Bermel Interactive

In a previous blog post, I gave a brief overview of display advertising’s evolution from stand alone publisher sites to ad networks. This one takes a look at a 3rd element, the ad exchange.

Difference between ad networks and exchanges:

Ad Networks. The 300 to 400-plus ad networks today aggregate ad inventory from a number of publishers for sale to advertisers or agencies. In this scenario, the ad network manages the buying and selling of ad impressions which might include it’s own set of sites. For example, Martha Stewart Living – once thought to spurn ad networks – launched their own network a couple of years ago called Martha’s Circle which includes ads from MSLO as well as from related niche sites. If you wanted to buy a Halloween package from Martha’s Circle, it might have included Smitten Kitchen, Matt Bites or any other food-related sites. The main benefit to the buyer is efficiency, through single point of contact and typically lower pricing for an audience than had the buyer had to conduct individual buys with multiple publishers.

Ad exchanges are similar in that they provide access to huge amounts of media impressions in a marketplace often described as the advertising equivalent of a stock market exchange. (Click on the link for more about the stock exchange analogy.) In this scenario, there are more parties at the table: advertisers, agencies, publishers and ad networks who have open access to find and buy ad impressions at attractive prices or sell their own using the exchange platform.

Let’s say Martha’s Circle has sold out some of it’s inventory. A ‘seat’ on the exchange let’s Martha buy additional impressions to sell to customers or if there are a glut of impressions, to offer them on the exchange for someone else to buy. Unsold inventory accounts for about 40 – 50% of all ad space, so you can imagine how happy publishers are not to leave reams of money on the table.

Remnant stigma

Typically networks and ad exchanges have been associated with remnant inventory – the leftovers after the premium positions have been sold. The inherent bad rap will take some time to fade at least in the minds of brand clients (myself included) though it helps that reputable industry researchers like ThinkEquity say remnant is “more accurately described as display advertising purchased without specific guarantees as to placement.”

And why should you care if you are able to reach the audience you want at a great price that provides a good ROI on your investment and gives transparency as to the audience reached and the price per impression?

Real time

Ad exchange platforms auction ad impressions in real time. They match buyers and sellers to use the supply of ad impressions available, giving buyers control over the price they pay at a given point in time. It’s all spot market, but in the future, who knows? Perhaps it becomes a model for upfront buying, too, allowing advertisers to get the benefit of both desirable impressions and secured cost advantages.

Who’s Who: (US-centric, top 2 mentions only)

Right Media Exchange – owned by Yahoo. Yahoo is also working on their next gen display ad platform called Apt that will bring together the Right Media exchange with it’s 800+ network of newspaper partners.

Google recently announced a revamped platform for the Double Click Ad Exchange that will enable AdWords and AdSense advertisers to participate. By bringing the discipline of search to display, Google believes they can grow the display ad market. Apparently the top 25 ad networks agree as they have signed up to participate. As with so many Google announcements, their entry into the ad exchange market signals emergence of ad exchanges in the display eco system.

So what does this mean for advertisers? More choice, more complexity but better efficiency and improved transparency. Reduced reliance on publisher-based media buying. It’s all about the audience and the data. Changes the media buying role to portfolio management, requiring a new set of skills to capture and make use of the data. Goes back to the stock market analogy.

For publishers? Potentially more dollars in pockets as impressions are better ‘monetized’ but also a potential lack of control they previously enjoyed.

For ad networks: Competition, but also the opportunity to get more from their inventory with scale.

“We have all these conversations about networks vs. exchanges vs. premium publishers, and all the tension between them. And there is some tension. But to the extent you can combine, open, liquid exchange marketplaces and proprietary innovation, you can start to strip away a lot of the efficiences that have accrued.”

- Mike Walrath, Yahoo senior VP and founder of Yahoo acquisition Right Media Exchange

Clearly, the way online advertising is bought and unsold is changing. Whether you think this is good or bewildering, to take advantage of the change requires a better understanding of how to leverage all parts of the buying and selling equation(s).

What do you think? I’d love to hear from you.