What Is an Ad Exchange?

How Does an Ad Exchange Work?

In the programmatic adtech space, those offering ad inventory – publishers – are connected on a supply-side platform (SSP) with those buying ad inventory – advertisers – on a demand-side platform (DSP). Ad exchanges connect DSPs and SSPs like a marketplace; this is why it is called an exchange.

The entire process begins when a publisher makes their ad inventory available on a supply-side platform connected to an ad exchange. 

1. The publisher communicates information about its ad inventory – for example, ad location, ad format, GEO, audience, etc. – through an SSP. A DSP is then sent a bid request. 
2. After gauging whether the ad inventory is attractive to them – in terms of demographic, user ID, GEO, etc. – the DSP must connect to the ad exchange and place the maximum bid that it is willing to pay for this inventory.
3. In real time, the ad exchange selects the most successful partner for this ad slot based on the highest bid. Within a matter of milliseconds, the winning ad appears in the publisher’s app or website and the user then sees it. 

When new inventory emerges, potential bidders are sent more bid requests and the bidding recommences automatically.

Ad Exchange vs Ad Network: What’s the Difference?

Both ad exchanges and ad networks are involved in the buying and selling of digital ad inventory in programmatic advertising. However, each serves a different purpose and should not be lumped together to mean the same thing.

Consider an ad exchange as an open marketplace that is connected to publishers and advertisers who want to buy and sell ad inventory. Ad networks collect and buy inventory from publishers and sell it to advertisers, without them knowing exactly which inventory they’re buying. 

What Are the Benefits of an Ad Exchange?

Ad exchanges bring numerous benefits to both publishers and advertisers alike. With the automation offered, programmatic ad buying and selling has become a highly effective way of buying and selling ads.

Benefits for Advertisers

1. Brand Safety

When connected to an ad exchange, advertisers can blacklist certain publishers and avoid particular inventory. This is especially important in cases where they don’t want to be linked with a certain publisher – perhaps due to explicit or unsuitable content. Blacklisting publishers ensures advertisers don’t spend much on ad inventory from that list of publishers.

2. Budget Safety

Another benefit for advertisers working with ad exchanges is that they can set budget pacing options. This means they can limit the number of times their ads appear to the same user. Doing this ensures the advertiser doesn’t alienate potential users and also reduces ad spend wasted on the same user. Another benefit is that advertisers can set and adjust their budget thresholds and control their advertising costs better. 

Benefits for Publishers

1. Brand Safety

Publishers get more control over the types of ad formats and advertisers that appear in their apps. When connected to an ad exchange, publishers can choose where and when ads are displayed, and block spammy or unsuitable advertisers or ad networks. This ensures they maintain high user engagement, reduce the risk of fraudulent users, and protect their brand image.

2. More Control over Costs

It goes without saying that maximum revenue is priority number one for publishers. When publishers work with ad exchanges, they can set minimum CPMs for their ad spaces. This means they have some control over their revenue.

Conclusion 

Advertisers and publishers alike in the advertising space work connect via DSP and SSPs to ad exchanges to benefit from a more efficient way of buying and selling ad inventory. 

While publishers can enjoy increased brand safety and greater control over their costs, advertisers can likewise enjoy better brand safety and also budget safety – to reduce any wasted ad spend at a time when budgets are particularly tight.

FAQs