In the previous Posts, we discussed Ad Networks and their business with both Advertisers and Publishers. When premium inventory is sold in direct buys, Whatever the Publisher leftover Inventory can be sold to Adnetworks. On the other end advertisers or ad agencies who can afford premium go directly. If they want to spend leftover budget and are actually in demand for unsold inventory, they connect ad networks to fulfill their requirements.

But even with all these, there was several problems faced by Players, Now it is time to discuss an important part of the Display Advertising ecosystem which solved many problems and saved a lot of time and money for all the players in the industry.

It’s none other than AD EXCHANGES

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Players have to make multiple relations to meet any end player. With the advancement of Ad Technology, there evolved a lot of changes and improved operations at every stage and process as much as possible. Ad Exchange came into the picture and provided solutions to many challenges and problems that were faced till then. Let’s take a scenario to understand Ad Exchange and what it does ?

  • An impression is made available by the publisher and he wants to send it to the Ad network. When an ad network has enough demand or an advertiser to buy that impression that’s fine. But If adnetwork does not have any advertiser, he can reach out to another ad network and likewise the chain continues. What if there is a chance to avoid these multiple relationships and connecting to a single platform where suppliers can find the large demand.
  • Then ad exchange came into the picture. 
  • Whatever the impression made available by the publisher is sent to Ad Exchange with all the details of that impression. or Adnetwork receive impressions and put into auction in ad exchange.
  • Then this ad exchange makes this impression available in auction in realtime and multiple players like Ad networks, ad agencies or Advertisers, to other networks and buyers align with associated data whoever connected to the ad exchange bid for that impression.
  • These networks or buyers collect all their bids and submit back to ad exchange
  • Among the submitted bids, Ad Exchange finalizes the winner bid of that impression based on various parameters. one bid is taken as a winner bid and again an exchange sends that buyer winner info to that particular supplier or it to the origins ad network and this ad network again compared if the winner bid price is more than what this network could from its own advertisers.
  • If the bid is better than what suppliers could get from their own advertisers or buyers, that bid wins
  • Finally Ad is served on the publisher website and earns revenue.
  • In this whole process, few players were involved in the transaction.
  • Each network will charge some price and Ad Exchange will charge flat price or using it service

Reducing less players involved in the transaction means, Ad Networks and Publishers can get more price for each transaction and on advertiser end, they get better inventory value with optimal price and for users better page loading time.

So, everyone wins

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Let’s discuss more about this

  • Previously, In order to balance demand and supply, ad network use to reach out to another ad network to fulfill it, involves price deduction at every stage of passing the impression to another but here in case of Ad Exchange which is connected to global supply and demand from both suppliers and Buyers
  • When an impression is available from any player, they can connect to Ad Exchange, and get the demand for their supply without further reaching out to some other networks or publishers. 
  • All these can be done on real time basis where players participate in auctions
  • This led to a new method of Buying and selling of Ad Inventory which is known as Real-time Bidding or RTB
  • RTB is a process of buying and selling ad inventory in real time or every single impression using Ad Exchanges
  • Finally, this introduced new process in the ecosystem which know as Programmatic Advertising

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So what actually Ad Exchange means ?

It is an online auction central marketplace and technology platform works as intermediaries between buyers and sellers where Programmatic buying and selling of Ad Inventory takes place between the players like Publishers, Advertisers, Ad Agencies, Ad Networks and other technology platforms on a real time basis.

In simple way to explain, it is a ad technology platform which helps in Programmatic Buying and selling of online Ad Inventory in real time impression by impression basis 

We can call it as a digital marketplace connects buyers and sellers which helps in online transactions

Ad Exchange use rules and mechanisms which helps to make decisions in buying and selling for every single impression

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Ad Exchange: How does ad exchange make money?

Ad Exchange doesn’t have their own inventory at all but makes money connecting players in the transaction

When a transaction happens via ad exchange, transaction fees go to ad exchange. But if you look beyond how it earns money, there are other factors which help Ad Exchange companies like Google earn money.

 

Let’s discuss this by taking Google as Example.

Google have their own ad networks like adsense for publishers, google ads for Advertisers and ad management platforms like Google ad manager. All these help to access one platform to another to meet the requirements of each other.

