What is an Ad Exchange?

The Ad Exchange is like a broker that runs auctions for ad inventory from various publishers. This is  done one impression at a time via RTB. Ad Exchanges also facilitate Programmatic Direct deals that happen at the level of a fixed set of impressions. As per research by eMarketer, bulk of the volume is driven by RTB.

Ad Exchanges in the Programmatic Eco-system

Ad Exchanges aggregate inventory from publisher sites/apps at large scale (refer to figure below). They contain large pools of inventory for Display (mobile web, in app and desktop web), Video, Social and Native. Ad Exchange’s customers are DSPs.

The detailed flow of how an impression is auctioned can seen in this article on RTB.

Mechanisms for Inventory Access

There are two broad mechanisms for advertisers to access inventory served by Ad Exchanges –

• Private Marketplace: This refers to a deal under which premium inventory is exposed only to a preferred set of buyers. Large publishers prefer this mechanism as it allows fixed pricing and guaranteed inventory consumption. From a buyer’s perspective, this provides better access to premium inventory e.g. The Economic Times. Premium inventory is important to eliminate issues such as brand safety and assured visibility. However, the ROI of this inventory is usually lower because of higher cost.
• Open Exchange: This inventory is exposed to all buyers across all DSPs. Publishers first deliver direct campaigns and private marketplace deals. Thereafter, the remaining inventory is made available in this category. From a buyer’s perspective, this provides access to reach and scale against the target audience. Ad Exchanges implement brand safety algorithmically for this class of inventory. This creates a finite, albeit low, probability of  brand unsafe impressions creeping in delivery.

Some prominent Ad Exchanges are – AppNexus, Pubmatic, Rubicon, OpenX, Google Ad Exchange, etc.