What is an ad exchange?

An ad exchange is a digital marketplace that enables advertisers and publishers to buy and sell advertising space, often through real-time auctions. They’re most often used to sell display, video, and mobile ad inventory.

Ad Exchanges are digital marketplaces where publishers and advertisers come together to trade digital ad inventory such as display, native, video, mobile and in-app. Buying and selling happen in real-time auctions, empowered by RTB (real-time bidding) technology. 

The Ad Exchange is an auction mediation mechanism that does not serve either the buyer or the seller side; it is an autonomous platform that facilitates programmatic ad buying.

How does Ad Exchange Work?

An ad network connects advertisers to publishers that offer ad inventory. The key function of an ad network is aggregating ad supply from publishers, and matching it with advertisers’ demand. 

Although the ad exchange and ad network seem to be performing the same role, they’re not. Ad Networks collect digital ad inventory from a list of publisher sites or buy ad impressions in bulk from the ad exchange, sort them through, and then resell them to advertisers. Since advertisers do not have enough time or resources for filtering available inventory, Ad Networks simply do it for them.

They group inventory according to specific parameters such as pricing, scale, or audience segments (demographics, geography, language, interests, consumer behavior, etc.). Some Ad Networks are focused on coverage and quantity, while others specialize in the quality of ad slots they offer.

So if an ad exchange is an open pool of impressions, an Ad network is a closed group of privately traded ads. Ad exchange, in that sense, offers more transparency to buyers, because they can see exactly how much each impression is being sold for, with no intermediary players. 

Who buys from ad exchanges?

Virtually anyone can buy from an ad exchange provided the ad exchange allows it. Advertisers and agencies typically use demand-side platforms or their own bidding technologies to do so, but ad networks and other entities also buy ads from exchanges.

Great. But how do they do that?

Basically, an ad exchange is just a big pool of ad impressions. Publishers tip their ad impressions into the pool hoping someone will buy them. Buyers then pick which impressions they wish to purchase using technologies like demand-side platforms. Those decisions are often made in real-time based on information such as the previous behavior of the user an ad is being served to, time of day, device type, ad position, and more.

Types of exchanges

1. Open ad exchange / Public Marketplace / Open Auction

The above describes an open digital marketplace with an extensive inventory of publishers available for all advertisers. Despite offering a broad list of publishers, advertisers using an open ad exchange don’t have detailed information about publishers, as is the case with a private marketplace. 

Advertisers looking for wider publicity choose an open ad exchange.

However, with tens of billions of impressions flowing through open Ad Exchanges every day, there is a growing and grounded concern among advertisers and publishers regarding digital ad fraud. For this reason, private marketplaces are becoming more popular, as they are considered safer and more transparent.

2. Private ad exchange / Private Marketplace (PMP)

A PMP is a closed, “premium” platform that enables the publisher to control which advertisers can bid, at what price, and under which conditions. Each private ad exchange is run by an individual publisher that personally invites selected advertisers to the PMP. 

The publisher can also block Ad Networks and other third-party members from giving access to its pool of impressions. A private ad exchange allows brands and publishers to set up direct relationships with advertisers and agencies, meaning negotiations might be more time-consuming in comparison to an open ad exchange. 

3. Preferred deal

A preferred deal is an option for a publisher to sell digital ad inventory at a negotiated fixed price for preferred advertisers. Preferred deals give the publisher a stable revenue stream through a controlled transaction system, while advertisers benefit from stable CPM prices and having access to an exclusive inventory.

What’s a private exchange? It sounds sleazy.

Private exchanges are used by publishers to more carefully control who can buy their inventory, and at what price. Instead of throwing its ad impressions into an “open” exchange and letting anyone buy them, a publisher might instead wish to offer them to a handful of its favorite advertiser clients, or an agency it has a close relationship with. It might also wish to cut off access to networks and other third parties that could sell those ad impressions.

A few key ad exchanges:

• DoubleClick (Google)
• AppNexus
• OpenX
• Rubicon Project Exchange (Magnite)
• Right Media Exchange (Yahoo)
• Smaato – mobile focused
• MoPub (Twitter) – mobile focused