What is an Ad Exchange and How Does it Work?

Publift
April 28, 2022
September 6, 2022
What is an Ad Exchange and How Does it Work?

Ad exchanges are an important, yet not-often-mentioned part of a global digital advertising ecosystem that attracted $571 billion of investment in 2021. 

Ad exchanges help facilitate programmatic ad deals, which have come to dominate the digital marketing landscape. US advertisers spent 41.2% more year on year on programmatic display ads in 2021, according to eMarketer. This is the biggest annual increase since 2016 and shows that this is a booming market.

Ad exchanges work by allowing advertisers and publishers to buy and sell ad inventory directly to one another . This model offers benefits for advertisers and publishers—greater flexibility over ad formats for the former and more control over published ads for the latter.

What Is an Ad Exchange?

An ad exchange is a digital marketplace that automates ad deals between advertisers and publishers.

Ad exchanges are part of the programmatic advertising ecosystem and are powered by real-time bidding (RTB) technology. They connect advertisers on a demand-side platform (DSP) with publishers on a supply-side platform (SSP).

What is Real-Time Bidding?

As we have previously mentioned, ad exchanges are based on programmatic ad buying. Real-time bidding (RTB) is a type of programmatic buying that involves buying and selling ad space in an instant auction, on a per-impression basis.

Unlike direct buying and private auctions, RTB allows several participants to bid on available ad inventory at the same time, in real-time auctions. Since it is a bidding system, the highest bid for each auction wins the impression.

What Is a Demand-Side Platform?

Demand-side platforms, or DSPs, are used by advertisers. They are platforms through which advertisers can participate in real-time bidding (RTB) auctions.

What Is a Supply-Side Platform?

Supply-side platforms, or SSPs, lie at the other end of the ad deal. They allow publishers to put their ad inventory up for auction, providing an opportunity to maximize their ad space revenue.

How Does an Ad Exchange Work?

To understand how an ad exchange works, we need to look at the process behind it from two perspectives: that of the advertiser and that of the publisher. Both the advertiser and the publisher have to be part of the same ad exchange network.

The ad exchange records the inventory of all the publishers' pages. It considers each ad space and ad position as a potential impression.

The publisher offers their inventory through an SSP. When a visitor arrives on a publisher's page, information is collected by means of cookies. The ad exchange uses this visitor data to select the most relevant bidders.

The advertiser, on the other hand, must connect to an ad exchange through a DSP. The advertiser needs to set the maximum cost-per-impression that it is willing to pay for an ad slot. Based on this cost—and other criteria set by the advertisers—the ad exchange matches the demand with available ad impressions.

Whenever there is new inventory available, potential bidders are notified through a bid request and the bidding begins. The whole process happens almost instantly. It also starts automatically whenever new inventory becomes available. Ad exchanges, therefore, can sell digital ad inventory at a very fast pace and in high volumes.

The Benefits of Using Ad Exchanges

An ad exchange provides benefits for both publishers and advertisers alike. To understand why ad exchanges are efficient, we must look at the benefits they offer to both stakeholders.

Ad exchanges allow publishers:

  • More control over ads: Publishers have the option of choosing ad formats and the style of the ads that appear in their spaces, according to their industry or brand. They also have the liberty of choosing where and when ads are displayed. This also allows them to align ads with their brand and avoid an unwanted ad impression.
  • More control over costs: Publishers have the option to set minimum CPMs for their ad spaces. This helps them have more control over their revenue and keep their income above a certain threshold.
  • Ad filtering and ad blocking: These features allow publishers to avoid sensitive, spammy, or inappropriate content. This kind of control over ads and ad quality can also help to minimize instances of digital ad fraud.
  • Block ad networks: If a publisher wants to avoid certain brands altogether, it can either block the advertisers or the ad networks they use.

