How Ad Exchanges WorkOnline advertising inventory, as the main means for monetizing most websites, has become a widely traded commodity on the internet.  While currently between 35-40% of advertising transactions are directly between publishers and the advertisers themselves (for example, GM buying advertising directly on the Yahoo front page), some experts in the industry predict volume of ads purchased through ad exchanges will soar to 90%.  eMarketer analyst Lauren Fisher is less optimistic, but she also sees significant growth in the volume of ads that will be purchased through ad networks in the future.

In order to understand how ad exchanges work, it is first important to understand what they are and how they fit into the landscape of online advertising. Ad exchanges are a means of getting ads placed and they can take different forms. They are quite similar, in the mechanics of how they work, to paid search.

Ad exchanges are a technology that coordinates online auctions of advertising space between buyers and sellers of this space. When a publisher posts content online, sections of the page are saved for the insertion of advertising, in different formats like banners, pop-ups or one of many others formats.  The space on websites is sometimes referred to as inventory, as these spaces are the product that is sold by publishers and bought by advertisers who want to place their ads in that space. Publisher is the term for website owners selling space on their site. They are called publishers because they publish content (e.g. blog articles, white papers, ebooks, etc.). The most popular destinations online are owned by a handful of publishers like Google, Facebook, Wikipedia, and Amazon.  Advertisers look for publishers whose content is aligned with their target market to optimize their ad spending.

Publishers can contact advertisers directly to attempt to sell them space to display their ads on the publisher’s website. While this is certainly an option, it is very time consuming and requires website owners to have sales people on staff to do this. Some publishers choose this route for some of their premium space that is easier to sell and use ad exchanges for other space. This is where ad exchanges can be a good addition to the marketing mix.

Online ad networks are completely automated, unlike the old system of human beings negotiating each transaction. This automation is supposed to bring great efficiency, but many people believe it has unintended consequences. In the early days of ad exchanges, inventory that was allocated to exchanges was called “remnant inventory”, which meant it was the less valuable spots that prime advertisers were not interested in buying.  But, as large, even national, advertisers demand more automation in the ad buying process, the inventory made available through them has improved and now is comparable to what can be purchased as a direct buy.

One way technology is helping hasten the migration of ad spending to ad networks is the creation of new platforms. For example, if you are trying to focus on a narrowly defined audience, like affluent parents living in a specific geographic range, the reach for any one ad network is pretty low, making it necessary to utilize several exchanges. For this reason, Vantage Local created its own platform that allows us to purchase from many exchanges together, giving businesses of any size one-stop shopping.

Now that you understand the basics of what ad networks are, and how they work, you are better equipped to focus on your strategy with the confidence that a good agency can handle the details for you, while you focus on running your business.