AdExchanger: How has the growth of programmatic in China influenced your work on both the supply and demand side?
ALAN YAN: On the supply side, until about this year, the Chinese companies tended to not invest in supply-side [because] most of the publishers had been selling their inventories by cost per day (CPD) or cost per time (CPT). And in the CPD model, you just put the ad there; there is no way and no need to optimize. So, very few Chinese companies were willing to invest money and time to convince the publishers about the need and the importance of having technology to help them sell better. The ad-tech companies focused on the demand side instead.
Three years ago, in 2010, you could not actually make any money out of any investment in supply-side because people won’t pay for the technology and there was no programmatic. But today, programmatic is emerging quickly and, with the technology you can put into the ad exchanges and trading desks, you can automatically sell. It’s a whole different world than three years ago. And technology has to play an important role in this space.
What shift did you see starting in China three years ago?
We realized that video and mobile had started emerging very quickly, particularly video. I remember our top management team had several discussions of the growth of video and we came up with the conclusion that the rise of video will completely change the landscape and the way people buy and sell general display. The more attention and traction video gets from advertisers, the less power general display will have in the market. It used to be if you’re Yahoo, you have this premium ad space on the homepage, but video changed the whole landscape. Three years ago, we thought that in maybe three or five years, the general display will become a commodity, regardless of what kind of inventory. So the way people sell it needs to be changed.
How competitive is the demand-side platform (DSP) market in China?
We see a lot of players in this market, both domestic and international players. Programmatic is very unlike in the US, where the supply side is very good with liquidity. In the US, you see the exchanges cover the long tail and even some of the premium ad inventories. In China, if you look at supply-side, the only available ad inventory for programmatic to launch the DSPs is long tail. To get faster growth, you need to find a way to access the other ad inventories, in addition to the ad exchanges.
How can US-based companies move into these new markets for programmatic and how have you worked to set yourself apart?
You need to work with the local publishers, the SSPs and private marketplaces, which can be a barrier for the US-based companies. Publishers here are local. Google is here, but it’s quite weak. You don’t have Yahoo. You don’t have Facebook or Twitter, so all these existing relationships that these companies are building in the US with the leading players don’t exist here. So you need to do something new.
We are not trying to become an independent buying agent for the enterprise or agencies. [Instead], we’re trying to become SAP or Oracle for the big advertising agencies. We provide technologies to people and then our technology becomes the clients’ technologies.
Who are some of your clients in China?
We work with almost all the large agencies. For quite a number of them, we built their agency trading desk or DSP or DMP (data-management platform) solutions. For example, we built the Audience on Demand for VivaKi in China. We also built the entire digital technology set for Dentsu in China. We work with OMG, Aegis, Group M and many others here, around 30 to 40 agencies from large international to large local agencies. Our customers also include close to 2,000 large brands in about 15 to 20 categories: food and beverage, CPG, IT and electronics, sports.
How much funding have you raised and who has invested in AdChina?
For the first round in 2008, we raised $6 million, and then in 2009, we raised a second round, which was $18.5 million. After that, in the third quarter of 2010, we started being profitable and had about $9 million on hand, but as you know, the financial crisis happened and we didn’t know what the future was going to be. We decided to do another round before we IPO, and that was the round we reached in the fall of 2010, which was $40 million. Earlier this year, we did a large mobile acquisition, so it was good to have that support and have the flexibility for that.
What goals do you have for the company over the next year to 18 months?
Mobile definitely, to me, is one of the top priorities. Mobile accounts for about 13% of our total revenue this year. That is good compared to the general market, which is about 2% here. From what we have seen in this quarter, in the coming year, mobile will probably be at least 20-25% of our revenue.
In 2013, we made a $20 million mobile acquisition. We acquired a company, which I can’t disclose the name, but it is among the top two or three mobile analytics providers in China. It’s a small company, 30-plus people, and they provide analytic tools for mobile app developers for free.
I know the mobile market is still early and it’s just a tiny percentage of ad spend. But what we have been experiencing in the past few years, the momentum I see with mobile, and looking at the overall trends, I think mobile is now, not just the future.
Are you planning on making any other acquisitions or go public in the coming year or two?
For acquisitions, we are open. We are practical and have some free cash, so that has put us in a flexible position. I’m really interested in the mobile startups with the technology. We are open to that.
As far as an IPO, we have to look at the market quite closely. We want to make mobile as big as possible. If the time is right, we could IPO quite quickly, but so far, we don’t have a definite timeline. I’m also afraid of the current bubble, frankly speaking. There is definitely a bubble. How serious it is, that is the question. But what is not a question is that there is a bubble. Regardless, I want to focus very much on growing the business and further strengthen the momentum on the programmatic side and on mobile.