An ad exchange is a digital marketplace, where online advertising space (known as inventory) is bought and sold in real-time through an automated process.
What is an ad exchange?
An ad exchange is an online platform for buying and selling advertising inventory across websites, mobile sites, and mobile apps. Think of it like a digital marketplace, where the deals take place automatically and in real-time.
Ad exchanges play a key role in the world of programmatic advertising, which automates the bidding process for digital ad space. They connect the supply side — parties with ad space to sell, including publishers (website or app owners) and advertising networks (more on these below) — with the demand side (advertisers or agencies wanting to place ads).
Ad exchange vs ad network
You’ll also come across the term “ad network”. While this might sound similar to an ad exchange, it’s important not to confuse the two.
An ad exchange is essentially a trading platform, whereas an ad network acts as an intermediary: it aggregates ad supply from publishers, and matches it with advertiser demand. It does this by collecting inventory from a list of publishers, or buying impressions in bulk from an ad exchange. It then sorts them and resells the space to advertisers — saving them time and resources.
So, while ad exchanges and ad networks both help connect advertisers and publishers, they play different roles on the programmatic advertising stage. Whereas an ad exchange is an open, transparent pool of impressions, an ad network is a closed group of privately traded ads.
Benefits of using an ad exchanges
As the digital landscape has evolved and grown, advertisers and publishers have sought more efficient and transparent ways to get ads onto screens. Let’s look at some of the ways ad exchanges help both parties to work smarter and maximize profits.
Ad exchange benefits for advertisers
- Ad exchanges use sophisticated algorithms that enable advertisers to reach highly specific audiences, showing them the most relevant message at exactly the right time.
- Exchanges enable advertisers to easily buy ads across a range of sites and apps at once, rather than negotiating with individual publishers. This speeds up the process considerably while expanding reach.
- Advertisers have full control over where their ads are placed. This means they can protect their brand reputation by avoiding overexposure or inappropriate placements.
- The costs are transparent: ad exchanges often operate on a cost per mille (CPM) model, where advertisers agree to pay a fixed price for 1,000 impressions of their ad.
Ad exchange benefits for publishers
- Publishers can get the best price for their ad real estate, with full transparency. They can set a minimum price, ensuring they’re not short-changed, and ultimately sell the space to the highest bidder.
- Just like the advertisers, publishers have control over which ads they choose to display — again, ensuring they don’t promote brands that clash with their values.
- Publishers also control the format of ads, so they fit in with the overall site or app design.
How do ad exchanges work?
An ad exchange works in a similar way to an auction, enabling advertisers to reach their audiences across a wide pool of publishers.
Advertisers and agencies typically connect to an ad exchange using a demand-side platform (DSP): a piece of technology used to buy inventory automatically. Meanwhile, publishers usually make impressions available through a supply-side platform (SSP), which enables automated sales.
Now the bidding process can get underway — and it all takes place in the blink of an eye.
What actually happens during real-time bidding (RTB)
RTB is based on a fully automated process that calculates the price of the advertising space and inventory in real-time, depending on supply and demand factors. Advertisers can bid on ad space with a specific number of ad impressions, and the ad belonging to the highest bidder is displayed for an impression.
Here’s how this works in practice:
- The moment a user lands on a web or in-app page, an ad impression is triggered for auction on the exchange.
- The DSP can analyze data from multiple sources – such as the user’s mobile identifier (if they’ve given consent), time of day, device type, ad position, demographics and purchasing behavior – to figure out whether to bid on the impression, and how much.
- Within a fraction of a second, the winning bidder is selected and the publisher instantly serves up the ad to the user.
Types of exchanges
Advertisers and publishers can choose from three main types of ad exchange, depending on their goals and expectations.
1. Open ad exchange
Also known as a public marketplace or an open auction, an open ad exchange is a digital marketplace that’s open to everyone, with extensive inventory of publishers available for all advertisers.
The breadth of publishers available makes this most suitable for advertisers looking for wide reach. One downside of this model is that advertisers don’t have detailed information about the publishers. Ad fraud is also a concern, given the tens of billions of impressions flowing through open ad exchanges every day. For these reasons, some advertisers prefer the security of a private ad exchange.
2. Private ad exchange
A private ad exchange, or private marketplace (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.
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, so negotiations may take longer than on an open ad exchange.
3. Preferred deal
A preferred deal allows publishers to sell digital ad inventory to selected advertisers at a negotiated fixed price. Preferred deals give the publisher a stable revenue stream through a controlled transaction system, while advertisers benefit from stable CPM prices and access to an exclusive inventory.
How to choose an ad exchange
We’ve covered the main types of ad exchange, but how do you narrow it down to find the right one for you? With a wide range of platforms to choose from, including Google AdX, Xandr, Open X, and PubMatic (among many others), here are some factors to consider:
For advertisers, understanding the number and breadth of publishers present on an ad exchange will help you decide if this platform offers the right level of reach for your campaign.
Likewise for publishers, a larger pool of advertisers increases your choice when it comes to selecting relevant brands for your audience.
Different ad exchanges offer varying levels of segmentation and targeting, enabling audiences to be grouped by demographics, location, behavioral patterns, and more.
It’s vital to check that your chosen exchange offers targeting to meet your goals. Advertisers need to be sure they can reach their specific audience, while publishers will want to know they’re serving relevant and appropriate ads to their users.
Ad formats supported
Display ads, video ads, native ads… Digital ads come in many shapes and sizes, but not all formats are available on every ad exchange.
An exchange that supports more formats brings greater creative choice and control for advertisers, and more monetization opportunities for publishers.
The more campaign data your ad exchange can provide, the better. Real-time insights help both advertisers and publishers to optimize ad placement and engagement, benefiting their bottom line. (It goes without saying that your exchange must comply with all data privacy rules.)
The vast networks and automated nature of ad exchanges mean fraud is all too common — hurting both budgets and reputations. A reputable exchange will take steps to protect both advertisers and publishers, such as quality-checking ads, ensuring clicks are attributed correctly, and blocking potentially risky suppliers.
Optimize your ad exchange activities with mobile attribution
Attribution data gives online advertisers valuable insights into the effectiveness of their ad exchange buys. Identifying your most and least valuable digital investments empowers you to make smarter budget decisions, and optimize your campaign performance, ROAS, and LTV.
With an ad exchange, you get real-time campaign data so you can take swift action to improve results.
Ad exchanges sit at the heart of the programmatic advertising ecosystem. Here are the key points to remember about them:
- An ad exchange is a platform that connects online advertisers with publishers (apps and websites). It enables digital ad inventory to be bought and sold automatically and in real-time.
- An ad exchange should not be confused with an ad network, which aggregates inventory from multiple publishers and sells the impressions on to advertisers.
- For advertisers, the benefits of using an ad exchange include wide reach, sophisticated targeting, control, and transparent costs. Publishers get the best price in a transparent way, and can control which ads to show and in what format.
- Ad exchanges use an automated process of real-time bidding, where publishers list their available inventory and advertisers bid on relevant space in real-time. The deal is completed and the ad served to the user in a fraction of a second.
- The main types of ad exchange are open, private, and preferred deal. While open markets offer the widest reach, private and preferred options offer greater control and exclusivity.
- When choosing an ad exchange, you should consider and compare reach, targeting, ad types supported, data analytics, and fraud protection.
- Attribution can help you optimize exchange activity by identifying your most and least valuable ad investments.