Ad Exchange – Complete Guide for Publishers and Advertisers

Ad exchanges provide a marketplace for advertisers and publishers to transact ad inventory in real-time. They give publishers access to a variety of potential buyers (advertisers), and enable advertisers to bid on ad inventory from multiple publishers and ad networks. 

In this guide for publishers, we will explore what ad exchanges are, how they work and differ from ad networks, and how they can benefit your ad strategy. 

Let’s dive in!

What Is an Ad Exchange?

Ad exchanges are digital platforms that connect advertisers and publishers who want to buy and sell their ad inventory. 

In simple terms, ad exchanges are marketplaces for buying and selling online ad space. 

These platforms use real-time bidding (RTB) technology, allowing advertisers to bid on ad impressions in real-time. Ad exchanges are designed to make buying and selling of online ads more efficient.

The role of programmatic ad buying 

Programmatic buying uses algorithmic software to buy and sell ad space instead of the traditional process, which involves a lot of manual work, several requests, negotiations, and insertion orders. 

Ad exchanges are a key component of programmatic buying because they provide a marketplace for buyers and sellers (advertisers and publishers) to transact ad inventory in real-time. 

Ad exchanges enable advertisers to bid on ad inventory from multiple publishers and ad networks at once, increasing the buying process’s efficiency and speed. 

What is real-time bidding (RTB)?

Programmatic media buying includes the subcategory of real-time bidding. RTB refers to purchasing and selling ads in real-time on a per-impression basis in an instant auction. 

Simply put, RTB enables multiple participants to bid on available ad inventory in real-time auctions. Since it is a bidding system, the highest bid for each auction wins the impression.

What are DSPs and SSPs?

An SSP, or supply side platform, is a programmatic software that enables publishers to sell ad inventory to advertisers across different ad exchanges. By making their ad inventory available to large demand, an SSP helps to maximize the publisher’s ad revenue.

On the other hand, a DSP, or demand side platform, is a software used by advertisers to automate the bidding process. It enables them to buy ad impressions from ad exchanges and search ad inventory from a wide range of publishers.  

Ad exchanges vs SSPs vs DSPs

How Does an Ad Exchange Work?

Here are 5 steps that explain how ad exchange works:

1. Publishers offer their ad inventory through an SSP, which integrates with the ad exchange. The ad exchange records the inventory of all the publishers’ pages and considers each ad space and ad position as a potential impression.

2. When a user arrives on a publisher’s page, information is collected using cookies. The ad exchange uses this data to select the most relevant bidders.

3. Advertisers connect to an ad exchange through a DSP. The advertiser sets the maximum CPM they are willing to pay for an ad slot. Based on this cost and other targeting criteria set by the advertisers, the ad exchange matches the demand with available ad impressions.

4. Whenever there is new inventory available, potential bidders are notified through a bid request, and the bidding begins. The highest bidder gets the opportunity to serve their ad to the user.

5. The ad exchange charges a fee for each transaction, usually a percentage of the winning bid.

The role of advertisers, publishers, and ad networks in ad exchanges

Ad exchanges act as a marketplace where advertisers, publishers, and ad networks can transact ad inventory in real-time.

Ad networks act as intermediaries between advertisers and publishers, providing access to a larger pool of ad inventory and helping to manage the buying and selling process. 

Ad networks can use ad exchanges to bid on behalf of their clients, using data and algorithms to target specific audiences and achieve their advertising objectives.

Ad exchange for publishers

The publisher offers their inventory through an SSP. Publishers benefit from ad exchanges by gaining access to a wider number of potential buyers, which increases their chances of selling their ad inventory at the highest possible price.

When a user views a publisher’s page, cookies or DMPs are used to collect the user’s data, which is then used by the ad exchange to choose the most relevant bidders.

The ad exchange records the publishers’ pages’ inventory and considers each ad space and position as a potential impression. The publisher can control which advertisers they want to work with and the ads they want to display on their site. 

