what is an ad exchange

What is an Ad Exchange and How Does it Work?

Before ad exchanges began popping up, the only way for marketers to purchase ad space online was directly through publishers. This process was not very cost-effective. It was also time-consuming. As new ways to purchase advertising space online have popped up, including programmatic ads and RTB (real-time bidding) ads, so have ad exchanges. Ad exchanges have made it much easier to buy ad space that’s both more effective and more efficient. But what is an ad exchange, exactly?

What is an Ad Exchange?

An ad exchange is an online marketplace for ad space that functions as an auction. Publishers (such as website owners) make their digital advertising space available. Then, advertising agencies and marketers then purchase this ad space through the ad exchange. It’s worth noting that ad exchanges are autonomous, meaning that they aren’t on the side of either the buyers or the sellers.

While ad exchanges are simple for publishers and advertisers to use, the way they actually function can be a bit complex. When a publisher lists ad space on an ad exchange, they provide details that include the page location, audience, topics, and URL. When somebody visits the publisher’s website or mobile app, data about that user is collected. That user data is transferred to the ad exchange. The ad exchange then sends a bid request to DSPs and ad networks. Each DSP inspects the bid request and the parameters of the advertiser to decide of the impression will be relevant to the advertiser. If it is, the maximum bid amount will be sent back to the ad exchange along with the location of the advertising copy to be placed in the ad space.

The ad exchange will review all the bids, eliminating bids from advertisers that don’t meet the publisher’s requirements. The impression will then go to the highest bidder. Their copy will then be displayed on the publisher’s website in front of the user that’s visiting the website. As complicated as this process may appear to be, it takes milliseconds for it to occur.

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The Benefits of Using an Ad Exchange

The use of an ad exchange provides benefits to both publishers and advertisers. The following are a few of the advantages publishers have when using an ad exchange:

  • Establish the minimum CPMs (cost per mile, which refers to the cost per thousand impressions) for their inventory units.
  • Filter and block ads that have sensitive content or that are ads for competitors.
  • Choose the ad format and style, thereby defining what types of ads can appear on their webpage. what is an ad exchange
  • Choose where the ads will be displayed on their webpages.
  • Customize combinations of fonts, colors, and corner style. They can then apply these combinations to multiple display ads at a time.

Ad exchanges don’t just benefit the publishers. They also benefit advertisers who are buying ad space in the following ways:

  • Choose targeting options, behavioral profiling, price settings, and bidding capabilities.
  • Blacklist certain audiences.
  • Blacklist certain publishers.
  • Place limits on the number of times the same ad appears to the same user.
  • Retarget across multiple ad exchanges.

Ad exchanges are incredibly effective because they provide advertisers with a lot of control over where their ads will be seen, who will see them, and how much they are paying for those impressions. They also help you save a significant amount of time finding ad space in general. As such, ad exchanges are well worth looking into.

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Nicole Wagner
Internet Marketing Director at Stevens & Tate Marketing
The landscape of the Internet is ever changing and Nicole has the energy and aptitude to keep Stevens & Tate Marketing out in front of the pack. She leads an enthusiastic team in strategic planning, development, search engine marketing, online promotions and advertising for the web.