for insights about customer behaviour on digital platforms, according to Michelle Ho, head of marketing at Brand’s, whose brand began using programmatic last quarter.
“Through programmatic buying, you can learn a lot about customer behaviour,” she said.
“All your decisions are backed by real time data unlike data collected a month later by a research agency. The earlier you invest in tracking your customers, the bigger your database of information about their behaviours.”
What to expect in the future
One trend that will emerge is that centralised data consolidation platforms offering dashboarding of data will become big businesses, especially ones that consolidate online and offline data.
"In the future, you will be able to see the connection between Facebook likes and brand preference in terms of sales on the same dashboard," Chan said.
Another expectation for the future is that Hong Kong will become a gateway for programmatic buy of ad spaces in mainland China and for mainland Chinese marketers to purchase ad placements abroad.
"Hong Kong is especially well placed to act as a hub for regional campaigns and as a conduit to China. Hong Kong represents a user friendly gateway where Chinese companies can access the rest of the world and international companies can begin to advertise in China," Chung said.
"It's okay as long as there is an opt-in process when you sign up for a social media account," Kwok said.
Opt-in will become even more important further down the line, when artificial intelligence comes into play for programmatic buy.
Imagine a smart watch or a coat detecting that you have higher blood pressure and then providing information about relevant health products.
"Programmatic is not just a buying function - it's a kind of real time learning," Kwok said.
"In the future, programmatic can go beyond media to show you things on clothing, watches, appliances and these touchpoints double as sources of data."