Chinese companies have recently bought up a handful of US ad tech firms including NativeX, Smaato and Media.net. Now, amid increased pressure from the US government over data privacy and security risks, advertisers and agencies should beware Chinese-owned adtech, according to experts.
The Trump administration’s crackdown on Chinese tech giants Huawei, TikTok and WeChat has made countless headlines. Amid perceived data privacy and security risks and increasing pressure on companies attracting Chinese investment, experts say advertisers and agencies should be on guard – even if they work with firms that only have limited operations in China.
Recently updated US rules involving sensitive personal data have led to harsher government scrutiny of tech investment from China. The rules have expanded authority of federal agencies to review foreign investments and define sensitive personal data as identifiable data such as geolocation data, emails or biometric identifiers — even when it is encrypted, aggregated or anonymized but possible to be disaggregated or reidentified.
A recent report from The New York Times suggests the rules “were developed largely to deal with a surge in Chinese investors taking minority stakes in Silicon Valley companies and a new appreciation of the power of personal data.”
Tech firms operating in the ad industry “are in the middle of that particular concern,” says Steve Dickinson, an attorney who focuses on China and international law at Harris Bricken. He says firms handling consumer data should be leery of any China-owned tech.
China’s courtship of US ad tech fizzles
Chinese investor interest in US ad tech got hot a few years ago. Ad tech firms Media.net, NativeX, Smaato and Ad-Juster were snapped up by Chinese firms in 2016 and early 2017. Ad-Juster landed back in US hands when New York’s DoubleVerify bought the firm in 2019.
China’s courtship of US ad tech was short-lived as pressure from the Trump administration intensified. The Committee on Foreign Investment in the United States in 2017 put the kibosh on the planned acquisition of AppLovin by a Chinese investment firm. Fear of sensitive consumer data leakage to Chinese authorities led the US to force Grindr’s Chinese owner to seek a new buyer for the LGBTQ+ dating app in 2019; it sold earlier this year.
The Commerce Department in September prohibited WeChat and TikTok downloads and fund transactions within the US on WeChat. A US judge has since halted the WeChat ban and the government signaled it would fight the decision.
For now, there is no indication that the Trump administration will further set its sights on ad tech industry players. It is not clear whether Chinese ownership of firms including Media.net, NativeX or Smaato has had any negative impacts on their businesses. Media.net and NativeX did not respond to multiple requests to comment for this story, while Smaato declined to comment.
Advertisers should consider a ‘China media strategy’
The Trump administration’s microscope, to date, has been trained on TikTok, Huawei and more recently WeChat.
Advertisers should think about the possibility of a ban on WeChat talking effect—despite the temporary halt, says an anonymous ad agency executive. “It’s important to your China media strategy,” he says. “You need to figure out the risks.”
Dickinson, who assists foreign companies doing business in China, says its communist party “wants all the data in the whole world. It’s a technocratic vision.”
Dickinson has written extensively about what he says is a Chinese government plan to implement an internet-based surveillance program in the hopes of sucking up the world’s data. He says China’s communist party – its de facto government – penetrates vulnerable networks, cloud and mobile platforms and other information systems by installing malware through China-owned tech.
Despite the political theater surrounding the Trump administration’s focus on China-owned tech, the threat is legitimate, says Doug Knopper, former co-chief executive officer of digital TV ad tech company Freewheel, which has some of its research and development team based in Beijing. “There’s no question that the Chinese government can get access to anything. There was always that general concern that our data, our IP, our architecture could be accessed.”
Knopper left Freewheel after Comcast bought the firm in 2014. Today, he sits on boards of tech firms and private equity companies, some in ad tech. Freewheel tells The Drum its systems are secure. “At Freewheel, we remain confident in our ability to maintain the stability and integrity of our systems, in addition to upholding to the highest standards of transparency and reliability,” says a company spokesperson.
Advertisers ‘don’t care’ about China data threats
Not everyone has a heightened sense of concern. Some in the digital ad industry say advertisers and ad agencies are not concerned with the risks of consumer data siphoning by Chinese entities, or other possible threats from Chinese ad tech ownership. “Clients aren’t having that conversation,” says one agency executive who spoke on condition of anonymity.
Seasoned global ad tech entrepreneur Dave Morgan says the pressure on China-owned tech is rooted in geopolitical issues and trade negotiations, not genuine privacy concerns. “I don’t think there’s a lot of purity around the personal data security issue,” says Morgan, co-founder and chief executive officer of digital TV ad firm Simulmedia.
Morgan says even when US consumer data is moving between the US and China, “It’s very likely going through servers and telecom systems in half a dozen jurisdictions before it may connect.”
But Knopper says all advertisers and ad agencies should think about the risks of foreign tech ownership. “If I were an agency working with a company in any country, I’d be very careful. It’s not just with China but any country,” he says. “I have the same concern around IP theft, data theft and manipulation in other countries. It can be as easily stolen in the US and China or any other country.”