By using a private ad exchange, publishers can ensure that their inventory is only sold to a selected group of advertisers, giving them more control of ads on their site. Publishers can also set a minimum bid price for their inventory, ensuring they receive a fair price for their ad space.

Ad exchange for advertisers

Contrarily to publishers, advertisers must connect to an ad exchange through a DSP. Advertisers benefit from ad exchanges by gaining access to a large pool of ad inventory and by being able to target specific audiences with precision.

The advertiser has to set the maximum cost-per-impression it’s willing to pay for an ad slot. The ad exchange matches the demand with available ad impressions based on this cost and other criteria.

When new inventory is available, potential bidders are notified through a bid request, and the bidding begins. The whole process happens almost instantly and starts automatically whenever new inventory becomes available. 

Advertisers can also use targeting options such as demographics, location, and interests to reach their desired audience.

Simply put, advertisers use ad exchanges to bid on ad inventory that meets their specific targeting criteria. They can set their bids, targeting parameters, and budgets, and the ad exchange handles the rest of the process.

Ad Exchanges vs. Ad Networks

What is an ad network?

Ad networks are an essential monetization component of the advertising ecosystem. They act as an intermediary between advertisers and publishers.

Ad networks also facilitate payments and transactions. Without ad networks, publishers would have to negotiate deals with each advertiser.

How does an ad network work?

An ad network collects ad inventory directly from publishers or buys ad impressions in bulk from ad exchanges. After, they sort and group these ad spaces to resell them to advertisers.

Ad networks also group ad inventory according to specific criteria like demographics, location, language, etc.

Ad network benefits and limitations

Ad networks’ benefits include broad reach across multiple platforms, great targeting capabilities, increased efficiency, and optimization. 

On the other hand, ad networks lack transparency regarding ad placement and campaign performance, are vulnerable to ad fraud, and provide limited control to advertisers and publishers.

Ad network types

There are several types of ad networks, and here are 5 examples:

• Vertical–specializes in a particular topic, such as a travel ad network like Sojern. 

• Horizontal–not limited by topic, these ad networks offer wider-reaching impressions, resulting in more impressions available per day. 

• Premium–focuses on high-quality impressions at a higher price which results in better engagement and conversion. 

• Specialized–specializes in a particular inventory type, such as a video ad network like SpotX. 

• Targeted–specializes in impressions that use technology to target a particular behavior or context.

Ad exchange vs. ad network: key differences

An ad network is an intermediary that offers digital ad inventory from several publishers. 

An ad exchange directly connects publishers and advertisers.

Ad networks aggregate inventory from a range of publishers, mark it up, and sell it for a profit. Ad exchanges are more transparent than ad networks because they enable buyers to see at what price impressions are being sold. 

Additionally, many ad networks buy their inventory from ad exchanges. Therefore, ad networks don’t compete with ad exchanges but rather complement their services.  

Types of ad exchanges

There are four primary types of ad exchanges, each with unique characteristics and benefits for both publishers and advertisers. Open and private ad exchanges are the two main categories, with preferred and hybrid exchanges being variations that provide even more exclusivity and control.

Open Ad Exchanges

Open ad exchanges are accessible to all advertisers and publishers. Advertisers can bid on ad inventory from a range of publishers, and publishers can sell their ad space to the highest bidder. 

Open ad exchanges are considered more transparent, as advertisers can see what they’re bidding on and how much they’re paying.

Private Ad Exchanges

Private ad exchanges are private marketplaces (PMPs). They’re usually run by a publisher who selects the advertisers that will have access to their ad space. Publishers can decide the bidding price, terms, and who can bid on their inventory.    

In other words, private ad exchanges are closed platforms that offer access to premium publishers. They’re often used by larger advertisers who want more exclusive access to premium ad inventory

Preferred Ad Exchanges

Preferred ad exchanges are a type of private ad exchange that offers even more exclusivity to advertisers and publishers.

In a preferred exchange, publishers only sell their inventory to a selected group of advertisers who they consider as “preferred” partners. This enables publishers to maintain more control over who advertises on their site while giving advertisers more exclusive access to premium inventory.

