Ad Networks v Ad Exchanges: A beginner’s guide

Ever wondered about the differences between Ad Networks and Ad Exchanges?  Here’s a quick overview.

Internet Audience

Unlike TV or radio (broadcast) adverts that will be seen by lots of people viewing or listening to the same channel or station, internet audiences are spread across an incredibly diverse and large number of websites, large and small.  While broadcast advertisers can predict the popularity and ranking of the shows fairly accurately, and know exactly what time their adverts will be transmitted, internet viewing happens around the clock so it is hard to predict when a person will browse a certain site, or how many might be on a particular site at any given time. Media analysts refer to this as a ‘fragmented audience.’

Ad networks

Ad networks were set up in the late 1990s to address the problem of getting adverts to be seen by large numbers of people viewing on wide spectrum of sites.   Advertisers wishing to reach lots of people could not easily do a deal with hundreds of website owners that have millions of viewers, or reserve advertising space on many different websites.

Advertising networks ‘aggregate’ the inventory (the space in a site where adverts are shown) from many websites and offer that space to advertisers.  Often this is done by working with an advertiser to offer a certain amount of views on websites in their network (cpm).  The advertisers determine how much they wanted to pay for how many views and the networks place the adverts.  The adverts are often known as a creative, and the amount, price and preferred placement of ads is called a campaign.

The key thing here is that the ad network has to forecast the amount of space (or inventory) that will be available and negotiate rates in advance of when the adverts will be shown.  The companies have to agree to a certain amount of inventory at a given price for a set period.

Ad networks are now less likely to be used exclusively, as the inefficiencies of pre-selling (shortfalls/surpluses) make it a fast outmoded method of selling advertising.

Ad networks can be placed, broadly, into one of 3 categories:

  1. Representative – the ad networks buy all the inventory from a select group of publishers e.g Glam, Federated Media, Gorilla Nation.
  2. Vertical – ad networks that specialize in buying/selling inventory in a narrow interest field (e.g. healthcare, fashion, pets etc.) e.g.  Gourmet Ads, Fidelity Media, Dogtime Media.
  3. Targeted – lets advertisers buy inventory by audience type (demographic, interest, context) or by transaction type (clicks vs views etc.) e.g. Adsense, Conversant, Casale Media.

Some networks operate across the categories, particularly to sell un-reserved or un-sold inventory.

In summary, an advertising network is a way of placing adverts, in advance, on single or multiple websites in a networked arrangement.

Advertising Exchanges

Due to the number of potential intermediaries (and reselling of unused inventory cheaply), the ad network methodology is fading away — it’s inherently inefficient.  Ad exchanges are now gaining ground because they minimize losses caused by these value chain inefficiencies. They do this by auctioning the inventory and making it available to advertisers in real time.  The transaction takes place in an instant , while the page on which the advert will show is loading, and goes to the highest bidder every time in a fraction of a second.   This process is know as ‘real-time bidding’ (or RTB.)  When a visitor to a site loads a page, the ad exchange runs an auction between all advertisers competing for the inventory available on that page.

Ad exchanges reduces the number of parties in the ‘value chain’ to a single point of contact between the publisher and those buying the space.  It also provides data that allows advertisers to compare the ‘quality’ of the inventory, allowing the best price to be paid for the best spots, on websites that do well for a particular type of advert.  So the publisher gets the best price while the advertiser gets the prime spots on the best performing websites. Because this process happens in real time, it allows advertisers to measure how effective their strategies and campaigns are, and react quickly to alter their bids to improve results.

Examples of Ad Exchanges are Google’s Double Click Ad Exchange, Yahoo Ad Exchange, Turn, MediaMath, Criteo, Trade Desk, Rubicon, Rocketfuel and OpenXMarket.

So – what is the difference?

In an ad network inventory tends to be offered in advance, with numbers of impressions decided along with the price, and requires a good deal of planning involving many intermediaries and partners.  Unused inventory is often resold at a low price.  An ad exchange, on the other hand, offers space for sale on a competitive, real time basis and the prices paid are more reflective of the market value of the inventory.  This results in more realistic prices and less unsold inventory.

So, the main difference is the way advertising inventory is offered for sale.  In a network there is a manual process of negotiation, while in an exchange, an online, automated, real-time auction takes place.

Which one is right for me?

Ad Exchanges operate a much more efficient marketplace, especially now that buyers are using better software to find better quality ads.  They will usually sell your ads for a better rate, but they operate within quite complicated systems with lots of publishers’ ads for advertisers to choose from.  Ad networks are more straightforward and manual, but are slowly losing market share to ad exchanges (in fact most vertical ad networks are now moving towards becoming private ad exchanges).

Pick your partners carefully; you need to make sure your site’s ads get offered to the most bidders, whether those are fixed prices, or bids.  So if you use an ad network exclusively (for selling all your ads), try to chose one that will list your unsold inventory on an exchange for you after they fill your premium slots.  Your ad rates ultimately depend upon the profile of your site’s visitors and their propensity to buy things online (your overall ‘traffic quality’) — but that’s something for another blog!