Full Ad Exchange Guide. What is Ad Exchange and how it works?

Full Ad Exchange Guide. What is Ad Exchange and how it works?

Ad Exchange as part of Real-Time Bidding (RTB) is one of the AdTech solutions that are reshaping the online advertising market. Its main function is to connect a large number of SSPs and DSPs, which do not have direct integration with each other, as well as reselling various advertising traffic between them. It often becomes difficult to find out the sense of various technological solutions of the advertising industry and understand the key differences. So, in this article we will try to define the common points related to Ad Exchange.

What is Ad Exchange?

Ad Exchange is a virtual marketplace (technology platform) where publishers and advertisers trade digital ad inventory. It is an online platform that is used by publishers to offer their ad space inventory for sale. For advertisers, it serves as a digital marketplace for bidding on ad inventory.

Advertisers and publishers are both on the lookout for profitable transactions that can be facilitated in the most convenient way possible, by both parties. This is where Ad Exchanges come in. Ad Exchanges act as an organized virtual marketplace where advertisers can buy ad inventory from publishers, and in turn, the latter can sell publishing spaces to the highest bidder

Each impression during page load is auctioned in a split second. As a result, the user sees the best offer from the advertiser. This suits everyone - clients see only the ads they need, and advertisers save budget while getting high-performance indicators.

Ad Exchange Types

Open Ad Exchange

Open Ad Exchange (Public Marketplace) is basically the standard ad exchange where numerous advertisers can bid for seemingly infinite publisher inventory in real-time. It presents the main idea, based on auctions with billions of impressions flowing through the system daily. 

Unlike premium ad inventory mostly available on private exchanges, open exchanges contain ad inventory from all kinds of publishers and do little to differentiate them. Because of various factors such as brand safety concerns, ad fraud, and more some premium publishers and advertisers have started gravitating towards private ad exchanges.

Private Ad Exchange

Private Ad Exchange (Private Marketplace/PMP) often consist of exclusive or leading publisher groups that allow only trusted buyers and agency groups to access their systems. This type of advertising resource is regarded as an excellent quality compared to its open partner.

Private ad exchanges are more controlled, brand-safe and premium ad inventory environments. Premium publishers that sell to strong brands usually get to join these private exchanges. At the same time, it allows publishers to get premium prices for their inventory.

Preferred deals

Preferred deals give publishers the ability to sell their ad inventory at a negotiated fixed price for preferred advertisers. If a publisher has strong relationships with specific companies, they can offer the advertiser a set amount to market on their page.

This option benefits the publisher because they have a regular income. They can set up a controlled transaction system where they know how much they’re going to receive from offering the ad to an advertiser. It prevents the publisher from operating on a bidding system. Preferred deals benefit the advertiser because they have a stable cost per thousand (CPM). The advertiser knows how much they’ll pay for impressions.

How does Ad Exchange work

All the processes in Ad Exchanges are driven through real-time auction. Here's a few steps to understand the process from both sides: publisher and advertiser.

Publisher (sell-side)

  • The user enters the publisher page (website, app). 
  • The publisher Supply Side Platform (SSP) sends bid request to Ad Exchange to find ad that matches targeting (geo, age, language, etc). 
  • Ad Exchange will run the auction by sending the request to all advertisers (DSP). 
  • Ad Exchange will select the ad campaign with maximum cost and return the bid response to SSP. 

Advertiser (buy-side)

  • Advertisers connect to multiple Ad Exchanges through Demand Side Platform (DSP) to find suitable ad slot.
  •  The advertiser starts an ad campaign through Real-time bidding (RTB). 
  • The Ad Exchange will choose the advertiser with the highest bid price among all advertisers who have participated in the auction.
  •  When the bid wins, the ad is immediately displayed on the publisher's page.

In their turn, advertisers can use multiple DSP to get access to more ad inventories. Despite the complexity in understanding this mechanism the whole process takes less than 500 milliseconds.

Ad Exchange vs Ad Network

The most common misunderstanding is that Ad Exchange and Ad Network are the same things. Not really. The main difference is that Ad Exchange - a technology, Ad Network - is a company (business). Ad networks gather the inventory inside the company and work with multiple vendors. Whereas Ad Exchanges run only real-time auctions and connect advertisers and publishers directly. Let's learn more about Ad Networks to feel the difference.

Ad Network is a company. It is an intermediary between publishers and advertisers who is responsible for communications and transactions, thereby simplifying the process for its customers. Ad networks collect and aggregate information from potential advertisers and then place it for potential publishers who are engaged in providing advertising space.

When all details of the transaction are specified, the advertisement is transmitted from the network server to the website. All this information is usually determined by the size and location of the ad and is known as advertising inventory, both for publishers and advertisers. 

Ad Networks are often referred as blind networks or blind spots with restricted transparency because publishers have slight knowledge on who is purchasing and at what cost, on other hand, advertisers have slight transparency on who sees the ads.

However, an Ad Exchange is transparent as compared to ad networks for both advertisers and publishers. The publisher has complete knowledge about who is buying at what cost, helps optimize inventory and an advertiser is completely aware of the impression level data to target users. One of the reasons, if not the primary reason why a user may be considering shifting from an ad network to an exchange is probably that they would like to better monetize their inventory and generate higher revenue.

How to choose an Ad Exchange?

Many of the companies can boast of extensive experience in the market. But technologies are constantly evolving and now the innovativeness, stability, relevance for the market and consumer becomes a key factor in choosing a suitable solution.

Here are the main points which can become critical for the effectiveness of your business performance.

  • A wide range of Ad types and devices allows you to advertise in the most effective ways.
  • The ability to connect through different protocols (oRTB, XML, JSON) makes it possible to expand your business activity.
  • Customizable real-time reporting powers you to get full control over the activity performance.
  • Traffic optimization and validation tools allow you to work only with high-quality traffic and reliable partners.
  • Blacklisting & Whitelisting enables you to regulate, control and secure RTB activity.
  • Third-party integration possibilities and pre-integrated big industry players can enhance stability, transparency and safety of your business activity. 
  • Remote statistics allows you not to waste time and efforts on statistical matching.

Moreover today's Ad Tech market also provides white-label solutions which could become the best tech investment. Overall, white labeling benefits are so many that you will certainly be satisfied with the decision to white label your Ad Exchange. One of such solutions is UBIDEX, which allows you to acquire traffic and monetize it easier, faster & more profitable. 

Visit UBIDEX website or contact us for detailed information.

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Full SSP Guide: what is Supply Side Platform (SSP)?

Real-Time Bidding | Complete RTB overview

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