What is an ad exchange?
An ad exchange is a real-time online marketplace where advertisers and publishers can buy and sell advertising space and impressions. The majority of ads sold on exchanges include display, video, and native across both mobile and desktop platforms.
How do ad exchanges work?
Most ad exchanges function programmatically (or automatically), allowing companies to automate much of their advertising buys. Exchanges let ad networks and others directly purchase ad impressions, which occur whenever a user reaches a page on a website or app that is marked as ad space.
Advertisers can connect to exchanges using demand-side platforms (DSP) and utilize audience data to determine whether the space is relevant for their campaign. They can then purchase the space in real-time and bid on it instantly. These decisions can be made manually, or in many cases, automatically by algorithms that scan demographic and user data to find the best value for advertiser spend.
Who uses ad exchanges?
Agencies: Brands work with agencies to design and build ad campaigns that effectively achieve their marketing objectives. They frequently assist in facilitating ad-distribution and getting campaigns added to the start of the programmatic chain.
Brands: Many brands have in-house programmatic buying teams that work directly with DSPs.
DSPs: Demand-side platforms are programmatic platforms that help agencies and brands efficiently buy supply. They are the “bidders” in the auction. They have sophisticated algorithms to decide what to pay and when to bid for supply that meets the requirements of a campaign.
SSPs: Supply-side platforms are specialized networks that focus on aggregating digital inventory and are traditionally responsible for holding programmatic auctions.
Why is an ad exchange important?
The main value driver of an ad exchange is supply path optimization (SPO), an industry-wide effort to bring demand as close to supply as possible. SPO frequently skips certain nodes in the chain that are irrelevant. For example, SSPs are frequently removed from this path, but in some cases agencies or even DSPs may be skipped.
SPO removes margins, increasing brand buying power. SPO is also leading to less “specialized” players. DSPs take on more of the capabilities of SSPs. SSPs build out DSP capabilities and publishers, such as ironSource often act as SSPs.
Ad Exchange vs Ad Network
While ad networks and ad exchanges sound like the same thing, they are quite different. Ad networks aggregate inventory from a range of publishers while ad exchanges directly connect publishers and advertisers and enable buyers to see the exact price for impressions.
Types of ad exchanges
There are two major types of exchanges: open exchanges or private marketplaces. The former allows any agency or advertiser to connect to the platform and bid on ad space and impressions. Private marketplaces still function via auction, but their client lists are restricted to referrals or invitation.