What’s behind Chinese companies buying into ad tech

It’s likely not the end of Chinese ad tech acquisitions. Take PapayaMobile, a mobile tech company headquartered in Beijing with a valuation of 2.2 billion yuan (around $333.5 million). It plans to acquire two programmatic firms by the end of this year, at least one of which is based in the U.S., said Si Shen, CEO of PapayaMobile.

Those Chinese companies are aggressively acquiring ad tech firms in the U.S. because most ad traffic in China — especially mobile traffic — is shared by technology juggernauts: Baidu, Alibaba and Tencent (known as the BATs) as well as Qihoo360. Unlike Google and Facebook, those domestic companies haven’t yet opened their APIs so advertisers cannot run programmatic deals via third-party platforms, according to Shen.

“It’s really hard for independent firms to survive in the local market,” Shen said. “Domob, for example, was expected to be big in the mobile programmatic space. But it got acquired [by BlueFocus Communication Group] last year, and now it’s running more like an agency business. The international market is less competitive.”

Another reason is that U.S. tech companies are not expensive, added Shen, at least not with the recent turbulence in the ad tech market.

“From Chinese investors’ point of view, tech companies in the U.S. are undervalued because it’s hard for them to exit,” she said. “Those firms can get much more funding from private equities in the Chinese capital market, so the [purchase] price is very reasonable.”

Victor Wong, CEO for U.S.-based programmatic creative management platform Thunder, believes that American ad technology is “a generation ahead of Asian ad tech,” so it’s no surprise that Chinese companies are aggressively buying U.S. firms and their technology to yield greater revenue from advertisers who want both scale and targeting.

Mergers and acquisitions aside, some Chinese demand-side platforms also serve as resellers on behalf of Google, Facebook and Twitter to access ad traffic in other countries. Those technology giants have all set up their own ad networks — Google Display Network, Facebook Audience Network and Twitter Audience Platform — that can help Chinese app and mobile web publishers connect with global advertisers who want to serve ads outside of properties owned and operated by Google, Facebook or Twitter.

“Although Facebook is blocked in China, it has a big ad business here because so many Chinese companies want the ad traffic overseas,” said a Chinese ad tech executive. “Facebook has a team in Singapore and Hong Kong, respectively. The company gives us lots of benefits like rebates when we sell ads for it and offers us much API support. Google is in a similar situation.”