What is Ad Exchange? How Does Ad Exchange Works?

Ad Exchange is a virtual marketplace where advertisers and publishers trade their ad inventories. The publishers will be using the online platform to offer their inventories to the available advertisers. The advertisers will get an option to bid for the required impressions to reached their targeted audience.

Ad Exchange is a digital market place it allows buyers/ advertisers and sellers/ publishers to exchange the activities using the real time bidding (RTB) technology.

This technology is there from a long time to connect the advertiser and publishers using the autonomous or neutral platform. The Ad exchanges act as a bridge between the publishers and advertisers by creating a huge ad inventories from the ad network and individual publishers.

Ad Exchange has created a technology platform to regulate the prices through bidding mechanisms and it reduced the traditional approach of negotiating the inventory prices. The technology based pricing mechanism ensures greater transparency during the transaction for both the advertisers and publishers.

Here’s an article to know What is Ad Network? Types, Pricing Options and Ad Formats

How Does Ad Exchange Works?

To understand the concept of Ad Exchange and how it works, you need to look at it as a separate entity, and do not confuse with the Ad Network. Unlike Ad Networks, that gather the inventory from various publishers and create a package and sale at higher price. But, Ad Exchanges create a greater flexibility in trading. All the transactions in Ad Exchanges are driven through real-time auction and it may vary from impression to impression. Here is the example to understand the process from both the advertiser and publisher point of view.

When the visitor visits the publisher page, the publisher ad server will send request to ad exchange to serve an ad that matches to visitor’s data. Ad Exchange will run the ad selection process by sending the request to all the selected advertisers to serve an ad. Ad Exchange will select the ad that pays maximum CPM among the other advertisers. This technology helps the publishers to maximize their revenue by serving the highest paying ads.

From advertiser side, the process is slight different. Advertiser connects to multiple ad exchanges through demand side platforms (DSP) to look for the suable ad inventory. The advertiser starts the real time bidding when they required to serve the ad. The Ad Exchange will select the advertiser if they bid higher value compared to other advertisers who have participated in the auction. The advertiser will get overall control on bidding to optimally utilize their budget instead of setting the fixed price per CPM.

So, the question is how it happens in real-time? Whenever there is availability of new ad inventory, all the potential advertisers will get notified before bidding process begins. The highest bidder will win the impression and get a change to serve the ad. These action will be completed in milliseconds, automatically starts new bidding in each time. However, the advertiser will be charged per 1000 impressions.

Conclusion: The ad exchanges are serving both the advertisers and publishers using the technology. Ad Exchange is enabling both the publishers and advertisers to have a control over their activities and provide maximum transparency in the process. Due to this reason, most of the advertisers and publishers prefer to select the ad exchanges compared to ad networks. We hope you got a glimpse of ad exchanges and how it works. Let us know down in the comment section in case of any questions.