Preferred exchanges are typically used by larger publishers who have established relationships with a selected group of advertisers. These exchanges are often invite-only, and publishers carefully vet potential partners before granting access.

Hybrid Ad Exchanges

Hybrid ad exchanges are a combination of open and private exchanges. They offer both the transparency of open exchanges and the exclusivity of private exchanges. 

Hybrid exchanges enable publishers to sell their ad inventory to a selected group of preferred advertisers and a wider range of open exchange buyers. Publishers often use this solution to maximize their revenue potential while maintaining control over the ads that appear on their website.

By using a hybrid exchange, publishers can sell their ad inventory to a wide range of buyers while ensuring that their preferred partners get access to premium inventory.

Best Ad Exchanges for Publishers and Advertisers

• OpenX. OpenX is a programmatic advertising marketplace founded in 2008. It was one of the first ad exchanges to be certified by the Trustworthy Accountability Group (TAG) for its anti-fraud and anti-malware systems..

• Xandr. Xandr was founded in 2018 by AT&T as a video ad marketplace, but in 2021, it was bought by Microsoft. Microsoft expanded the platform’s focus to include display and native ads across multiple platforms. Xandr hosts a wide variety of publishers, giving them access to a large network of premium advertisers.

• Magnite. Magnite is a global ad exchange that specializes in buying and selling inventories and facilitates over 1 billion deals every month. Some notable Magnite publishers are The Wall Street Journal, GAMELOFT, and eBay.

• Google Ad Exchange (AdX). AdX is one of the most popular ad exchanges. It’s designed for large-scale advertisers and publishers and is available only through Google Ad Manager. It operates on a real-time bidding (RTB) system, which means that advertisers can bid on ad impressions as they become available, and the highest bidder wins the ad placement. 

Factors to Consider When Choosing an Ad Exchange

Ad quality

Ad exchanges should have measures to ensure ad quality and prevent fraudulent activity, such as non-human traffic and ad fraud. 

Target audience

Ad exchanges may provide different targeting capabilities, such as demographic targeting, location targeting, and behavioral targeting. Advertisers and publishers should choose the ad exchange that aligns with their campaign goals.

Data capabilities

The quality of the data available on an ad exchange is crucial. Advertisers need accurate and reliable data to target their campaigns and measure their impact effectively. Publishers need data to understand their audience and optimize their content. 

With increased scrutiny on data privacy and security, it’s also essential to choose an ad exchange that is compliant with relevant data protection regulations, such as GDPR or CCPA.

Additionally, ad exchanges that offer advanced data analytics capabilities can provide valuable insights into campaign performance and audience behavior.

Ad format options

Ad exchanges may support different ad formats, such as display ads, native ads, and video ads. You should choose the ad exchange that supports the ad format that is most effective for your campaign.

Benefits of Using an Ad Exchange

Here are 5 benefits of using ad exchanges: 

1. Increased transparency–ad exchanges provide more transparency in buying and selling ad inventory, which can help buyers and sellers make informed decisions. This transparency also helps to prevent fraudulent activity, such as non-human traffic and ad fraud.

2. More control for publishers–an ad exchange allows publishers to choose the buyers they want according to the ads they choose to display on their page. It also enables publishers to restrict access to undesirable parties.

3. Increased revenue–by ensuring that the ad space is sold to the highest bidder, an ad exchange guarantees that the publishers receive the highest revenue that their inventory can earn. Setting floor prices means that no publisher is underpaid.

4. More flexibility and customization–ad exchanges offer publishers to choose the ad’s exact display location for their page, most likely the one that optimizes viewer engagement. Publishers also can set minimum CPMs for their ad spaces.

5. Option to filter and block ads–these features enable publishers to avoid problematic or inappropriate ads. It can also help to minimize digital ad fraud.

Challenges of Ad Exchanges

There are various challenges ad exchanges and adtech companies face, namely:

1. Ad fraud. The whole advertising industry is prone to ad fraud, and ad exchanges are no exception. This comes in the form of inventory spoofing, bot activity that inflates user count, false data and bid pricing, and others. Apart from obvious money losses, this comes as an increasing challenge for advertisers’ brand safety. 

