Ad exchanges are primarily brokers for media trading on the open web. 

They constitute a backend infrastructure of programmatic that makes it possible to purchase individual impressions rather than trading them in bulk. Ad exchanges allowed the market to transition from a cumbersome ad network model and created a truly global audience marketplace. 

Alas, ad exchanges faced problems of their own in vetting and filtering traffic, insomuch that the label ‘ad exchange’ became a reputation risk. Still, it is impossible to imagine the industry without ad exchanges. To get a narrow audience segment for an advertising campaign or an adequate fill rate for the ad space, one needs to have a reliable ad exchange behind their belt. 

What is an ad exchange? 

An ad exchange is a centralized digital marketplace, where advertisers and publishers buy and sell advertising spaces, most frequently through real-time auctions. They are big aggregators of traffic that gather inventory across different environments such as in-game, in-app, web, CTV, and formats: display, audio, video, interactive. 

Ad exchanges took hold of the digital advertising market at the beginning of the 2010s; before that, ad networks dominated the industry. Ad networks relieved media traders from the manual insertion orders and automated media trading but could not provide scale. 

In the cases when the ad network couldn’t find internal demand, it has to pass users to other networks through complicated redirect chains. This elaborate set-up produced ad serving lags, a lousy user experience, and hurt the publisher’s ad revenues. The industry desperately needed a more comprehensive solution to trade inventory. 

What is real-time bidding? 

The technology that allowed to transcend the cumbersome ad network model was real-time bidding (RTB). It allowed to trade per impression rather than in blocks of ads for a fixed price and derived the price based on the current demand for user segments. 

Ad exchanges became the main engine behind the RTB adoption. Instead of navigating different ad networks and figuring out where the ad placement would be the most efficient, advertisers started focusing on the audiences. 

Ad exchanges gather traffic from different publishers, enrich it with data, and match it with the demand from the corresponding verticals, all in a matter of milliseconds. Exchanges allowed to streamline and simplify media trading, letting it go beyond local markets and create a genuinely international programmatic marketplace.

How do ad exchanges work?

The vast majority of ads are now traded in the ecosystem of programmatic advertising. This form of media trading resembles a stock market. The majority of the online ad space trades occur on centralized electronic exchanges, where they are bought and sold in real-time using data-driven algorithms. 

To conduct a trade on the ad exchange, you cannot just do it directly. Buyers and sellers require a mediator, similar to brokers on the stock market. Both sides of the trade require their own intermediaries, media trading SaaS solutions, or demand-side platforms (DSPs)  for advertisers and supply-side platforms (SSPs) for publishers. Ad exchanges broker deals between the DSPs and SSPs, and provide additional data and support. 

ad exchange

Issues with ad exchanges 

Before the rise of ad exchanges, digital advertising on the open web was a notoriously fragmented marketplace. Regional or niche content resources were managed by ad networks, which couldn’t provide scale, but were excellent in vetting the creatives and tuning the ad slots for maximum performance. 

With the mass adoption of ad exchanges, the tables have turned. Now advertisers could purchase the audiences from any corner of the world, but faced the risks of misrepresented inventory, opaque supply chains, and fake impressions. 

Ad exchanges faced unprecedented volumes of traffic and initially failed to develop proper mechanisms for vetting and filtering impressions. As a result, they earned a negative reputation as resellers of low-level fraud-ridden traffic. However, in time ad exchanges developed several practices that allowed them to deliver more brand-safe traffic. 

Signs of a good ad exchange 

Let’s go through a few signs of a good ad exchange.

1. Traffic quality partners

The very thing that made ad exchanges so effective in delivering personalized ads, a network of connectors and resellers, made it extremely prone to fraud. In the programmatic ecosystem, each impression, before reaching its final destination, passes several platforms, and not all of them uphold the same safety standards. Ad placements frequently get misrepresented, clicks get misattributed, and non-safe creatives find their way to reputable websites. 

When choosing an ad exchange, be sure to examine its anti-fraud capabilities. What kind of validators a given exchange uses to scan creatives before sending them to publishers? Do any anti-fraud vendors check bid requests before allowing them into auction? 

A good ad exchange usually has several traffic quality partnerships that ensure a comprehensive attribution picture and detects any outliers or suspicious activity. Another trustworthy ad exchange sign is prebid blocklists — a collection of compromised parties, vendors, and platforms. Exchanges that utilize prebid blocklists can detect and stop fake traffic before it enters the auction. 

signs of ad exchange

2. IAB standards 

Fake supply is the most common type of fraud in programmatic advertising. This kind of ad fraud happens on the publisher side when fraudsters misrepresent the inventory. For instance, video inventory is the most susceptible to this type of fraud, as out-stream video ad slots are frequently misrepresented as in-stream. There are various approaches that fraudsters use when faking the supply, but adopting the IAB standards can protect from most of them. 