At the same time, advertisers benefit from:

  • More targeting and optimization options: Having more options helps marketers and ad agencies choose the best ad placements for their needs and goals. This makes it easier for them to maximize their return on ad spend (ROAS).
  • More control over the advertising budget: Advertisers can set and adjust their targeted costs, establishing thresholds. At the same time, ad exchanges offer advanced bidding capabilities. These features allow marketers to better control their advertising costs.
  • Control over ad frequency: Advertisers have control over how frequently an ad is shown to the same users. This helps avoid overexposure and the unintended consequence of creating the feeling of "stalking" users online.
  • Blacklisting publishers: Advertisers can also choose to avoid certain ad inventory. If they don't wish to be associated with a certain publisher, they can blacklist it to make sure no ad slots are bought from that publisher.

Types of Ad Exchanges

There are three main types of ad exchanges: open ad exchanges, private ad exchanges, and preferred ad exchanges.

Let's look at each of them:

Open Ad Exchanges

An open ad exchange is a virtual marketplace that offers open auctions. This type of ad exchange offers an extensive range of publisher ad inventory to all the advertisers on the platform.

An open ad exchange will likely be preferred by advertisers who are looking to widen their reach, as the list of publishers is very broad. However, an open ad exchange doesn't offer very detailed publisher information.

Private Ad Exchanges

A private ad exchange is a private marketplace (PMP). This is a closed platform that offers access to premium publishers. These PMPs are usually run by a publisher who selects the advertisers that have access to its ad space.

On a private ad exchange, publishers can decide who can bid, at what price, and under what terms. These PMPs allow brands and publishers to establish direct relationships with advertisers and ad agencies, which can lead to more negotiations between the parties. 

Preferred Ad Exchanges

A preferred ad exchange, or a preferred deal, allows a publisher to sell ad inventory at a negotiated fixed price for preferred advertisers. This is a more "custom" approach to selling digital ad inventory.

This type of ad exchange gives the publisher a stable ad revenue. Advertisers, on the other hand, benefit from stable prices.

What Are Examples of Ad Exchanges?

There are many ad exchanges available for publishers and advertisers. They can choose the best one based on their particular needs.

Here are some of the most popular ones:

  • Google's Ad Exchange is currently the most popular ad exchange. It offers publishers access to advertisers in AdSense as well as to premium advertisers.
  • OpenX is another popular choice, as it promises stakeholder autonomy.
  • AppNexus hosts a wide variety of publishers, offering a wide variety of options for advertisers.
  • Magnite promises a global advertising technology that currently facilitates more than 1 billion deals per month.
  • SmartyAds offers an open marketplace that connects premium publishers with advertisers from all over the world.

What Is the Difference Between an Ad Exchange and Ad Network?

While ad exchanges serve a clear purpose, they can sometimes be confused with ad networks. So, what's the difference?

While ad networks are also used to buy and sell inventory, they do operate differently. An ad network is an intermediary that offers digital ad inventory from several publishers. An ad exchange, on the other hand, directly connects publishers and advertisers.

How Do Ad Networks Work?

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

Networks group ad inventory according to specific criteria—such as demographics, location, language, online behavior, and more.

Types of Ad Networks

Ad networks come in a number of different types: here are four examples:

  • Premium ad networks, which work with premium publishers.
  • Vertical ad networks, which are topic-specific.
  • Horizontal ad networks or high-volume networks.
  • Specialized ad networks, which focus on a certain kind of inventory.

Ad networks are also quite popular at the moment, with some of the best ad networks including Publift, AdCash, AppLovin, Epom, and Ad Maven, among others.

How to Choose the Best Ad Exchange?

Whether you are a publisher or an advertiser, working with an ad exchange can definitely help your business. With so many options out there, it is important that you choose what's best for your specific needs.

First, identify your target audience and its habits, interests and behaviors. Then match your findings with the model that best fits your goals and resources.

If you need more help in choosing the best digital advertising options for your business, get in touch with our team.

Publift helps digital publishers get the most out of the ads on their websites. Publift has helped its clients realize an average 55% uplift in ad revenue since 2015, through the use of cutting-edge programmatic advertising technology paired with impartial and ethical guidance.

Contact us today to learn more about how Publift can help boost your ad revenue and grow your business!

Grow with us

Boost your ad revenue with our all-in-one solution. Grow your business with a sustainable, long term partnership.