The process of buying and selling ad spaces has become faster but a lot more complex. One element of ad trading that you’ll encounter frequently is the ad exchange. But what does it do? And perhaps, more importantly, what role does it serve in facilitating online advertising?
In this article, we’ll dive deep into ad exchanges, discussing their functions, types, roles, related technologies and even alternatives. Afterwards, you’ll be able to consciously decide whether using an ad exchange will serve you best.
What is an Ad Exchange?
An ad exchange is a digital marketplace that facilitates real-time auctions for ad impressions. We’ll go into more detail later on about how they work. Essentially, they’re responsible for connecting advertisers (via DSPs) and publishers (via SSPs) in an automated environment.
Without them, real-time bidding and programmatic advertising would not be possible. Ad exchanges vastly shorten the time required to complete a transaction, enabling you to easily scale your campaign, refine your targets and make any other change you want.
When you think of it, an ad exchange is a lot like the stock market. Instead of shares, they’re designed for digital ad space with impressions bought and sold in a matter of milliseconds.
Ad Exchange vs. Ad Network: How Are They Different?
If you’re unsure how an ad exchange and ad network differ, we’ve summarized the key distinctions below.
- How ads are sold: An ad exchange uses real-time bidding, while an ad network pre-packages the advertisements in one deal.
- Level of transparency: Since they are sold in bulk using an ad network, you’ll have fewer insights into placement and pricing.
- Role in the transaction: The ad exchange provides a neutral real-time marketplace, while the ad network bundles and resells inventory, often with less transparency.
Still, they share a few similarities. The two use ad inventory and connect buyers and sellers. Plus, they both simplify the process of digital media buying and reduce the need for direct negotiation with publishers.
What Are the Different Types of Ad Exchange?
Let’s clear up one thing. You don’t necessarily need to use ad exchanges to advertise online. However, if you choose one, there are two kinds available: open and private. The most obvious difference between them is their accessibility.
With an open ad exchange, anyone can participate. With the private counterpart, you need to be invited to buy ad space. However, aside from these conditions, what else do you need to know? Let’s talk about the pros and cons of each.
Open Ad Exchanges
These are public marketplaces that are open to everyone, as the name implies. Now, this doesn’t mean that you can’t get banned. However, generally, everyone is welcome! If you want to find out if an open ad exchange like Google AdX or OpenX will work best for you, we have prepared a short list of pros and cons in the table below.
Private Ad Exchanges (PMPs)
PMPs are invite-only auctions, often involving premium publishers. These are often used for premium inventory with guaranteed placements. To help you figure out if this type of ad exchange will benefit you, consider the points below.
Key Participants in the Ad Exchange Ecosystem: Which Entities and Platforms Are Involved?
While our topic of discussion today may be ad exchanges, there are a number of entities involved in making the magic happen. Later on, we’ll discuss how an ad exchange works. But for now, let’s focus on the other entities involved in this process and their role.
After reading this, you’ll have a better grasp on what’s really happening, even for parts where an ad exchange isn’t directly involved. To start, there are advertisers and agencies that use DSPs and trading desks. Then, publishers use the SSP. Below, you’ll learn more about the role of each in the ad exchange ecosystem.
Supply-Side Platforms (SSPs)
A supply-side platform is normally controlled by a publisher. As part of the communication with the ad exchange, it may do the following:
- Manage the inventory by declaring the availability of an ad space;
- Filter out low-quality ads that can tarnish or misrepresent the reputation of the publisher;
- Select the highest bid and pass it on for an ad;
- Provide analytics and reports.
All of this occurs every time a visitor views a page on the publisher’s network. While an ad exchange is not necessarily involved with SSP tasks directly,all these elements are helpful in ensuring that the publisher profits as much as they can from their ad space.
Demand-Side Platforms (DSPs)
A demand-side platform allows advertisers to bid on impressions automatically. They don’t just work with one exchange at a time: using a DSP, an advertiser can widen their potential reach by connecting to multiple providers simultaneously.
Demand-side platforms are best known for bid automation. However, using a DSP, you can also recalibrate targeting, manage different aspects of your campaign and even monitor campaign performance.
In addition, you can employ a DSP across various media, including display, video, mobile and even in-app ads. So, no matter what the campaign requires, you can expect a streamlined purchase process.
Publishers
The ad exchange, DSP and SSP may all be powerful platforms, but they only function because of the people, teams and organizations that use them. The publishers are the ones that supply the ad space; the SSP only makes it easier and faster to provide it.