The Interactive Advertising Bureau (IAB) Tech Lab introduced ads.txt, a text file that publishers can place on their sites to show ad buyers a list of the authorized vendors allowed to sell their inventory, along with sellers.json that allows checking sources of the inventory, direct publishers, and traffic resellers. 

3. Data centers 

To get bids from diverse supply partners, ad exchanges should support all the popular connection types, such as RTB endpoints, JS tags, VAST tags, etc. Further, a reliable ad exchange also needs to have a network of data centers to support the timely ad serving and avoid discrepancies and page latency. 

Global ad exchanges usually have data capabilities on almost every continent. As a bare minimum, ad exchange should have sufficient data centers in the region where it operates. Otherwise, it is risking the content experience of the end-users.

4.  Bidstream optimization

Inventory optimization was a buzzword in the industry for several years, and it recently started getting industry-wide recognition and adoption. This technology analyzes the advertisers’ buying patterns, considers typical channels, geos and devices, factors in bid/win ratio, and optimizes the type of bidstream traffic it receives. This practice reduces pressure on the buyers’ servers, boosts QPS, and allows advertisers to receive better traffic and bid more effectively. 

5. Device and IP intelligence 

To connect local publishers with the global programmatic marketplace, ad exchanges have to make this traffic accessible and representative. Many publishers and media owners do not have data-collection capabilities, such as DMP, and frequently their bid requests lack all the necessary parameters. 

For this reason, it is imperative to have an ad exchange partner with vendors that take care of the incomplete requests. For instance, device detection solutions allow one to take care of bids without the device data and add this parameter based on its data intelligence. Besides, IP intelligence vendors help to locate the geo of the incomplete bid request.

6. ID solution 

In 2022, Google Chrome, a primary browser for more than half of the world’s population, is shutting down its advertising ID, the key to user tracking, retargeting, and attribution on this browser. The potential solution for this nearly-anonymous web can become a single-sign-on (SSO) solution with a privacy-compliant ad ID. It is a system of logging users on sites and in mobile apps using email/phone, which is saved in a hashed format and allows them to accurately target users without compromising their identity. 

Viable common ID solutions include Unified ID 2.0 by Trade Desk, ID5, backed primarily by UK publishers, Net ID adopted among German publishers and media agencies, and Admixer ID in Eastern Europe.

Open exchanges vs. private marketplaces 

Because open exchanges were plagued with fraud, big brands, who couldn’t risk their reputation, started looking into other formats for media buying that would ensure quality. Of course, they couldn’t return to redundant and time-consuming direct-media trading. For this reason, new forms of programmatic took hold – guaranteed deals and private marketplaces. 

In this arrangement, inventory never entered an open marketplace and instead, it was offered to a selected group of advertisers on a private auction. Advertisers have to be invited to participate. 

This media trading method is ideal for premium publishers that gather data-rich user segments, niche content resources with exclusive audiences, and trusted media with brand-safe inventory. 

Not all of the ad exchanges can support private marketplaces and need to have the Deal IDs capabilities. An ad exchange should line up a list of direct programmatic deals with credible publishers and pre-fixed audience packages through a searchable interface or a dedicated support team. Today private marketplace capabilities are a must have for ad exchanges. 

open vs private

Ad exchange vs. ad network 

As we discussed before, ad exchanges replaced the previously dominant ad network models. However, ad networks didn’t vanish, rather they adopted a different business model. 

Before ad networks concentrated on selling the remnant traffic, modern programmatic ad networks focus on premium inventory, offering it to advertisers for higher prices. Ad networks are used to selling owned media by large publishers or media houses to get a better price for their premium inventory and flexibly manage their demand. 

Programmatic ad networks started using more sophisticated programmatic trading methods, such as reserved deals or private marketplaces, to provide inventory to hand-picked advertisers on exclusive conditions before entering the open auction.  

In a nutshell, ad networks no longer compete with ad exchanges but rather complement their services. An ad exchange is a lot like an e-commerce platform where many parties meet to trade their goods. Ad networks are more like medium-sized retailers, who have tight connections from local suppliers and a customer base of advertisers hungry for their audience segments. 

