What is an ad exchange?
Introduction
An ad exchange in the ad tech world is the intermediary of the digital ad-buying space. On one side there is demand (ad agencies, advertisers, and demand-side platforms [DSPs]). On the other side, there is supply (ad networks, publishers, and supply-side platforms [SSPs]). Together, these components allow ad inventory to be bought and sold.
Common examples of ad exchanges include Google Ad Exchange, AppLovin Exchange, OpenX, AppNexus, Rubicon Project, Magnite, SmartyAds, and Verizon Media, among others.
What does an ad exchange do?
Ad exchanges provide publishers with a place to make ad inventory available to buyers. SSPs supply inventory that can be bid on, while DSPs bid on this inventory, all within the ad exchange. DSPs and SSPs can even plug into multiple ad exchanges to create a wider pool of inventory.
What is the benefit of using an ad exchange?
Ad exchanges are regulated and public, which ensures transparency in the process of inventory exchange. They’re also a more efficient way of exchanging ad inventory. Publishers post the minimum price (floor price) they will accept for an impression. Meanwhile, advertisers set the highest price they’ll pay for that impression. This allows for automated exchange where the most ideal scenario for both parties is met.
Automated bidding allows advertisers to buy inventory across a range of channels simultaneously rather than manually negotiating one by one. Essentially, ad exchanges optimize inventory exchange to maximize profit. Additional benefits of using an ad exchange can be summarized into the following two points:
- More control over ads and costs: Choice over ad formats, when and where ads are displayed, and minimum cost per mille (CPM), gives advertisers the flexibility to cater ads to their vertical, app, and campaign.
- Ad filtering and ad blocking: Ad publishers can better control the quality of their ads and reduce fraud by avoiding unsavory content with filters. This includes blocking entire advertisers and/or ad networks, as well as publishers.
What is the difference between an ad exchange and ad network?
Advertisers often do not have time to filter through available ad inventory themselves, so ad networks do this work for them. An ad network aggregates inventories from supply sources and matches them with demand sources looking for ad slots.
To do this, the ad network collects ad inventory from publisher sites or buys the impressions in bulk. They then sort through these impressions based on pricing, audience, or other identified parameters from the demand sources, and resell the appropriate digital inventory from various publishers to advertisers.
However, an ad exchange directly connects publishers and advertisers.
Types of ad exchanges
Ad exchanges are categorized as open ad exchanges, private ad exchanges, or preferred ad exchanges.
- Open ad exchanges
Open ad exchanges are the most common type. They offer open auctions in a virtual marketplace. A wide range of inventory across various publishers is made available to all the advertisers on the platform.
Pro: Great for expanding campaign reach.
Con: Limited publisher information.
- Private ad exchanges
A closed platform that offers access to inventory from premium publishers. Operating as a private marketplace (PMP), the publishers running these exchanges typically select the advertisers that they allow to access their inventory.
Pro: Direct relationships with advertisers facilitate greater negotiations.
Con: Publishers can control who can bid on their inventory, and at what price.
- Preferred Ad Exchanges
Publishers sell ad inventory at a negotiated fixed price for preferred advertisers.
Pro: Publishers have stable ad revenue and advertisers have stable prices.
Con: More limited inventory.
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