2. Duplication of bids. The quality of service in ad exchanges is affected by duplication, where companies bid multiple times to ensure their bid requests are received. This leads to a phantom demand that puts pressure on demand-side processing systems and raises doubts about the reliability and transparency of the results. 

3. High latency. High network latency lags causes the exceed of RTB process time and results in lost bids. 

4. Ad quality. The concept closely related to brand safety. Ad exchanges need to ensure ads meet certain quality standards, which is hard to do when you have such a large pool of supply and demand. 

Short Intro to Mobile Ad Exchange 

An ad exchange enables advertisers to find and buy inventory across many publisher sites. At its core, mobile ad exchange doesn’t differ from a regular ad exchange, except it specializes in mobile advertising inventory.

What is a mobile ad exchange?

A mobile ad exchange is a platform that enables advertisers and publishers to buy and sell mobile advertising inventory in an automated way. It also connects advertisers with mobile app publishers, enabling publishers to monetize their app inventory. 

Mobile ad exchange vs. desktop ad exchange

The key difference between mobile ad exchange and desktop ad exchange is the type of inventory being traded. Desktop ad exchanges focus on web advertising, while mobile ad exchanges specialize in advertising within mobile browsers and apps.

Mobile ad exchanges also have different and more sophisticated targeting parameters. For example, it may include targeting in-app user behavior thanks to a range of data points available through apps.  

Key players in the mobile ad exchange market

There are many players in the mobile ad exchange market. The most notable are: 

• Google AdMob. Google’s largest ad network for mobile app inventory trade. 
• MoPub. Twitter-owned mobile ad exchange and ad server for mobile app publishers.
• PubMatic. All-in-one digital advertising cloud-based platform and ad exchange. 
• Smaato. A global mobile RTB ad exchange (SMX).  ​​

Conclusion

Ad exchanges have become the go-to marketplace for buyers and sellers, as they can benefit both advertisers and publishers. They offer a valuable solution to buy and sell digital ad inventory efficiently. 

Ad exchanges provide access to a variety of advertisers and publishers, offer advanced targeting capabilities, and enable real-time bidding. 

While there are some challenges associated with using ad exchanges, they can provide significant benefits when used strategically. By evaluating such factors like data capabilities, target audience, budget, data privacy, support and reporting needs, you can choose the most suitable ad exchange to meet your specific advertising needs.

FAQs

What is the role of an ad exchange in programmatic advertising?

Ad exchanges are crucial to programmatic advertising because they provide a marketplace for advertisers and publishers to transact ad inventory in real-time. 

How do ad exchanges generate revenue?

Ad exchanges make money off a commission that publishers pay out of the money they make from selling their ad space to an advertiser. Therefore, ad exchanges benefit from publishers selling their inventory at higher prices.

Are there any risks associated with using ad exchanges?

Ad exchanges may not always be able to ensure that ads are viewable to users, which means that the ads might be displayed in places that aren’t visible to the user or that the user doesn’t engage with. Ad exchanges are also at danger of ad fraud due to fake ad impressions produced by bots or other illegal techniques.

How do I know if an ad exchange is right for my business?

Before choosing an ad exchange that’s right for your business, you should check if it complies with IAB’s standards, gives you enough transparency, provides anti-fraud capabilities and has reliable data centers. 

How do website publishers typically determine what to charge advertisers for using their ad space?

Website publishers determine ad pricing primarily by evaluating their website traffic, the specific demographics of their audience, the location and visibility of the ad on the page, and overall market demand. Factors like click-through rates and engagement levels also influence costs. Rates can vary widely based on these criteria and the specific advertising goals.

Consider your business objectives, budget, targeting preferences, and other requirements, and see how an ad exchange could help you achieve them.

About Anete Jodzevica

Anete is a content marketing specialist at Setupad. In addition to writing articles, she works at gathering information, verifying data, and explaining complex concepts to others. Anete believes that simplicity is the key to brilliance.

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