A number of Value Added Service (VAS) providers in the Real Time Bidding display advertising space, be they 3rd party data providers or dynamic creative solution providers, charge on a fixed CPM basis.While this model has proven to be profitable for both the companies providing the VAS services and their clients who use them to optimize ROI on display advertising campaigns in advanced digital advertising markets such as the US and Europe, these vendors will have to change their business models to be viable in Asia ex Japan.
Let’s illustrate by means of an example:
I don’t buy display inventory in the US, but average exchange CPMs there are around $2.50. In Asia ex Japan, where I’ve done the vast majority of my display advertising buying, $0.30 CPMs are the norm for RTB-enabled inventory, even if significant portions of that inventory are in fact US or European sites being bought for Asian audiences.
| Typical CPM | USD |
|---|---|
| US | $2.50 |
| Asia | $0.30 |
(OK, looks like I’m going to need to teach myself HTML tables to make this look nicer…patience please)
Assume now that a hypothetical 3rd party data provider charges a fixed $1 CPM for its services. The required performance boost required for a positive ROI for the service consumer is quite different in the US than what is required in Asia, as shown below:
| VAS CPM | Total US CPM | Required Boost | Total Asia CPM | Required Boost | Diff |
|---|---|---|---|---|---|
| $1.00 | $3.50 | 40% | $1.30 | 333% | 293% |
What this illustrates is that with a base $2.50 CPM, 3rd party data only needs to provide a 40% boost on an eCPA basis to justify the costs to the ad buyer using that data targeted to American consumers. While 3rd party data is sparse in Asia, some does exist in Hong Kong, Taiwan, and Singapore. With the ~$0.30 CPMs seen in Hong Kong and Singapore, the $1 CPM markup from a 3rd party data provider becomes a significant proportion of the overall impression cost. The result? Rather than a 40% performance boost to justify the data costs, a 4.33x boost (333%) needs to be realized to justify the use of 3rd party data – meaning a 293% better performance is required on Asian markets than in the more developed markets of the US or Europe. There’s absolutely no reason to believe, and no evidence that I’m aware of, that consumers in Asia will respond to ads served with 3rd party data more positively than those in more developed digital markets.
What about dynamic creative solutions providers?
The situation is very similar:
| VAS CPM | Total US CPM | Required Boost | Total Asia CPM | Required Boost | Diff |
|---|---|---|---|---|---|
| $0.50 | $3.00 | 20% | $0.80 | 167% | 147% |
Most solutions providers, be they 3rd part or dynamic creative, are very heavily focused on the US and Europe, with Asia being seen as somewhat of a backwater – and with differences in CPM prices like this, who can blame them for their focus? Solutions providers are applying US pricing models for Asian markets, and clearly, unless their services provide the kind of massive boost on ROI outlined here, the pricing model will have to change. So what’s the net result of all of this?
Either Asian CPM prices will need to rise due to increased buying demand, or fixed price CPMs will have to come down, or solutions providers will have to move to charging on a percentage basis, as some semantic targeting engines now do.
While we expect CPMs in Asia to rise over time, there’s a large gap to close with CPMs seen in more digitally developed markets, and there’s no reason to believe that this gap will be closed in the next few years. The challenge for service providers in the short and medium term will be in deriving profits from work they do in Asian markets – that will be the subject of another post.