However, publishers are also responsible for maintaining the site or asset that drives visitors. After all, ensuring that there’s a steady flow of traffic means that there is more ad inventory to sell.
Advertisers & Agencies
While the publisher uses the SSP, advertisers and agencies take charge of buying ad spaces. In relation to the ad exchange, they access the inventory through the DSP. However, they don’t just purchase all the ads available and hope for the best.
Advertisers also use the DSP to set goals for the campaign, establish a budget and refine their target audience. All these elements can help improve their returns by ensuring their ads are seen by the users most likely to respond to them.
Trading Desks
If you’re flying solo, you won’t need this to interact with the ad exchange. However, if you run an agency and want to be able to manage large-scale programmatic buying, then a trading desk is essential.
Trading decks are centralized platforms that operate at the agency level. With trading desks, you can manage media buying across multiple DSPs, ad exchanges and channels — all from a centralized facility.
Like a DSP, you can use this to establish a budget, optimize a campaign and narrow down your target audience. But here, everything takes place on a much larger scale, allowing you to manage clients and their campaigns more effectively.
How Does an Ad Exchange Work?
Now that you understand all the key elements involved, let’s proceed to the specifics. In the next section, we’ll walk you through every step of the ad exchange.
- The publisher makes ad inventory available through an SSP.
- SSP sends a bid request to the ad exchange.
- The ad exchange then distributes the request to multiple DSPs.
- DSPs evaluate data targeting criteria and submit bids.
- The highest bid wins; the ad is served to the user.
- Impression data and results are reported back for optimization.
We know this sounds like a long and arduous process. However, in actuality, this entire process happens in milliseconds, often before a page finishes loading. This allows advertisers to buy and publishers to sell a seemingly endless number of ad spots.
What Are the Challenges of Using an Ad Exchange?
As you’ve seen, there are a lot of amazing things that you can achieve with the help of an ad exchange. But be warned: there are challenges, too.
MGID addresses many of the issues that we’ll discuss by operating a closed and curated supply model with built-in brand safety features. This way, you can retain all the perks associated with using an ad exchange while removing reputation and profit-damaging challenges.
Ad Fraud and Invalid Traffic in Open Exchanges
When you think about it, who’s really seeing and clicking your ads? Is it a person at all? One of the main concerns about letting an ad exchange facilitate the transaction is that everything happens so fast. So, it’s not like you can individually verify who is viewing your ad content.
This is how ad fraud happens. When the ad exchange serves the ad to a bot or any non-human traffic, you’re effectively wasting your investment. And we’re not just talking about a few clicks here and there. Internet bots accounted for 47.4% of internet traffic in 2022. Assuming that your traffic distribution reflects this rate, too, you may be wasting a significant portion of your budget on invalid traffic.
Brand Safety Risks
Imagine your ad being shown on immoral sites or forums peddling conspiracy theories. Even though your brand doesn’t share the same beliefs, people will form an association.
This is a significant risk when using an open ad exchange to buy ad space. Your ads can appear next to inappropriate content, which can damage your hard-earned brand reputation. Of course, the risk of this is much lower if you’re using a private ad exchange. However, the barrier to entry may be higher and not every advertiser will have access to it.
Lack of Transparency
With an ad exchange, the process of buying and selling ad space is instantaneous. However, as we’ve already discussed, there’s a lot going on behind the scenes. The ad exchange takes this request and matches it with the available ad inventory provided by the publisher through the SSP.
At the same time, the publisher shares their available ad space and preferences via the SSP, which then connects with the ad exchange. The ad exchange evaluates all bids it receives from multiple DSPs in real time, picks the highest one and sends the winning ad back through the SSP to be displayed on the publisher’s site.
And just like that — in milliseconds — the ad is shown to the user, and the cycle continues.
Remember, this all happens in real time. With the complex supply paths and intermediaries, it may be impossible to determine how placement and ad spending decisions are made.
Revenue Loss
Ad exchanges have made it possible for smaller advertisers and publishers to earn money. Since there’s much less human input involved, the process is highly streamlined. But unfortunately, this can also mean there are multiple ways to lose money, too.
Using an ad exchange requires platforms like the DSP, the SSP and the DMP. Using multiple platforms to run a campaign can mean you are charged a “programmatic tax.” This is the cut the providers get for letting you use their tech.
The Benefits of Ad Exchange Usage for Advertisers and Publishers
The advantages will depend on what you do. Remember the stock exchange analogy? To some extent, we can apply it here.
If you’re a broker, it will allow you to buy and sell based on your strategy with practically no waiting period for a trade. And just like for a company selling shares, the price can be driven higher if more people bid.
