Your Comprehensive Guide to Ad Exchange

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Your Comprehensive Guide to Ad Exchange[6]

With constant technology transformations, determining the best way to find suitable advertisers for your online space can be daunting. Luckily, there is an efficient way of navigating the confusing world of digital ad inventory[12][7]: ad exchanges. These digital marketplaces take the guesswork out of digital advertising by using an autonomous platform to facilitate programmatic ad buying. And they clearly work — in 2019, programmatically-sold advertising was worth over $100 US billion U.S. worldwide

But how exactly do ad exchanges work, and what’s the difference between the various ones that are available? Here’s everything you should know.

What Is an Ad Exchange? 

An ad exchange is an online platform that brings together both publishers, who have ad space inventory for sale, and advertisers, who want to bid on ad inventory. This virtual marketplace is technology-driven to help both parties get the maximum ROI. Advertisers can reach preferred audiences using targeted campaigns, and publishers have an efficient way to offer ad inventory to a large pool of advertisers. 

The advertising inventory available includes everything from video and mobile, to display and in-app. Some popular ad exchanges include Google’s Ad Exchange (AdX), Rubicon Project, Smarty Ads, and AppNexus.

How Do Ad Exchanges Work?

Ad exchanges involve two major players, each with their own role: publishers and advertisers.  

An ad exchange uses real-time bidding[1] (RTB) technology to regulate prices on an impression[8] basis. The whole process occurs automatically — and within seconds — between software platforms. A demand-side platform[2] (DSP) is how advertisers and agencies usually connect to an ad exchange, and a supply-side platform[3] (SSP) is what publishers use to make impressions available. 

The ad exchange’s process begins when a user navigates to a publisher[13]’s website with an internet browser. Once the website makes a page request, the areas in the site that are set as ad slots (such as banner and video locations) connect to the ad server. The SSP creates an ad request[9] to find a suitable advertiser[10] for the publisher’s specific inventory and to fill the ad spot. Advertisers looking for space enter the real-time bidding process by connecting through a DSP.

The ad exchange uses data from the user’s cookies or mobile identifier, the publisher, third-party data[4] vendors, or the buyer’s own data to determine the most interested bidders for that inventory. The tool ensures only suitable ads are considered for the slot by eliminating advertisers who do not meet the publisher’s requirements. Historical data that remains on the exchange helps determine an ad that will convert. 

After comparing the bids presented by each advertiser with predictions on how successfully an ad will convert, a winner is set based on the highest cost per thousand impressions (CPM[5]). The ad slot receives the ad, and the website user is presented with the impression. 

The entire ad exchange process takes place in the short amount of time it takes for a website to load. This helps ensure a quality experience for the website user.

What’s the Difference Between Ad Exchanges and Ad Networks?

To better understand ad exchanges, you need to know how they’re different from ad networks.

Ad networks collect ad space from many different publishers and group this inventory according to demographic information such as user age and location, pricing, or scale. They essentially act as a go-between for publishers and advertisers by taking ad space, inflating the price, and then placing it for sale. Depending on the ad network[11], there may be more focus on coverage and quantity rather than the quality of ad slots they offer.

Instead of hiking up prices, ad exchanges use real-time auctioning, which creates more flexibility in trading. More publisher ad inventories are accessible than with an ad network, and the use of DSPs provide better targeting[14] options for advertisers. Unlike an ad network, an ad exchange is transparent about impressions and websites where ads will appear. 

As a publisher, ad exchanges offer you numerous benefits. You have autonomy about the ads you want to display on your page and the specific display location. By selling the ad space to the highest bidder[15], you have the opportunity to earn the highest revenue possible. 

Plus, if the inventory is somehow related to a buyer’s premium selection, you have the opportunity to sell your less profitable or non-premium inventory. 

What’s the Difference Between Open and Private Exchanges?

In private ad exchanges, publishers can control the terms and conditions of the bid. This closed platform lets buyers determine any sale requirements, which specific advertisers can place bids, and the bidding price. 

A private ad exchange usually has high-quality inventory and provides publishers with premium prices for their online space. Private exchanges typically involve publishers who sell to big brands and vetted advertisers (buyers, agencies, and media planners). 

Besides personally inviting buyers to the platform, publishers can block ad networks and restrict third-party members from accessing their pool of impressions. Growing concerns regarding digital fraud have more advertisers and publishers choosing this type of ad exchange.

An open ad exchange allows publishers to connect to a larger pool of buyers with a variety of advertisers. Both ad networks and advertisers take place in the bidding, with available inventory from all kinds of publishers. Unlike a private exchange, advertisers do not receive detailed information about the publishers. 

With almost 70 billion impressions occurring daily, the biggest benefit of an open ad exchange is the huge volume of listings available. However, since the marketplace is unregulated, security can be a concern.

The Bottom Line

There’s no doubt about it — ad exchanges are transforming the way digital advertising is evolving. This digital marketplace makes finding the best advertisers for your online space easy and helps generate the best ROI. 

1. real-time bidding. Real-time bidding is a technology-driven auction process where ad impressions are bought and sold almost instantaneously. Once an advertiser wins a bid for an ad impression, their ad is shown on a website. Real-time bidding plays a crucial part in the digital advertising ecosystem together with other players such as ad exchanges and supply side platforms.
2. demand-side platform. A Demand Side Platform or DSP is a platform where advertisers can buy digital inventory to easily and more directly connect with sellers in a programmatic and real-time ecosystem.
3. supply-side platform. A technology platform that provides outsourced media selling and ad network management services for publishers. The business model resembles that of an ad network in that it aggregates ad inventory, however they serve publishers exclusively and do not provide services for advertisers (e.g., FreeWheel, SpotX).
4. third-party data. Third-party data is any information collected by an entity that does not have a direct relationship with the user the data is being collected on. Often times, third-party data is generated on a variety of websites and platforms and is then aggregated together by a third-party data provider such as a DMP.
5. Cost Per Mille/Thousand [CPM] ( CPM ) Cost per mille, or thousand (mille = thousand in Latin). A pricing model in which advertisers pay for every 1000 impressions of their advertisement served. This is the standard basic pricing model for online advertising. See also CPC and CPA.

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