Programmatic Advertising Essentials: What Is An Ad Exchange?

March 18, 2022

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6 min read

A Brief Overview: Programmatic Advertising

In the past, digital ads were traded between publishers and advertisers by e-mail. In time, with the growth of digital advertising volume and the rising number of advertisers and publishers, the traditional method became more complex and difficult to sustain with manpower. Consequently, the ‘programmatic advertising’ term has entered into our lives. It is important to emphasize that programmatic advertising, which allows faster, more efficient, and safer ad trading, has made a big difference in a short time.

What Is A Programmatic Advertising?

Online ad trading uses some parts of advertising technology(AdTech) to create better abilities. It manages the dynamic process transparently, quickly, and accurately because it’s supported by algorithms and softwares. Automated auctions helps to minimize error rate and time loss. Programmatic advertising gathers data through user’s browsers ( e.g cookies, IP, pixel tags), analysis every piece of information, including behaviors and preferences. It provides targeting options for SSP-DSP sides along with highly relevant ad viewing experiences for visitors, it also creates ample opportunities for brands such as reaching potential customers, increasing interaction rates, developing the marketing strategy, and brand awareness. Thanks to these features, the market share of programmatic advertising has reached remarkable levels in the digital world.

How Does It Work?

It takes place between publishers with the available ad space and the advertisers or ad networks who want to buy online ad space. Platform brings together a variety of potential advertisers and publishers. The primary goal is providing a perfect match environment for efficiency. In short, it consists of SSP (Supply-Side Platforms), Ad Exchange, and DSP (Demand-Side Platforms) components.

What Is An Ad Exchange?

An ad exchange is a digital platform where advertisers and publishers can buy and sell ads programmatically and transparently. Since ad tech breakthrough, It is a piece of advertising technology that aims to match advertiser’s display, video, audio, and native ad inventory with ad spaces on publisher’s apps or websites. Thanks to the advantages it provides, such as profit maximization and management of the process, it has a critical position in the online advertising market.

Who Uses An Ad Exchange?

Ad Exchange for Advertisers: Advertisers aim to deliver their inventory to the right users in the right online areas. Accordingly, they manage the ad purchasing process using DSP (Demand-Side Platform). Advertisers connect to Ad Exchange with DSP. As a result, high success is achieved in accessing a large pool of publishers, reaching the target audience at the right moment, and increasing the awareness of the brand.

Ad Exchange for Publishers: Publishers have ad spaces on their blog, website, online magazine, mobile app, and game. The main objective is to earn the maximum income from the ad spaces they have. Accordingly, they manage their ad spaces using SSP (Supply-Side Platform). What is more, publishers can connect to Ad Exchange with SSP and they can reach a large pool of advertisers.

How Does An Ad Exchange Work?

When a publisher wants to evaluate the ad spaces that they have, they make them available in the SSP. The visitor is the initiator of the process. As soon as the page starts loading, the system takes action with the aim of showing the right ads. Thanks to cookies, visitor information (demographic characteristics, visitor behavior, etc.) and all details related to the ad spaces will be collected and sent to Ad Exchange. Ad Exchange sends a bid request to the DSP and ad networks for that ad space. The DSP platform has a targeted audience and it is aimed to reach as many users as possible within this specific audience. Accordingly, the inventory and information about the user (location, visited page histories, visitor behavior, content, etc.) will be examined. Then, the DSP sends a bid response to Ad Exchange included price and ad details. Similarly, other bids are collected into the ad exchange pool as well. Ad Exchange collects and examines all offers. It usually accepts the highest or second-highest bid and sends to ssp. In this way, the sale takes place. The winning ad is placed to the ad space within the details such as the agreed price, number of impressions, frequency of impressions. Ad placement is conducted by ad servers. All these processes occur in less than a second. Last but not least, it is essential to ensure that the user experience is not affected.

What Are The Difference Between Ad Exchange And Ad Network?

Another point worth noting is, Ad Network and Ad Exchange are two important components of ad trading. Although both serve similar purpose, they have different functions.

Ad Network: Ad Network collects ad spaces from publishers, categorizes them according to various parameters, and sells them to advertisers with adding commission.

Ad Exchange: It is an online marketplace that brings together publisher and advertiser platforms. It manages the process more autonomously compared to ad networks.

What are Targeting Groups?

One of the key point in the programmatic advertising ecosystem is targeting groups. These targeting groups allows targeting and limiting of traffic sources received from the supplier and sent to the buyer. It can be applied to one or more suppliers with multiple traffic filtering configurations. Options for targeting groups may vary from platform to platform. The ultimate goal is to increase efficiency by avoiding unnecessary traffic. Some popular targeting groups are listed below.

Ad Content Targeting: It can be targeted based on options such as ad type, country, device type, ad size, language.

Commercial Targeting: It can be targeted based on options such as auction type, supply partners, traffic type.

In-App Targeting: It can be targeted based on options such as location, blacklist or whitelist.

Web Targeting: It can be targeted based on options such as users, blacklist or whitelist.

Deal Filtering: If the targeting group for a deal is a blacklist, deal requests are removed. If the targeting group for a deal is a whitelist, only deal requests that are in that group are forwarded.

What are the Auction Types?

Auction types are generally classified under three headings. The process often progresses from private deals to auctions. For instance, if there is no preferred deal for an inventory, the system turns to other auction types. Open auction and private auction are types of auction. Although preferred deal is not an auction type, it is an important type of ad trading.

Open Ad Exchange: There are no restrictions in open auctions. Within the targeting, a comprehensive list of publishers and advertisers is provided. All advertisers can participate in the auction. As a consequence, preventing digital ad fraud is difficult due to concerns about malware and bots.

Private Ad Exchange: Private auction is much more secure than an open auction. It will only be opened to advertisers invited by the publisher. The conditions are determined by the publisher, and a personal invitation is sent to the advertisers. Thus, situations that may harm the publisher are eliminated. The publisher has detailed information about the advertiser. Usually, premium inventories are offered. In this way, they provide access to higher quality inventories.

Preferred Deal: It is an agreement between the publisher and the advertiser. It does not work like an auction. It can create a regular source of income for the publisher.

What Are The Most Common Ad Exchange Platforms?

Google Ad Exchange is the most powerful company in the market. Other prominent companies are App Nexus, OpenX, Rubicon Project.

Conclusion

To sum it all up, Ad Exchange provides a large pool of advertisers for publishers and a large pool of publishers for advertisers. It brings the sides together and manage the dynamic process.

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