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Ad industry innovates to stay competitive amid digitization

Author  :  LIAO BINGYI     Source  :    Chinese Social Sciences Today     2017-05-03

Pictured above is a series of advertisements in a subway station of Wuhan, capital of Hubei Province. Nowadays, digital advertising is attracting increasing investment from advertisers. International advertising groups attempt to make their presence in China through mergers and acquisitions. In response, domestic companies should accelerate upgrading and innovating to stay competitive.

For the Chinese advertising industry, the era of Big Data has greatly transformed the traditional model of operation while posing new challenges and opportunities. In this context, the advertising sector needs to further upgrade to be more competitive.

All-round transformation

In the era of Big Data, the advertising industry is undergoing transformation in four aspects: communication mechanisms, key elements, organization and structure.

With regard to communication mechanisms, ad planners can make more informed targeting decisions thanks to market analysis empowered by Big Data. Big Data analysis allows marketing specialists to precisely locate ideal customers by examining natural attributes like their age, gender, profession and household income. At the same time, Big Data enables advertisers to study personalities and behavior models by looking at social attributes, including interpersonal relationships, hobbies, media contacts region and purchase intent.

In addition, programmatic buying, which refers to direct purchasing of a target audience, instead of traditional buying of positioning and inventory, enables more precise ad services because its visualization helps advertisers and agencies to optimize their strategy based on real-time results.

Traditional key elements include media resources, clients, capital, human resources and technology, most of which are essential to an ad company’s core competitiveness, especially media resources. However, technology, Big Data and creativity are the most vital aspects in the context of digital media.

In terms of organization, this industry is on an inevitable march toward stronger digital marketing capabilities. Some large ad groups are quickly advancing toward digital and mobile marketing as well as programmatic buying, either by merging with and acquiring professional digital marketers or by establishing such a company and transforming their business.

As far as structure is concerned, the traditional industrial value chain comprises advertisers, ad agencies, media-buying agencies and advertising media. The ad agencies help advertisers to develop media planning and service strategies.

In the era of Big Data, this chain is further divided, including advertisers, demand-side platforms (DSP), supply-side platforms (SSP), Ad Exchange (ADX), data-management platforms (DMP) and digital media. DSPs and SSPs transact through ADXs. The former, together with DMPs, act as agents to carry out programmatic buying after using Big Data to analyze the preferences and behaviors of the target audience, while the latter improves media value by gathering large groups of digital media and influx of traffic. Increasingly, DSPs are leading the way in the industry.

Difficulties, problems

Difficulties are a necessary evil during transition. Lack of relevant resources is one facing small and medium-sized enterprises. As sales of online advertising soar while traditional ad revenues decline, the transition to digital marketing is strategically inevitable. Major ad groups achieve this goal through mergers and acquisitions while most SMEs have difficulties competing since they cannot afford to adequately equip their newly established digital departments with experienced teams of professionals, Big Data resources or data mining and analysis technology.

The ecosystem of the whole industry also needs to be fixed. The following problems require attention: Data silos need to be constructed. The data of giant Internet enterprises is not shared and properly utilized. DMPs are absent from major conglomerates while data across devices and platforms, including PCs, tablets, mobile, OTT and outdoor video billboards is fragmented. Another is bot fraud. Significant non-human traffic on some websites renders programmatic ads less effective. Also, user data leakage is a problem. Privacy of users is not respected as advertisers engage in the open trafficking of Big Data. Furthermore, there is a lack of industrial standards as well as irregular operation and destructive competition among DSPs. Finally, the industry needs to tackle the problem of brand security.

The competitiveness of domestic companies has yet to improve. International ad groups are strong competitors, and they have already entered the arena with more investment, attempting to change the picture. Main indicators of competence include quality Big Data resources, capabilities of Big Data mining, analysis and application, and planning and creativity in terms of digital marketing. Traditional companies are having a hard time transforming, while emerging ones are still novices in terms of those indicators. Famous brands are few.

Moreover, the risk of foreign capital leading the industry through M&A is approaching. The contest over digital ad companies, the latest marvel in this market, is accounting for an ever-increasing greater portion of advertisers’ operational budgets. As a response, international ad groups have stepped up their efforts to acquire top domestic companies, which can pose a real threat.

Significance of innovation

I believe that the ad industry can innovate its way to transition, upgrading and development through the following aspects:

The first step is to accelerate the upgrading of the traditional industry. As advertisers increasingly favor Big Data marketing and programmatic buying, upgrading necessitates changes in awareness, organization and ad education. All the insiders should be clearly aware of the market trend of digital ads, arranging resources in time in digital and mobile marketing, and programmatic buying. Independent companies should be allowed to flower to boost expertise and scale. Current curriculum of advertising education needs to be adapted to the trend of digital marketing and complement the industrial sector to provide marketable graduates.

Second, it is necessary to build and optimize a new ecosystem. Investment by giant Internet enterprises needs to be coordinated strategically with DSPs through M&As. Small and medium-sized Internet enterprises are welcome to establish strategic alliances with digital ad companies to share Big Data resources. Large enterprises are recommended to build DMPs and enhance cooperation on Big Data with DSPs. A market for legal transaction of Big Data is also needed.

Bot fraud and violations of user privacy need to be addressed though laws, regulations, and rules drafted with aid from industrial associations. Third-party data monitoring institutions also have a role to play.

Third, the industry must enhance its core competitiveness. The three types of digital ad companies in China need to take advantage of their respective strengths. Giant Internet enterprises and large marketing groups, by establishing or merging with and acquiring digital ad companies (the first two types), can combine the Big Data and technology of the former and the planning and creativity of the latter. Independent companies can boost scale through financing and make themselves better agencies with Big Data resources obtained from a strategic alliance with Internet enterprises.

Fourth, foreign M&A laws and regulations need to be made more comprehensive. Digital marketing companies not only provide a basis for informed decisions by advertisers with insight into consumption trend and competition intelligence, but also monitor and study public opinions with Big Data resources and analytical tools, essentially undertaking part of the responsibility of social investigation. Thus, national economic and information security is at risk if many top companies are acquired by international groups. The government should react to this by completing laws urgently, and setting up an evaluation committee to assess the risks concerning information security and dominance of foreign capital in the digital ad industry.

 

Liao Bingyi is from the School of Journalism and Communication at Wuhan University.

Editor: Yu Hui

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