For example, Publishers can set up inventory in Google ad manager where lines are created such that some portion of inventory is given to the direct advertiser, some  inventory to google adsense, others to SSPs and Ad Exchange.

On other end, To meet the demand for above supply, google also have Google ads where small and large advertiser can access to supply, Demand side platforms knows as DSPs like DV350 which helps to connect large pools of demand.

Having a system which helps to get more number of publishers and advertisers in, ad exchange can earn more and more money from either side of business

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How Ad Exchanges earns

From sellers, Ad Exchanges earn margin as follows

  • Seller make impression available in the ad exchange
  • Transaction happens in Ad Exchange and Advertiser or Buyer pays the amount

In this example, let us assume that advertisers pay CPM of  $10. From that amount it Ad Exchange charges some commission, let’s take example of 10%. So Publisher receives with CPM of $9

 

From buyers,

  • For using service of  Ad Exchange, Advertiser or buyer also pays commission.

in the above example, Advertiser actual Bid CPM of $11 in that example and ad exchange margins is $1 and submit it to seller as $10

 

All these fees and margins depends on the Ad Exchange you work with and type of deal you want in transaction

 

This picture clearly explains connection of players and platforms in the ecosystem

 

In the Programmatic Ecosystem, there are several ad exchange companies and everyone has their own connections and plays the same role as other Ad exchanges.

Each one have their own payment terms and margins

This ad Exchange is connected to other ad technology platforms like Demand Side Platforms (DSPs), Supply Side Platforms (SSPs), Data Management Platforms (DMPs) and so on. I know that all these platforms are new to you and we didn’t cover but just want to introduce them here in this video and will discuss each one separately in future videos.

DSPs access Inventory available on the Exchange

Whereas SSPs provide Inventory on the exchange. These SSPs are technology platforms where publishers use it to manage and sell their ad inventory on multiple Ad exchanges and Ad Networks.

Publisher set the Price and audience type in SSP. This metrics  helps Ad Exchange to connect with bidders who are making calls from the DSP to all those inventory which are made available in Ad Exchange

Meanwhile, Data Management Platforms (DMPs) provide data necessary to build custom audience segments, extended reach, and monetize existing users

 

Ad Exchanges can also earn money by setup fees and margins too

They can also make money by buying on CPM basis and charge on CPC,CPV, CPA basis. That means it not only operates in CPM but also on other Pricing models

They offer Ad Inventory based on different Ad formats, Device types, Geographic data, Audience data, Pricing models, Ad Quality etc

All these helps Advertisers or Buyers to find the relevant, Quality and valuable Ad Inventory, which makes ad exchanges to maintain good fill rate, high eCPMs, and Revenue 

 

Examples of Ad Exchange

Some of the companies having multiple ad networks also maintain their own Ad Exchange

Google ADX, AppNexus, OpenX, Yahoo Ad Exchange, Facebook Ad Exchange, AOL

 

Benefits of Ad Exchange:

  • Ad Exchanges avoids buying and selling of blind and junk traffic
  • It saves lot of time and technical resources 
  • Reduces time taken by ad serving process
  • Margins of the players involved in multiple relationship during transaction saved a lot of money
  • Publishers or sellers gets the best price and quality ads for every impression
  • Advertisers or buyers get the Quality impression for every cent they spend
  • Introduces Transparency to the players  
  • Connects with multiple players and ad technology platforms in the display advertising ecosystem

 

CONCLUSION:

  • With the introduction to Ad Exchange in the Ecosystem, every player is finding better solutions
  • Advertisers and Media agencies can get the better price for their Budget Spend and more reach and scale
  • Publishers are able to sell every unsold impression for better value
  • Ad Networks find the alternatives for better margins avoiding daisy chain
  • Ad Exchanges helps in buying and selling process for every impression in real-time with better solutions for every player

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Hope you understand about ad exchanges. This is the foundation to learn programmatic advertising and will learn step by step about programmatic topics in future topics.

 

If you like this post,  please share your feedback on digitalwebsurfers@gmail.com or please mention in the comment section. Also, if you are looking for any specific topic and want a detailed explanation of any topic in Programmatic Advertising please write to the same email.

Thank you very much for your time.

Have great learning..!!

 

 

By DWS

Learn & Apply

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