Programmatic in China Part 2 – Preferred Deal

Programmatic in China Part 2 – Preferred Deal

February 2nd, 2015 // 2:07 pm @ // No Comments

Last article, I covered programmatic premium models in China. Today I will talk about preferred deal.

programmatic modesl

First, let’s wrap our heads around the terminology. Like programmatic premium, preferred deals also have various names: “Private Access”, “First Right of Refusal”, “First Look”, and “Unreserved Fixed Rate”. Amongst these terms, the simplest one describing the model is “Unreserved Fixed Rate”.

From a publisher’s perspective, inventory is unreserved/non-guaranteed but publishers still charge advertisers a fixed CPM. Compared with programmatic premium and direct sales, preferred deal inventory have lower priority, but is still higher quality than the impressions released to private auction and open exchanges. So another way to describe preferred deal inventory is that they are the top layer of the remnant unsold inventory.

From an advertiser’s perspective, large advertisers will get the first pick of these preferred deal inventory before they are released to private auctions, hence the term “First Look”. But keep in mind it’s still only the “First Look” of the unsold inventory. The model here is very similar to retail. For example, an ice cream brand will first sell majority of their product to large convenience store chains like 7-11, with fixed price and volume. This model is the equivalent of PDB, which I covered in my last article. If the ice cream brand produced extra cones that didn’t all get sold to 7-11, then they will offer it to mom and pop stores which they have a good relationship with. The catch is pricing can be fixed based on the good relationships, but volume cannot be guaranteed. Hence if one month, 7-11 bought 99% of all their product, then only 1% will be released to the mom and pop stores.

What type of brands and campaigns should use preferred deal?

Now that we understand the model, let’s see what type of brands and campaigns this model of programmatic is most suitable for. I will give two examples below of the circumstances which it would be suitable:

  1. SMB’s – as you gathered from my retail example, one usage of this model is for small & medium size brands that wish to purchase quality inventory but with no specific reach/traffic goals. SMB’s do not have the procurement power of bigger brands, hence if they also want to reserved premium inventory, then they will have to pay a high fixed CPM. So if the small brand is simply looking to associate with a particular premium publisher, but with no reach or traffic goal in mind, then this model can satisfy that need
  1. Big Brand – besides SMB’s, the model can also be used for bigger brands, but under very specific circumstances. Usually big brands will have several bursts of activity every year, these type of campaign require a guaranteed reach/traffic goal. Given the non-guaranteed nature of preferred deal models, it’s definitely not suitable for the main burst durations. However, if the brand wants to maintain a minimal level of activity all year round, then preferred deal models can help bigger brands sustain some voice on the market thru quality inventory and publishers

Preferred Deal in China

Comparing the preferred deal model between China and the west, there are both similarities and differences. In both markets, the smaller publishers do not really have this model. They simply have a 2 tier system of direct sales, and remnant open exchange inventory. Hence, the smaller publishers will release their remnant inventory into the open exchanges like Google AdX. The bigger publishers will build their own private exchange, which encompass both preferred deal and private auction models. Inventory will simply flow down the tier, from preferred deal, to private auction, finally to open exchange. So from a conceptual level, both markets operate on the same principle.

However, the execution level of preferred deal is where the two markets differ. In the west, most publishers will connect thru a 3rd party technology vendor which will manage the deal’s execution. Google DBM’s PMP offerings allows advertisers to setup a preferred deal with many premium publishers, plus the usage of Google’s DMP/Audience Segments. This models works in the west because most publisher are open to connecting with Google. However, the common theme between publishers in China is that they want to become a one stop shop for brands. Hence, they’re more reluctant to connecting with Google. Instead of providing only the inventory, publishers in China attempts to move up the value chain by offering a complete programmatic stack. Some examples of these publishers are below:


Companies like Sina differentiate their programmatic solutions thru two products: Fuyi扶翼and Longyuan龙渊. Fuyi is their private auction product, and Longyuan their preferred deal product. However, the way that Sina defines Longyuan does not exactly fit the preferred deal model. From an inventory perspective, Sina guarantees both Longyuan pricing and volume. Instead of being remnant inventory, Longyuan takes a first cut of direct sales inventory and reserves it in its media pool. So in essence, it’s a hybrid of preferred deal and PDB models. Because preferred deal can never guarantee volume, and only PDB can reserve inventory. Looking at Sina’s Longyuan product, it doesn’t make much sense as to why a publisher would do this. Because direct sales usually generate the highest amount of revenue, so there is absolutely no reason why Longyuan should take the first cut of the inventory pool if there are outstanding direct sale requests. My take on Sina Longyuan is either the internal team is truly confused about programmatic models, OR they’re simply trying to ride on the programmatic wave by packaging a preferred deal product.


Video platform Youku is another premium publisher that have a clear programmatic offering. They offer PDB, preferred deal, and private auction models thru their Yitian倚天 ad platform. For a publisher with premium video content, preferred deal models makes a lot of sense for Youku. Under their definition, PDB inventory will definitely consists of the most premium contents like hot TV shows. When these inventory is left unsold, preferred deal clients will get the first look before it’s passed down to the private auction. However, there are some contents that will stay at the preferred deal tier, and never make it down to private auction. These type of inventory are usually top content that Youku spent money to procure, for example popular American Dramas like “The Walking Dead” or entertainment shows like “The Voice of China”. Even though these type of content will usually get sold directly, but under the few circumstances which it becomes remnant, Youku will only release it to premium advertisers both to protect their own brand equity as well as charge a higher CPM.

Preferred Deal’s Future

Publisher preferred deal products above all have one problem in common: transparency. Without a technology company to verify the inventory priority, it’s essentially the same as a direct sale deal packaged under preferred deal. Another issue is that advertisers will likely have multiple preferred deals with different publishers. With every publishers offering their own programmatic stack, there’s no way to manage it under a single platform, let alone conducting cross publisher frequency caps or single DMP based buying mechanisms.

Preferred deal models in China have the same issue as previously covered PDB: transparency and publisher silos. All this is rooted in publisher’s focus on short term gain instead of long term programmatic growth. So if the publisher decide to stop building full programmatic stack and open themselves to other ad tech companies, then we’ll see preferred deal models take off in China.

Category : Blog &Digital Marketing &Programmatic

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