 

Ad network

Ad exchange

Business model 

Intermediary between advertisers and publishers

Open marketplace for all digital advertising players

Clients 

Publishers, advertisers, agencies, and DSPs

DSPs, SSPs, ad networks, agencies, publishers, and advertisers 

Principle of work

The platform offers packages of ads for specific audiences. Media buying mostly happens in bulk.

The marketplace offers an open pool of various inventory (remnant traffic, premium placements, etc.)  An ad exchange is based on an impression-per-impression trade.

Pricing 

Mostly pre-negotiated or determined on the header bidding auction 

Shifts depending on the bids placed 

Transparency

It varies; largely depends on the ad network. 

Advertisers can review the inventory they buy, while publishers can assess the advertiser’s creatives and their bids. 

Certain ad exchanges allow advertisers to review competitors’ bids.

Quality of inventory

Most times, premium inventory, narrow audience segments offered to the niche advertisers 

Offer all available inventory (oftentimes premium inventory is already sold via private deals through ad networks) 

Campaign optimization

Takes time to deploy

Can be done in real-time

Examples

NYT Ad Network, Yahoo Publisher Network.

Open X, Pubmatic,  Admixer.SSP 

Supply-side platform vs. ad exchange  

The programmatic industry is famous for using terms interchangeably or coming up with multiple closely related terms. This is also the case for SSP and ad exchange. In principle, SSP represents publishers and distributes their inventory among ad exchanges. SSP is managing premium inventory, supports private marketplaces and programmatic guaranteed deals, while ad exchanges are merely reselling the remnant inventory.  Frequently, SSP focuses on a particular type of inventory, for instance, video SSPs

Those definitions started to become more and more arbitrary as ad exchanges added missing capabilities and rebranded themselves as SSPs through the years. From the technical standpoint, all leading programmatic players are still ad exchanges, as the primary technology they operate is RTB. 

ssp vs exchange

7 ad exchange examples 

  • Google Ad Manager is the market-leading ad exchange, formerly known as Doubleclick for publishers. It conducts the sale for more than half of domain names on the web
  • AppNexus and OpenX – another two staples of the ad exchange market, together with GAM comprise up to a 74% share of the ad exchange market.
  • Baidu Exchange – part of the Baidu ecosystem, the Chinese equivalent of Google, holds the biggest share of the programmatic market in Asia. 
  • Admixer SSP has the strongest presence and direct relationships with local publishers, advertisers, and agencies in Eastern Europe. 
  • Bid Switch, a subsidiary of IponWeb, has a rather unique business model. It operates as an aggregator and connector for ad exchanges. It’s connected to hundreds of ad exchanges, SSPs, and DSPs simultaneously. Programmatic platforms can connect to various SSPs through Bidswitch in just a couple of clicks. Instead of establishing a direct connection, setting up RTB endpoints, signing contracts, and negotiating.
  • Unity – exchange with the focus on mobile game inventory. It uses the competitive advantage of its parent company Unity Technologies — a game engine used for more than 200k games, including the super popular Super Mario Run and Pokemon GO. Unity boasts direct relationships with more than 5 million developers.

Conclusion 

It is impossible to avoid ad exchanges in modern media trading. In essence, they are marketplaces that facilitate trade between programmatic players by providing additional data layers and audience segmentation assistance. 

Benefits for advertisers

Ad exchanges give advertisers reach beyond social networks and context targeting, access to audiences of niche content resources, apps, CTV devices, etc. This modern form of media trading is very flexible as it allows one to buy narrow audience segments with data on private marketplaces or get millions of cheap impressions from open exchanges. 

Marketers that are looking for cost-effective alternatives can plan their product launch during the season of low demand for a particular audience segment. By using seasonal patterns in media budgets, buyers can purchase quality audiences at low bids. 

Benefits for publishers 

At the same time, ad exchanges are vital for publishers as well. The New York Times can trade its advertising spaces through an owned ad network, but it is a unique case, where demand is many times greater than supply. Most of the time, publishers cannot get an adequate fill rate without an ad exchange. 

Publishers that worry about ad creatives’ quality or want to sell their narrow in-demand audience segment to big agencies and pre-selected advertisers no longer need to contract ad networks. Modern ad exchanges already developed functionality to accommodate their needs with private marketplaces and connected deals.

Ground rules for choosing an ad exchange:

  • It has a data center in the region where you are planning to serve or place ads. 
  • It has a partner to validate creatives, as well as traffic quality partners for pre-bid and post-bid blocking. 
  • Functionality for the private marketplace is very welcome. 
  • It has adopted IAB initiatives of ads.txt and seller.json