Ad exchange

What is an Ad Exchange?

In online marketing, an Ad Exchange describes a digital marketplace that makes it possible to buy and sell inventory via different publishers (website operators). Advertisers or networks buy advertising space for the placement of advertising materials. These advertising spaces are offered by publishers. The Ad Exchange works in real time. Characteristically, these are auction procedures. A distinction is made between open and private marketplaces in Germany.

Overview of Ad Exchanges

The marketplace for advertising space in Germany is divided into private and open exchanges. Private Exchanges refer to closed web media marketplaces. Here, only specially selected merchants and advertisers can bid on available advertising space from website operators. Also, a purchase in the context of a private Deals is possible.

Among the best-known Ad Exchanges are the Double Click Ad Exchange, which belongs to Google, and the Right Media Exchange, which is managed by Yahoo! The Facebook Ad Exchange is also popular. However, it only offers its own inventory on the marketplace. Other examples of ad exchange providers include the Microsoft Advertising Exchange, The Rubicon Project, AppNexus and OpenX.

History and Development

The development of Ad Exchanges is to be understood against the background of the previous development of the advertising market. An increasing number of advertisers and advertising networks appeared on the market. This led to the fact that the procedures for the playout of advertising content became more and more opaque and complicated. What was remarkable about this development was that the number of offers exceeded the number of customers. As a result, advertising networks or ad networks sold their advertising space to each other. In view of the oversupply, another sale was not possible. Run of Network campaigns developed in the course of this development. These provide for advertising media to be placed not only on a single website (run of site) but throughout the entire advertising network.

This entails a number of complications, the most problematic of which are rising commissions per ad network and increasing time intervals before advertising space is sold. Advertisers and publishers tried to counteract this increasing complexity by developing new marketplaces. These had the ability to bundle different advertising networks and provide central access for advertisers and publishers alike. Various technologies contributed to the development of ad exchanges into auction platforms. These techniques include real-time bidding. Even today, Google still uses this method in paid searches. As auction rooms, Ad Exchange enables publishers to optimize their prices. In this context, we speak of yield optimization. Similarly, they enable advertisers to access different providers of advertising space.

The functionality of the Ad Exchange

The basic functional principle is that the publisher’s site offers advertising space and the merchants’ site acquires it. Operators of websites or blocks act as publishers and monetize their Internet presence by selling advertising space. Merchants place their advertising there, including banners or rich media content.

Mediation between publishers and merchants takes place on the basis of an automated process. The prices of advertising space and advertising inventory are determined on the basis of supply and demand. This is done in real time, which is why we talk about real-time advertising or real-time bidding. The functional principle is similar to an auction. Advertisers and merchants bid on advertising spaces with a certain number of ad impressions. The advertising content of the highest bidder for an ad impression is delivered.

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Ad exchange platforms

The ad exchange platforms represent collections of ad impressions. The publisher’s inventory consists of ad impressions that are entered into the system. The publisher side is called the Supply Side Platform (SSP). The counterpart is the Demand Side Platform (DSP). Providers on the SSP use a system that is connected to the subsystem of the DSP. As soon as a user visits a website that provides a certain number of advertising spaces, communication takes place between the SSP and the DSP. The automated procedure for a suitable advertisement begins. The process takes place within milliseconds. A visitor does not notice anything about this process.

Advertisers choose certain ad impressions and purchase them in a subsequent step on the Ad Exchange. By specifying precise criteria for the ad impressions in advance, they have already acquired them in advance. These criteria are automatically checked by the system before the ad goes online. For this purpose, they use the Demand Side Platform. The Demand Side Platform exchanges different types of information with the Supply Side Platform. This includes a content category for the advertising space and a user ID. Further data refers to the targeting and retargeting of a target group. On the basis of these criteria, the DSP system determines which advertising campaign best fits the target group and thus has the greatest chance of advertising success.

Subsequently, the Demand Side Platform submits bids for advertising space. On the supply side platform side, the highest bidder among the incoming bids is determined. The ad of this highest bidder is then delivered to the website visited by the user. In order for the visitor to see the ad as quickly as possible, only a few fractions of a second may elapse during the real-time bidding procedure. The entire communication process takes an average of 100 milliseconds from the first to the last step.

Importance of Ad Exchange for Online Marketing

Ad Exchange is a kind of further development of Ad Networks. They promise publishers a particularly high return through the simple monetization of their websites and blogs. On the demand side, advertisers and merchants benefit from various targeting options according to precisely defined criteria. This means that bids can follow exact ads specifications and advertising banners and other content can be tailored precisely to the target group. In the USA, Ad Exchange is already replacing traditional display marketing as an important component of real-time advertising.

The importance of Ad Exchange and its potential in combination with the possibilities of technologies from the Big Data environment are constantly increasing. Real-time bidding and data management platforms (DMPs) provide new advertising opportunities. The large amounts of data and the way they are handled require a high degree of expertise and openness for digital media. Within German companies, this area of online marketing is still under development. Up to now, only a small number of agencies have used real-time bidding and ad exchange techniques in their product portfolios.

Opportunities and advantages of Ad Exchanges

A primary advantage of Ad Exchanges is control and visibility for advertisers. Unlike ad networks and comparable advertising platforms, ad exchanges offer a higher degree of transparency. Ad networks, on the other hand, work with bundled ad spaces on a large number of different websites. As a result, merchants lose the overview. Ad exchanges, on the other hand, work with scalable values. Merchants opt for targeted advertising inventories and values such as ad impressions are available. These values describe the advertising inventory and serve as the basis for calculating prices for certain publishers. As a rule, individual impressions are used as a basis. This principle allows merchants more precise control over the individual advertising media.

Another advantage is the pricing. Prices for advertising space are directly related to the reach of a platform. This reach can be calculated using various Key Performance Indicators (KPI). These indicators include values such as ad impressions and the thousand contact price. The calculation of the values in real time or within a few milliseconds enables a direct link between publishers and merchants. Sophisticated algorithms are used, which determine the auction price through constant technical queries.

These algorithms can also include strategies and techniques for targeting, the target-group-specific advertising approach. Different targeting approaches are directly related to the available bidding strategies. Depending on the previously defined target group as well as its location and other data, different bidding strategies can be promising.

The numerous advertising platforms and systems make it possible to link several high-quality data in Ad Exchange. This gives advertisers the opportunity to precisely address target groups on the basis of this data. Traditional online marketing methods are often associated with wastage. Ad exchanges offer a way to minimize this wastage. For advertisers, this increases the return on investment, the ratio between the money invested in advertising and the resulting revenues.