What is an ad exchange?

  • 03 / 11 / 2022
  • Patrycja Gumola
What is an ad exchange?

Have you ever wondered what ad exchange is? Is it like an actual, old-fashioned marketplace where sellers and buyers exchange goods and services? Or a computerized, fully automated, intelligent purchasing system that does everything for us? Well, the truth is somewhere between these two. Read this article to find out!

Ad exchanges are an integral part of the programmatic advertising ecosystem based on real-time bidding (RTB) technology. This means that the bidding process is fully automated and happens in the blink of an eye. This kind of digital auction enables the purchase of many available ad formats, such as display, video, native, and in-app ones. Most importantly, ad exchanges connect advertisers through a Demand-Side Platform (DSP) to publishers via a Supply-Side Platform (SSP) on a shared virtual marketplace. The whole process resembles a traditional exchange of goods based on a simple demand and supply mechanism, with the difference that it’s entirely digital, and the parties don’t exchange their “products” in the transactions personally. The most important here is the system, which does most of the work on behalf of transactional partners. After all, that’s what it’s all about – publishers are trying to sell their ad inventory, whereas advertisers want to buy it to fill it with their ads and gain the best visibility possible. Thus, the whole process is 100% symbiotic, meaning both sellers and buyers have considerable advantages from selling ad space, finally making it a win-win situation.

source: https://giphy.com/

How does ad exchange work?

Let’s look at the process from two perspectives: advertiser’s and publisher’s. To understand it well, we need to take a closer look at two sides of the ad exchange partners taking part in transaction making. Foremost, to accomplish the deal effectively, both the advertiser and the publisher must be part of the same ad exchange network.

Let’s imagine a publisher whose website explains how to deal with taxes and who wants to monetize his content. He has an available ad inventory on his webpage and just joined an ad exchange. Now he wants to sell that space to earn money.

On the other hand, there is an advertiser who has an ad promoting tax counseling and wants to buy a particular ad space on a website that will match the service he wishes to sell. He also joined ad exchange.

Both parties have no idea that their perfect transactional match already exists, but it’s not a problem since they both joined the same ad exchange. Let’s see how they find each other through ad exchange and what it takes to close their deal with success. Here you can see how it works from a more technical point of view:

From the publisher’s perspective

A publisher adds his inventory through an SSP that is connected to the given ad exchange. The whole “party” starts when a visitor arrives at a publisher’s page. The information about what the user could be interested in is collected simultaneously by means of cookies. The ad exchange uses visitor data, and based on that, it selects the most relevant bidders. The bidder with the best offer wins the race, and the whole process ends.

From the advertiser’s perspective

To successfully close the deal, an advertiser must connect to the same ad exchange as a publisher, and he has to do it through DSP. Now it’s time for the advertiser to think of the maximum cost-per-mille (CPM) he is willing to pay for a given ad slot. When this is set, and other criteria meet the advertiser’s requirements, ad exchange comes into play – it looks for matching ad impressions that will fit the needs and expectations of both parties.

What’s more, potential bidders are always notified about the availability of new ad inventory through a bid request; this is where the bidding process begins. And what’s most important – the whole thing happens automatically and within a few milliseconds. As we can see, ad exchanges are indirect marketplaces, thanks to which the selling of digital ad inventory occurs at high volumes.

source: https://giphy.com/

What is the difference between ad exchange and ad network?

They are similar, but at the same time, they work in a completely different manner as separate elements of the same digital ad ecosystem. What is most important to diversify these, is to say that ad networks are companies that act as an intermediary between advertisers and sellers. Opposite to ad exchanges, which are technological platforms (not companies) where both parties purchase and sell ad inventory directly. The scope of the work of ad networks is based upon collecting inventory from a bunch of publishers and selling it to advertisers for a profit. So, not only do publishers gain revenue from what they sell, but they have to share some part of their profit with the ad network that they work with. In that scenario, the advertisers don’t know where their ads will appear, and publishers are not conscious of the buyer purchasing his ad inventory.

On the other hand, ad exchanges, contrary to ad networks, allow ad inventory sellers to see exactly for what price and to whom impressions are being sold. In the case of ad exchanges, both parties are aware of transaction details, and all the data are disclosed.

Who manages ad exchanges?

Google, The Rubicon Project, SmartyAds, OpenX, Xandr, and Yahoo are the most known owners of ad exchanges. However, some smaller players offer publishers the ability to create private exchanges. Those are often used by publishers who need more control over who can buy their ad inventory and at what price. To learn more about the differences between private marketplace (PMP) and open exchange, read an article on our blog dedicated to that particular topic.

The Benefits of Using an ad exchange

The main advantage of exchanges is that they enable automatizing processes that normally would have to be done manually by advertisers and publishers. It brings convenience and usage ease and shortens the transaction time, giving publishers space to perform other, more engaging tasks. Thanks to ad exchanges, publishers can sell an ad inventory, and advertisers can buy it across many sites. It’s a fast and easy alternative to negotiations based on direct seller-buyer purchases. What’s more, it’s a much more effective way to buy and sell digital advertisements and, thus, gain better revenue results. The platform provides benefits for both publishers and advertisers, but this time I will list the most important benefits of ad exchange for publishers:

  • More control over ads

Publishers have the possibility to choose ad formats and the style and thematic areas of the ads that appear on their websites. It means a lesser chance to display ads from another industry or an unwanted brand. Moreover, they can also decide where and when ads will be shown to a user.

  • More control over prices

Publishers have the option to set minimum CPMs for inventory units to get a fair and attractive price. This may require a bit of engagement and effort but brings much more positive effects than that. Most of all, they gain considerable responsibility, but at the same time, they get more control over their revenue results. Thus, they can quickly increase profits and get the best out of these efforts by setting attractive (for them) prices.

  • High demand on your ad inventory

Thanks to ad exchanges, publishers have a lot of advertisers to choose from. They open a bouquet of new opportunities, as the more advertisers – the bigger the chance of getting an exciting deal. The rule is that higher demand almost always equals higher CPMs, which leads to better profits for publishers.

  • Ad filtering and ad blocking

Ad filtering and blocking are functionalities that facilitate avoiding sensitive, spammy, inappropriate, or damaging ads. Such creations shouldn’t appear on any website, as they do no good. This kind of ad, when not under control, can lower the credibility of a website, insult potential users and make them abandon your website for good. So, thanks to this particular feature, the publisher can be ensured that their website is filled only with relevant ads.

  • Higher fill rates

Publishers who want to earn money from displaying ads, need to squeeze the best out of their ad space to gain the best profit results possible. However, our world is not perfect, and sometimes there may be some gaps in your ad inventory. This can have many reasons, but most importantly, it inevitably makes publishers lose their money. And nobody likes that! If one uses ad exchange, there is a slight possibility for one to end up with blank ad spaces. It’s because they offer solid CPMs, significant advertisers’ interest and, accordingly broad ad demand. With those features, ad exchanges efficiently fix this problem and ensure that ads appear on the website seamlessly. Thanks to that, a publisher can sleep peacefully without nightmares about unfulfilled ad spaces!

source: https://giphy.com/

Well, the benefits are tempting, but is the ad exchange for everybody? Sadly, it doesn’t work like this. Ad exchanges usually have a bunch of requirements to join them. One of those is to have a significant number of visitors, as big user traffic always means attractive results for both partners. However, it’s not all doom and gloom! You can adopt solutions to quickly increase your traffic and try to apply them to any ad exchange when your efforts finally flourish. You can as well look for partners such as optAd360, who also accept smaller publishers and will willingly facilitate your content monetization!

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