Technology around us is transforming, and with it, the world of marketing, at a meteoric rate. This year, the global digital ad spend estimate inched closer to $333.25 billion, indicating the enormity and influence of this market.

Advertisers and publishers are both on the lookout for profitable transactions that can be facilitated in the most convenient way possible, by both parties. This is where ad exchanges come in. Ad exchanges act as an organized virtual marketplace where advertisers can buy ad inventory from publishers, and in turn, the latter can sell publishing spaces to the highest bidder.

Table of Contents

• What Is an Ad Exchange?
• How Do Ad Exchanges Work?
• Supply-Side Platforms and Demand-Side Platforms and Why They Matter in Ad Exchange
• 3 Most Popular Types of Ad Exchanges
• Why Do You Need Ad Exchanges?
• 4 Top Ad Exchanges: Vendor Landscape
• The Future of Ad Exchanges

What Is an Ad Exchange?

If you are an advertiser, you’re probably always on the search for virtual ad space, for your digital ads, that is reasonable and can accrue substantial impressions. If you are a publisher, you have a website or digital space to sell to advertisers. Now, let’s understand what an ad exchange is – it is a digital marketplace that makes this buying and selling possible. It is a neutral, autonomous platform, that allows for programmatic ad buying, driven by real-time bidding (RTB) technology.

The technology that drives ad exchanges has been around for a long time, and it is being used to bridge the gap between publishers and advertisers. By curating an enormous digital advertising inventory from various ad networksOpens a new window , under a single platform, ad exchanges are transforming the way digital ad trading takes place

Moving on from the traditional approach of negotiating media inventory prices, the RTB technology has put in place a bidding mechanism to regulate prices. This technology-driven pricing mechanism ensures greater transparency in trade, for all parties involved.

Learn More: What Is Programmatic Advertising? Definition, Types, Channel, and AdvantagesOpens a new window

How Do Ad Exchanges Work?

To understand the concept of an ad exchange and how it works, you need to look at it as a separate entity, and not confuse it with an ad network. Unlike ad networks, which collect inventory from publishers and then put it up for sale at a hiked-up price, ad exchanges allow for much greater flexibility in trading. For starters, the prices aren’t marked up as trade is driven by real-time auctioning. To understand what the process actually entails, let’s look at examples from both the advertiser and publisher’s points of view.

When a visitor views the publisher’s page, the ad exchange records the inventory of the page by considering each banner and ad location as a distinct impression for the potential ads. By connecting to the exchange through a supply-side platform (SSP), the publisher offers his inventory for bids. Now, based on the visitor information collected by the cookies of that site, the ad exchange chooses the most interested bidders for that inventory.

For advertisers, the process looks slightly different. To begin with, they connect to an ad exchange through a demand-side platform (DSP) as opposed to the SSP. When advertisers require ad space, they enter the real-time bidding process on the exchange and declare the maximum cost-per-impression they are willing to pay. The inventory then selected has to meet certain criteria selected by the advertisers.

So, how does it all play out in real-time? Whenever there is the availability of new inventory, all the potential bidders are notified and the process of bidding begins. As is obvious, the highest bidder walks away with the inventory. What’s fascinating is that this entire process transpires in milliseconds, and automatically starts anew every time new inventory becomes available. Ad exchanges are thus capable of allowing for bulk sale of impressions, usually in bundles of 1000. This is undoubtedly one of the significant features of ad exchanges.

Learn More: Ad Network vs. Ad Exchange: Key Differences and SimilaritiesOpens a new window

Supply-Side Platforms and Demand-Side Platforms and Why They Matter in Ad Exchange

Now that you have sufficient clarity about the functioning of ad exchanges, let’s look at some of the associated technology. Supply-side platformsOpens a new window and demand-side platformsOpens a new window are imperative for publishers and advertisers wishing to connect to an ad exchange.

Supply-side and demand-side platforms are aggregating services that rely solely on RTB. The former allows publishers to establish their inventory and decide their prices, while the latter allows advertisers to explore inventories that meet their requirements.

Example: With SSP, publishers provide their digital inventory and related information such as page location, URL, audience, topics and so forth in hopes of securing the highest bid for their digital ad space.

On the other hand, the DSP on receiving a bid request reviews information related to targeting options such as demographics, user ID, geolocation, frequency capping, dayparting, and other targeting options. If the advertiser’s brief matches the inventory, then it sends a reply to the Ad Exchange quoting the bid amount and the location of the advertising copy.

Example: DSP ensures advertisers have access to a wide range of impressions across publishers; that is, they are targeted to specific users based on their browsing patterns and location.

An ad exchange acts as a pool of impressions that both publishers and advertisers can plug into using SSP and DSP, respectively. Once publishers add their digital inventory on an exchange, the DSP automatically matches the inventory to potential buyers, based on the highest bid amount. The primary advantage of using this automated process is that the advertiser is matched with impressions that add the most value to their campaign.

The features of ad exchanges are engineered to ensure an optimum transaction for both the parties involved.