So, let us evaluate the perks from both sides of the transaction. When used right, everyone can win with an ad exchange.
What Are the Advantages for Advertisers?
Advertisers and agencies that seek to run campaigns will be able to achieve the following through an ad exchange.
- Access a vast, global inventory: You don’t need to build relationships with publishers to purchase ad space.
- Bid in real-time with dynamic pricing and targeting: You can adjust your bid based on who the user is, the device they’re using or when they see the ad, ensuring your budget goes where it matters most.
- Run data-driven campaigns with performance tracking: Through data management platforms, you can access real-time information. This allows you to optimize your campaign based on the latest insights.
Overall, advertisers benefit from accessibility, flexibility and accountability.
What Are the Advantages for Publishers?
Meanwhile, publishers that decide to incorporate an ad exchange into the sales process can achieve the following benefits.
- Monetize both premium and remnant inventory: Through the supply-side platform, an ad exchange can help you sell inventory at the best price possible.
- Increase competition for impressions: Even advertisers who have never heard of the publishing site can buy, and with the increased demand, you may be able to command a higher CPM.
- Create an efficient, automated revenue stream: Since the entire ad exchange ecosystem helps you access buyers, you can reliably earn from your publishing site. So, you can focus on improving your assets to attract high-quality visitors.
In conclusion, for publishers, an ad exchange can help generate revenue with less manual effort while focusing on content and expertise.
MGID’s Position in the Ad Exchange Landscape
So, here we are, a non-ad exchange telling you that there’s something even better for you out there! (Hint: we’re talking about ourselves!)
MGID may not be a traditional ad exchange, but our platform follows similar principles and retains all the benefits of an ad exchange: real-time auction-based ad serving, data-driven targeting and automated delivery. At the same time, we limit the risks, protecting your brand. So, how does it work?
MGID Runs a Closed, Native-First Ecosystem
You get direct publisher integrations, ensuring quality and brand-safe environments. Even without an ad exchange, you’ll still be able to access enough inventory for your purposes. Right now, we’re partnered with more than 32,000 websites. That’s more than you’ll ever need to run a campaign at any scale!
Although these are the same perks you’ll get with any ad exchange, there’s one key difference: we don’t just accept everyone. Before a publisher can profit from our native advertisers, they must apply and meet certain requirements.
MGID Uses RTB-like Mechanics Within Its Own System
Real-time bidding takes place within the ad exchange. At MGID, we use RTB-like mechanics. This means impressions are evaluated in real time using AI to determine the best ad for each user.
What does this mean for you? Not much! In fact, it will not “feel” any different. As an advertiser, you’ll be able to fulfill your demands quickly without sacrificing the quality of the advertisement-publishing site match.
Advertisers Can Bring Their Own First-Party Data or Use MGID’s Behavioral or Contextual Signals for Targeting
If you’re worried about the accuracy of targeting, MGID presents two solutions: uploading first-party data or using our behavioral/contextual signals. First-party data essentially frees you from the ever-growing list of restrictions related to collection. With MGID, you can make the most of the information you have already put together.
However, even if you’re working with absolutely no data, you still won’t need an exchange. We can use behavioral and contextual signals. Instead of looking at the profile of the user as the basis for whether they’ll be shown a specific ad, we look at the behavior or context. For example, a middle-aged businessman may still be shown ads for Yeezy products if he’s reading an article about an upcoming release.
MGID Doesn’t Rely on Third-Party Ad Exchanges for Supply
The more platforms involved, the greater the risk of fraud and losses. That’s why we offer a curated, vertically integrated network with a unique native inventory. For you, this means:
- Fewer intermediaries that require a cut;
- Better transparency because you know that every publisher has met certain requirements;
- Stronger accountability since we have full visibility over every part of the process instead of the black box that you get with an ad exchange.
If you want something that’s more efficient and powerful, then MGID is worth considering.
Maximize What an Ad Exchange Platform Can Do for You!
Ad exchanges, alongside the other key components that we discussed, have done a lot to make online advertising faster and more profitable for both advertisers and publishers. However, potential issues with ad exchanges, such as ad fraud, can set back any progress that you have made. That’s where MGID comes in.
MGID provides a controlled, transparent and high-performance alternative, especially for brands looking to leverage native ads without sacrificing control or quality. Sign up on MGID to get access to advanced tools, a personal manager and a department of creative specialists. Get all the perks of an exchange and maximize the earning potential of your advertisements or ad spaces with us.
