Martech Landscape: What Is An Ad Exchange?

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How do ad exchanges work, and do they differ from ad networks or supply-side platforms?

Billions of dollars are transacted on digital ad exchanges annually. Ad exchanges make it possible for advertisers, agencies and ad networks (You can read more about ad networks here) to buy digital ads across a number of publisher sites in automated auctions. Just about every type of digital ad format can now be bought and sold on an exchange, including display, video and native ads on both desktop and mobile. In this installment of Marketing Land’s MarTech Landscape Series, we aim to cut through the jargon and explain what ad exchanges are and how they work.

How Do Ad Exchanges Work?

On an ad exchange, thousands of publishers can make unsold ad space inventory available for advertisers to bid on automatically — as opposed to traditional one-on-one sales negotiations. The buying and selling happens programmatically, which is mostly a fancy term for automatically (Check out our primer on programmatic), between software platforms.

Advertisers and agencies typically connect to an ad exchange using what is called a demand side platform (DSP) — MediaMath, Turn, DataXu and AppNexus are some of the big DSPs. Ad networks also often buy impressions on ad exchanges, then mark them up and resell the impressions to buyers on the networks. Publishers typically make impressions available on an exchange through a supply-side platform (SSP). We’ll get to more on SSPs in a bit.

On ad exchanges, advertisers can target audiences — groups of users that exhibit certain browsing behaviors or fit specific demographic and interest profiles of their customers — across a large set of publishers. At the moment a user reaches a page on a website or in an app, an ad impression on the page can come up for auction on the exchange. The buyer’s bidding platform can analyze data from multiple sources — the user’s cookies or mobile identifier, data from the publisher, demographic and purchasing behavior from third-party data vendors or a buyer’s own data — to figure out whether to bid on the impression and how much to bid.

Open Exchanges and Private Marketplaces

You may have heard the term “open exchange.” This just means that nearly any buying system can access and bid on the inventory available on the exchange; it’s open to all buyers. Open exchanges differ from ad networks in this way, and ad exchanges are typically more transparent than ad networks because buyers can see the market price of an impression.

Whereas open exchanges came about to provide more transparency to the bidding environment than ad networks offered, private marketplaces are sort of a hybrid of both — bidding transparency with control over who the buyers and sellers are.

Advertisers and agencies, nervous about fraud in open exchanges (with good cause), often want to be choosier about where their ads appear. Likewise, publishers often want more control over which buyers get access to their inventory. So most open exchanges now offer what are called private marketplaces or private exchanges.

Private marketplaces are still automated bidding environments, but publishers can invite preferred advertisers or an agency to a private pool of impressions. Publishers can also set pricing floors for inventory sold on private marketplaces. Typically, the inventory made available on private marketplaces is also considered higher quality than what the publishers will make available on open exchanges.

Supply-Side Platforms and Ad Exchanges: Are They The Same Thing?

Publishers use supply-side platforms (SSPs) to make inventory available for programmatic buying, and multiple publishers can plug into an SSP. Multiple sellers on one platform sounds pretty much like an ad exchange, right? The lines between the two are blurring as the technology has advanced and SSPs have attracted a critical mass of publishers.

In addition to facilitating ad transactions, however, SSPs are designed to connect to multiple ad exchanges, ad networks or any combination of open exchanges and private marketplaces and offer tools designed specifically for publishers to optimize their sales efforts and improve fill rates (sell more ads) at the highest CPMs.

More and more companies operate what are essentially ad exchange-SSP hybrids. And going a step further, there are now a growing number of companies that offer a “full stack” of ad tech with products including for sellers to auction impressions and buyers to bid on those impressions. Rubicon Project, DoubleClick and ONE by AOL are among the examples of companies that offer products for both parties.

What Are Some Of The Major Ad Exchanges?

Google’s DoubleClick Ad Exchange (AdX) is the big one. Verizon-owned AOL operates exchange-SSP hybrids for display and video called ONE by AOL: Display and ONE by AOL: Video. The Rubicon Project, AppNexus, PubMatic and OpenX are among some of the biggest independent exchanges.