Learn More: What is Advertising Technology (Adtech)? Definition, Ecosystem, Programmatic, & TrendsOpens a new window

3 Most Popular Types of Ad Exchanges

An ad exchange is a dynamic space, with constantly evolving parameters; there is no one type of ad exchange that exists. To narrow it down, one can identify the three most popular types of ad exchanges available.

1. Open Ad Exchange

As the name suggests, an open ad exchange is a virtual marketplace that is a repository of listings from many different publishers. The catch here is that detailed information about these publishers is withheld from the buyers, which is not the case in a private marketplace. The primary benefit of this type of ad exchange is the sheer volume that it receives.

With close to 70 billion impressions flowing in per day through open ad exchanges, publishers have access to a larger pool of buyers and wider publicity. One concern with open marketplaces is the aspect of security. With digital ad fraud on the rise, more buyers are inclined to opt for private marketplaces.

2. Private Ad Exchange

By virtue of being a closed platform, private auctions allow publishers to control the terms and conditions of the bid. They decide which buyers can place bids, the price of the bidding, and under what conditions. The publisher has full autonomy here, considering that each private ad exchange is essentially run by a single publisher that personally invites each buyer to the platform. The publisher also has the power to block ad networks and can restrict third-party members from accessing its pool of impressions.

The quality of inventory available on private ad exchanges is considered way superior to that of open marketplaces. Private ad exchanges are, however, becoming increasingly popular with buyers, given the concerns about digital ad fraud in open unregulated marketplaces.

3. Preferred Deal

This type of ad exchange offers publishers an opportunity to sell digital ad inventory to specific advertisers, after price negotiations between the parties. It is a source of a stable revenue stream for publishers as they have significant control over the transaction system. Advertisers also benefit from stable Cost Per MileOpens a new window prices and have access to good quality inventory.

Why Do You Need Ad Exchanges?

Let’s look at why publishers and advertisers need ad exchange for digital advertising today.

For Publishers

• To curate the ads you want and pick buyers accordingly – An ad exchange allows publishers the autonomy to pick the buyers they want, according to the type of advertisements they choose to display on their page. It also allows publishers to restrict access to parties which are undesirable.

• To earn the highest revenue possible – By ensuring that the ad space is sold to the highest bidder, an ad exchange guarantees that the publisher receives the highest revenue that his/her inventory can earn. Additionally, floor pricing makes it a certainty that no publisher is underpaid.

• To choose specific display location and increase engagement – The flexibility and customization that publishers are offered by an ad exchange is unparalleled. They can decide the exact display location on their page for the ad, preferably one that optimizes viewer engagement.

For Advertisers

• The enormous pool of impressions to select from – What’s better than two options? Three. With a gigantic pool of digital inventory up for grabs, ad exchange opens up a whole new world of possibilities for advertisers. More options translate to multiple display opportunities for buyers, who do not have to exclusively deal with any one publisher.
• Greater autonomy over ad placement – When advertisers use an ad exchange as opposed to an ad network, they have more decision-making powers regarding where to display their ad and display timings. Advertisers feel more in control of their campaign in this case.
• Maximum ad optimization – As an advertiser, you can use multiple strategies for user targeting such as geographic targeting, behavioral targeting, inventory targeting, dayparting, device and cross-platform ad targeting to ensure maximum engagement for your campaign.

4 Top Ad Exchanges: Vendor Landscape

Here is a quick list of the top exchanges that are on the market right now.

1. Google Ad Exchange

Currently, the most popular exchange, Google Ad Exchange provides publishers access to all the advertisers in AdSense as well as additional premium/big brand advertisers. With provisions for preferred deals, filtering/blocking, guaranteed anonymity and Google’s credibility, this is definitely the go-to exchange for most digital ad traders.

2. OpenX

Another popular choice for most advertisers, OpenX offers incredible Yield Analysts that lure a lot of sellers and buyers to the exchange. The exchange promises complete autonomy to stakeholders over their entire advertising platform. Additionally, their customer support is top-notch and quick to respond.

3. AppNexus

With access to over 692,427 websites, AppNexus offers a wide variety of options for those looking to advertise online. It also has a proprietary gateway that offers access to premier ad exchanges and ad inventory aggregators.

4. SmartyAds

With over 250+ DSPs and catering to a global user base, SmartyAds has a thriving community of buyers and sellers engaging in an open marketplace. The marketplace connects premium publishers, mobile apps, and direct advertisers, therefore providing quality service.

The Future of Ad Exchanges

The future for ad exchanges looks bright considering a dedicated shift to digital advertising is already underway by leading brands and companies. In 2017, an estimated four out of every five ad US dollars spent on digital display were programmatically transacted. With the expeditious rise in programmatic advertising, ad exchanges have become the go-to virtual marketplace for buyers and sellers.

A dominant trend in this space is the growing popularity of private marketplaces, which might take over the market share from open marketplaces. We will have to wait and see if that translates into reality anytime soon.

Are you choosing the right ad exchange for yourself? Send in your recommendations on TwitterOpens a new window , FacebookOpens a new window , and LinkedInOpens a new window . We would love to hear from you!