The Ad Exchange

Ad exchanges have been around for a few years but they have very much been under the radar.  This year you will hear more and more about ad exchanges and how in a lot of people’s opinions they will change the way that publishers sell their inventory and potentially limit the amount of direct inventory that can be bought.

So what is an ad exchange?

Lets start with ad networks.  An ad network does exactly what you would imagine it does.  An ad network connects multiple advertisers with multiple publishers.  They tend to throw a few benefits into the equation as well in terms of adding a layer of targeting capability.  Simply put the model looks like this:

 

For single ad networks they face a continual problem of one side having more or less demand than the other.  The may have lots of publishers with inventory and not enough advertisers or vice versa with lots of demand and not enough inventory.  When you multiply this model out over the hundreds of ad networks in existence then you get a complex supply and demand model.  For single advertisers this can make life very difficult.  Enter the ad exchange….

An ad exchange forms a central body that allows the different networks to trade with each other whilst keeping just one trading relationship in place.  The relationship with the exchange.  The model now looks like this:

All supply and demand has now been linked across the networks through the exchange.  What happens now is a bid system similar to that on Google.  In simple terms it works like this; A network has an impression for a publisher site which it can then send that into the exchange to get bids on it from the other networks.  The other networks bid on it using their targeting criteria and available budgets for their own advertisers and gain an understanding of relevance.  The bids are then sent back to the original network and if the highest bid is higher than the one it had from it’s own advertiser then the winning bidder has it’s impression served.  Both networks take a cut of the impression price and the exchange charges a flat fee.  Next impression is up for grabs and here we go again.

Mastery of the ad exchange will allow advertisers to get a fantastically targeted campaign across a wide range of media with great efficiency.