What Is an Ad Exchange and How Does it Work?

Ad exchanges are a key component of the digital advertising industry, which is projected to attract $701.20 billion in spending this year.

Ad exchanges help facilitate programmatic ad deals, which have become the mainstay of digital advertising. The programmatic ads space is booming, with the market expected to hit $725 billion by 2026.

Ad exchanges work by allowing advertisers and publishers to buy and sell ad inventory directly through real time bidding, and without the need to have an intermediary involved in the transaction. This model offers several benefits for advertisers and publishers including transparency, flexibility, and a greater degree of control over their inventory.

Join us for a deep dive into the world of ad exchanges as we explore what they are, how they work, and how to choose the best ad exchange.

What Is an Ad Exchange?

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An ad exchange is a virtual marketplace where publishers and advertisers connect to buy and sell digital ad space without the need for an intermediary.

Digital publishers’ ad space is called ad inventory and includes native, display, mobile games, video, and in-app ad inventory. The buying and selling of this inventory happens through real time bidding (RTB) in which several participants bid on the available ad inventory. The highest bidder wins the right to display their ads on the selected ad space.

Ad exchanges are driven by a simple demand and supply mechanism. Publishers want to sell ad space on their website to the highest bidder and advertisers want to buy ad units that provide good visibility. This is where an ad exchange comes into the picture.

This digital marketplace is part of the programmatic advertising ecosystem and is powered by real-time bidding (RTB) technology. It connects 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. 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 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?

Advertisers use demand-side platforms (DSPs) to participate in real-time bidding (RTB) auctions.

What Is a Supply-Side Platform?

Publishers use supply-side platforms (SSPs) to put their ad inventory up for auction, securing an opportunity to maximize their ad space revenue.

How Does an Ad Exchange Work?

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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 an Ad Exchange

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.

1. 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.

2. 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.

3. 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.

4. Block Ad Networks

If a publisher wants to avoid certain brands altogether, it can either block the advertisers or the ad networks they use.

5. 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).

6. 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.

7. 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.

8. 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:

1. 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.

2. 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.

3. 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.

Best Ad Exchanges for Publishers

Publishers and advertisers have a range of available ad exchanges they can choose from, with some of the most popular ones including:

1. Google Ad Exchange (AdX)

Formerly known as DoubleClick ad exchange, Google Ad Exchange (AdX) is one of the most popular ad exchanges. As with other ad exchanges, Google AdX 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. This allows for efficient and transparent buying and selling of ad units.

The platform is designed for large-scale advertisers and publishers, and is accessible only through the Google Ad Manager platform. Access to metrics and analytics for ad campaigns is available through easy integration with Google Analytics.

Overall, Google AdX is a powerful tool for buying and selling ad inventories, allowing advertisers to reach their target audience more effectively and publishers to monetize their online content more efficiently.

2. OpenX

OpenX is a programmatic advertising marketplace founded in 2008 that boasts more than 200 million monthly users in the US. OpenX was one of the first ad exchanges to be certified by the Trustworthy Accountability Group (TAG) for its rigorous anti-fraud and anti-malware systems.

OpenX provides a range of targeting options for advertisers, including demographics, geographic locations, and behavioral targeting based on user data. The platform also offers advanced analytics and reporting tools to help advertisers optimize their campaigns and track their results.

3. Magnite

Magnite describes itself as the world’s largest independent sell-side ad platform. Founded in 2020, Magnite provides solutions across all digital platforms, but has a special focus on connected TV (CTV) and OTT platforms.

With a global team that is spread across North America, Europe, and the Asia-Pacific, Magnite helps thousands of publishers across the globe connect with premium advertisers. A NASDAQ-listed company, Magnite is among the world’s largest independent video ads platform.

4. Xandr

AT&T founded Xandr in 2018 as a video advertising marketplace, before selling it to Microsoft In 2021. The tech giant expanded its focus beyond TV advertising to include display and native ads across multiple platforms.

Leveraging Microsoft's resources, the platform hosts a wide variety of publishers and gives them access to a significant network of premium advertisers. Xandr provides an ad server for direct deals and offers holistic inventory management.

What Is the Difference Between an Ad Exchange and a Supply Side Platform?

A supply side platform (SSP) helps publishers monetize the ad space on their websites, by putting it up on ad exchanges. The platform enables publishers to generate ad revenue by setting controls like accepted ad categories, the minimum price for an ad, the type of ads, etc. SSPs allow publishers to connect with multiple ad networks and multiple ad exchanges to increase the competition and maximize revenue.

Ad exchange, on the other hand, is a platform that facilitates the trading of ad inventory between advertisers on a DSP with publishers on a SSP.

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

While ad networks are also used to buy and sell inventory, they do operate differently. So, what's the difference?

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.

Final Thoughts: How to Choose the Best Ad Exchange

Whether you’re 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 revenue since 2015, through the use of cutting-edge programmatic advertising technology paired with impartial and ethical guidance.

If you’re making more than $2,000 in monthly ad revenue, contact us today to learn more about how Publift can help increase your ad revenue and best optimize the ad space available on your website or app.

FAQs

Who Buys from Ad Exchanges?

Anyone permitted by ad exchange is allowed to buy from ad exchanges. Most ad networks, advertisers, and DSPs buy from ad exchanges as it provides them access to a wide array of ad inventory. Similarly, the publishers benefit from ad exchanges as it allows them to sell the advertising space to a large pool of potential buyers.

Why Do Ad Exchanges Matter?

An ad exchange is an efficient way of buying and selling ad inventory. It connects advertisers and publishers on a single platform. Instead of the cumbersome process of dealing with different publishers individually, ad exchange allows advertisers to buy advertising space available across a wide variety of websites.

What Is a Private Exchange?

As the name suggests, a private exchange is a closed platform that allows only a handful of advertisers chosen by publishers to purchase the ad space. The publishers control these private marketplaces and set the conditions like minimum pricing, and handpicked buyers.

Is Google an Ad Exchange?

Google is the search engine giant that owns and runs its own ad exchange called Google ad Exchange (AdX). AdX is an open auction ad exchange that facilitates the sale of publishers’ ad inventory to premium advertisers. It is a part of the programmatic advertising ecosystem and is powered by real-time bidding (RTB) technology.

What is an Ad Exchange and How Does it Work?

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