Ad Tech & Ad Ops

What is an Ad Exchange? And How Does it Differ from an Ad Network?

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Publishers partner with supply-side platforms to manage their inventory and get the best value for their ad units. Similarly, advertisers partner with demand-side platforms to help them find the right target audience and run a successful campaign. But have you ever wondered who connects these two platforms? The answer is ad exchanges.

The digital ad industry is expected to spend $333 billion by the end of 2019. Meaning, digital advertising will account for nearly half of the global ad market. The growth of this industry has been made possible due to the relationship that publishers and advertisers share. Advertisers show relevant ads to users at the right time, and publishers supply the inventory to make it happen. In this scenario, exchanges have a big role to play.

What is Ad Exchange?

Ad Exchange

Ad exchange, a metaphorical crossroads, connects thousands of publishers and advertisers. It provides a platform to sell and buy ad inventories using its connections with various ad networks and supply-side platforms. During real-time bidding, publishers look for the highest bidder and advertisers want the best impressions to make their ad campaign successful. And this is made possible by exchanges.

Ad exchanges contain information on the availability of ad inventory and requests for ad creatives to match them by conducting auctions. For publishers, exchanges push inventory to the interested buyers, allows targeting, and manages the auction. And for advertisers, ad exchanges stores their targeting criteria, looks for optimal inventory, and conducts the auction.

How Do Ad Exchanges Work?

A publisher connects with ad exchange directly with the help of supply-side platforms and/or ad networks. Generally, publishers expect to access good bidders for their inventory; and also to sell their unsold inventory.

In order to make a better profit, publishers allow targeting options by sharing their users’ demographics and other targeting information with exchanges. They store these details, including targeting criteria, and allows floor price setting to help publishers find suitable buyers.

Just like publishers, advertisers also connect with exchanges directly or through demand-side platforms. With the help of the DSPs, advertisers establish their target audience and set up the ad campaigns. Exchanges also store the campaign requirements, signal the advertisers whenever an opportunity is available, and asks them to send their bids.

Ad exchange collects all the bids and chooses the highest one as the winner. Then it returns the signal to the publisher’s site and places the winning creative after retrieving it from the partnered ad server.

How is Ad Exchange Different from Ad Network?

Ad exchange and ad network might sound similar to most publishers—they both manage and sell inventory. But there are differences.

Objective

An ad network aims to maximize publishers’ profit by selling inventory at the highest price. Whereas, an ad exchange simply wants to provide a perfect seller-buyer match.

Basic Model

The basic model of an ad network is to collect publishers’ inventory, categorize it, and sell it for profit. With ad networks, advertisers don’t know where their ads are going to be displayed. And publishers don’t know whose ads they are showing. Ad network keeps all such data confined within its network (unless publisher or advertiser asks to see the data).

On the other side, exchanges are transparent. They keeps the auction open for advertisers and ad agencies. Hence everyone can see the money exchanged between the buyers and sellers. Next, it connects the seller and buyer in a way that exchange is visible to all the involved parties/platforms (SSPs, DSPs, and other vendors).

Size

Ad exchange is a bigger entity than ad network. Therefore, sometimes ad network ends up purchasing inventory from ad exchanges, and get the rights to re-sell it at a profit. For example, Google AdSense is an ad network and Google Ad Exchange is an ad exchange. Here, AdSense only gets its demand from the Google Display Network (GDN), while AdX connects publishers to a bigger marketplace of advertisers and DSPs.

Names of Popular Exchanges

Google is the biggest name in the ad tech, so it makes sense that its exchange, Google AdX, comprises the largest pool of advertisers and publishers in the world. But Google is not the only game in town. Apart from Google AdX, here are some other ad exchanges to know about:

  • Rubicon Project
  • OpenX
  • ONE by AOL
  • AppNexus
  • Pubmatic
  • Facebook Exchange

They all have their own marketplace and offer access to other markets as well. Depending on the requirements, publishers can opt to work with more than one exchange to drive bid competition for their inventory.

Conclusion

Ad exchanges enable publishers to sell their inventory to bigger pool of buyers (ad networks, DSPs, and advertisers), conversely, advertisers get access to a large pool of ad inventories. This is how ad exchange connects the digital ad industry and makes it one large, growing body.

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