Ad Exchange Explained – An Easy to Understand Guide (2020)

According to IAB, the total ad spend is forecasted to grow 16.6% in 2021, and despite being slightly lower than pre-COVID-19 ad spendings of 2019 (£25.3bn); it’s still a lot of money (We’re talking about UK ad spendings alone). This is just a fancy way of saying that advertisers, publishers, agencies, and ad networks are buying more and more of their media online. And how do they do it? Yep, you guessed it, via Ad Exchange.

What is an Ad Exchange?

In plain English, it’s a digital marketplace that allows:

  • Advertisers to buy Publisher’s ad space and place their ad inventory
  • Publishers to sell their ad space to Advertisers and receive ad inventory

And in 90% of cases, it’s done in Real-time via RTB.

If you’re an Advertiser or a Publisher, you already know what type of ad space and ad inventory we’re talking about here. And if you’re new to this whole thing, you’ll need to understand that:

  • Ad Space = A specific place on a Publisher’s website where the advertisement will appear; and the total amount of ad impressions it generates
  • Ad Inventory = The number of advertisements sold by the Advertiser or the amount of Ad Space a Publisher wants to sell to the Advertiser

Why is Ad Exchange so important?

From the Advertiser’s perspective, it’s easier to buy ad space from a ton of websites and/or apps at once – rather than doing it the old-fashioned way. From the Publisher’s perspective, it’s easier to expose your ad space to a massive pool of advertisers where high prices are almost guaranteed.  It’s easy to see why this programmatic win-win scenario is a must-have in Digital Advertising.

How it actually works

Well, since Ad Exchange is a programmatic middleman in the process of RTB, this is how Advertisers and Publishers fit in:

Since it also connects a lot of DSPs and SSPs in real-time, you can also think of it as a big hub of impressions for:

  • Advertisers to place bids on & buy based on advanced targeting strategies
  • Publishers to sell to Advertisers for prices that depend on the amount of advertiser demand and/or the number of advertisers competing for it

Open Exchange?

Open Exchange is basically Publisher’s heaven. Here, Publishers place their ad space into open markets where ad networks & advertisers compete for it. The math for Publishers here is quite simple:

Higher competition = Higher Revenue

But, it does come with a catch. Open Ad Exchanges need to invest in fraud detection technologies that monitor & maintain the brand safety of all its Advertisers.

Private Exchange?

Private Ad Exchange is more of Advertiser’s heaven. It’s a much safer and more controlled environment that generates brand awareness and sales from vetted premium Publishers. Premium Publishers receive premium rates for their sold impressions. A Private Ad Exchange can also be an exclusive Publisher group that only allows vetted Advertisers to bid on their inventory.

Now, this might sound fun & easy but it’s actually a lot more complicated for Publishers than it seems. In Private Ad Exchanges, Publishers are also expected to generate leads, sales, installs – you name it, so it takes a lot of strategy and quality impressions to pull this one-off.

Open vs Private Exchange

Open Ad Exchange suits smaller Publishers better because their impressions get maximum exposure and get sold for a very good price.

Private Ad Exchange suits Premium Publishers better because they generate millions of impressions that get sold for premium prices to large brands (Advertisers).

Supply-Side Platforms vs Ad Exchange

Although they might seem very similar to each other, there’s a key difference. Ad Exchanges simply sell Publisher impressions. Supply-Side Platforms allow Publishers to sell them through multiple Ad Exchanges in real-time. So, In Plain English, Supply-Side Platforms help Publishers reach more Advertisers & higher prices by connecting them to many different Ad Exchanges.

Demand-Side Platforms vs Ad Exchange

Demand Side Platforms help Advertisers connect on multiple Ad Exchanges & automate biddings on impressions. On the other hand, Ad Exchange shows to all connected DSPs what’s on the menu at the moment.

Ad Networks vs Ad Exchange

Ad Networks are intermediaries who collect ad space from their publishers and sell it to advertisers. An Ad Exchange is a digital marketplace where advertisers and publishers purchase and sell ad inventory directly without intermediaries.

What are the most popular Ad Exchanges in 2020?

Many AdEx technologies have shown impeccable performance in 2020, and here are some of the most significant ones:

  • Doubleclick
  • Verizon Media
  • AppNexus
  • OpenX

Mobile Ad Exchange?

Are Basically technologies that focus on mobile inventory first. Here are a few examples:

  • AppNexus
  • Smaato

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