What is an Ad Exchange? How Does an Ad Exchange Work with Examples?

The ad tech industry is in constant innovation as there has been instant consumer transformation preferring online shopping. As the possibility of online advertising is increasing exponentially, advertisers have to find phenomenal ways to reach the appropriate audience at the perfect time on the right screen with the ideal content. The strategies have to be productive for the entire advertising ecosystem that includes content creators, consumers, etc. Fortunately, incredible innovations in the ad tech industry have resulted in ample solutions for developing effective ad campaigns.
Ad exchanges are a vital part of this whole ad tech ecosystem. Ad exchange’s prime function is to buy and sell ad slots directly to one another. This model benefits both advertisers and publishers the former gets substantial flexibility over ad formats and the latter gets more control over published ads. 

What is an Ad Exchange?

Ad Exchange which possesses an imperative role in advertising technology is a virtual marketplace where publishers and advertisers combinedly trade available digital ad spaces. The ad space that a publisher has on their website is called ad inventory and it includes ad spaces such as native, display, mobile games, video, and in-app ad inventory. The selling and buying of ad inventory that happens in real-time are called real-time bidding.

Ad exchange prevalence is based on a simple demand and supply mechanism. Publishers are in constant search for the highest bidders to sell advertising space on their website and advertisers are struggling to find the perfect ad slot where there are high chances to get better visibility. This is where the role of ad exchange commences. Real-time bidding powers this self-sufficient virtual platform, which also enables programmatic ad purchasing. A digital marketplace that automates the exchange of advertising between publishers and advertisers is known as an ad exchange. Ad exchanges use real-time bidding technology and are a component of the programmatic advertising ecosystem. They link publishers on a Supply Side Platform (SSP) with advertisers on a Demand Side Platform (DSP) (SSP)

How Does an Ad Exchange Work?

To have a better understanding of the functionality of ad exchange, the process has to be viewed from both advertisers’ and publishers’ perspectives. Both parties must be part of the same network to exchange ads. All of the publisher’s pages are inventoried by the ad exchange. Every ad location and ad space are taken into account as a potential impression. The publisher’s responsibility is to make their ad inventory available through an SSP. With the use of cookies, information about a user is gathered when a visitor enters a publisher’s page. The ad exchange uses this data to select the most appropriate bidders. On the other hand, the advertisers must connect to an ad exchange through a DSP.

The advertisers need to get maximum cost-per-impression for the amount he is willing to pay for the ad slot. Moreover, the advertisers have to get an ad slot that matches the demand with available ad impressions. Potential bidders are notified by a bid request whenever new inventory becomes available, at which point the bidding starts. The entire process takes place almost immediately. Whenever there is a change in inventory, it also starts automatically. Ad exchanges can therefore sell digital ad inventory quickly and in large quantities.

Categories of Ad Exchanges

Predominantly, three kinds of ad exchanges are prevalent such as open ad exchanges, private ad exchanges, and preferred ad exchanges. Let us look into them in detail.

• Open Ad Exchange:
  A virtual marketplace that provides open auctions is known as an open ad exchange. All advertisers on the platform have access to a wide selection of publisher ad inventory through this kind of ad exchange. Given the large number of publications, open ad exchanges are likely to be chosen by marketers trying to increase their reach. An open ad exchange, however, does not provide in-depth publisher information.
• Private Ad Exchanges:
  Private Ad Exchange is a Private Market Place (PMP). Premium publishers get access to this private platform. Publishers who administer these PMPs typically choose the advertisers who can use their ad space. Publishers have control over who can bid, at what price, and under what conditions on a private ad exchange. Through the use of these PMPs, marketers, ad agencies, and brands and publishers can develop direct partnerships. This can result in more direct discussions between the parties.
• Preferred Ad Exchanges:
  A publisher can sell ad inventory for preferred advertisers at a fixed price that has been agreed upon through a preferred ad exchange or preferred agreement. This method of selling digital ad space is more custom. The publisher receives consistent ad revenue from this kind of ad exchange. On the other side, advertisers profit from steady prices.

Examples of Ad Exchanges

Publishers and advertisers can choose from a wide variety of ad exchanges. They can select the ideal one based on their requirements.

Here are a few of the more well-liked ones:

• Google Ad Exchange: This is the most used ad exchange at present. Publishers can have access to both premium ads and AdSense advertisers using this.
• OpenX: This Ad exchange guarantees stakeholder autonomy.
• AppNexus: It includes ad slots from several publishers which offer advertisers a wide variety of options. 
• Magnite: It ensures a worldwide advertising system that currently makes it possible to do more than 1 billion transactions each month.
• Smarty Ads: It provides a free market that links top publications with international advertising.

To sum up

The procuring and selling of digital ad inventory have been facilitated by ad exchanges. They provide a platform for publishers and advertisers to interact, transact business, and profit from one another. In the end, using a digital marketplace to acquire and sell ad inventory is considerably simpler than using salespeople.