Online advertising began as, and still is, a way for publishers to monetize their content so that users can access their content for free. In the earlier days of the internet, publishers sought ways to sell the unsold inventory that remained after selling through direct deals. This led to the creation of ad networks. However, as time went on and the demand continued to grow, ad exchanges emerged as a way for advertisers to create highly targeted ad campaigns. Both ad networks and ad exchanges co-exist as essential components of today’s digital advertising ecosystem, which is why most advertisers use a blend of both in order to reach the widest audience.
What is an Ad Network?
Online ad networks are companies that act as an intermediary to efficiently organise the buying and selling of ad inventory. This is achieved by aggregating ad inventory supply from publishers and matching that supply with advertisers’ demand. Advertisers are somewhat able to target specific audiences as inventory is typically segmented into categories, such as gender, location or age. Because of this, campaigns that run often involve running run-of-category ads or run-of-network ads. An example of an ad network is Google AdSense.
FACT: The first ad network, WebConnect, was launched in 1995.
How do Ad Networks work?
For online publishers, although ad networks typically yield less revenue than direct sales, they are an easy and reliable way to sell unsold inventory. Ad networks are beneficial to advertisers as they are an easy way to target a large group of consumers.
So what’s an Ad Exchange?
Ad exchanges are digital marketplaces whereby publishers, advertisers, agencies, ad networks, DSPs (Demand-Side Platform) and SSPs (Supply-Side Platform) may purchase and sell an open pool of ad inventory directly, without the need of an intermediary. This process is completed through automated real-time bidding auctions whereby advertisers compete for highly targeted inventory , which is sold on an impression basis. A DSP is an interface whereby advertisers can manage, purchase and optimize programmatic inventory from ad exchanges or SSPs. An SSP is an interface whereby digital publishers can manage and monetize their own ad inventory. Some examples of ad exchanges include Google Ad Exchange and AppNexus.
Through the use of ad exchanges, publishers are able to maximize their revenue. Advertisers benefit from ad exchanges as they are able to maximize the value of their ad spend by specifically targeting certain demographics.
How do Ad Exchanges work?
Generally, available inventory is posted into the SSP of an ad exchange in the form of impressions. Publishers are required to specify the minimum price they’re willing to sell it for, known as the ‘floor’ price. Similarly, advertisers are required to submit their maximum cost-per-impression for inventory which satisfies all their pre-selected criteria. The DSP then submits bids through real-time bidding for the available ad inventory and the SSP receives these bids and the highest bidder is determined – this process takes milliseconds. The ad that corresponds with the highest bidder is then displayed on the website.
What is the difference between Ad Networks and Ad Exchanges?
Although the lines can seem a little blurred as both systems share a similar purpose, ad networks and ad exchanges operate differently. With regards to auctions, ad exchanges only utilize real-time bidding, meaning that the pricing is always competition-led, whereas ad networks always determine the price of ad inventory sold. The process of purchasing inventory is more transparent through an ad exchange as advertisers can specify certain parameters around where they want their ads to show and to who, meaning that they are often willing to pay higher prices for these impressions.
Ad exchanges enable advertisers and publishers to confer with one another directly to reach terms regarding the type of ad inventory being traded. Conversely, ad networks sell exclusive, pre-segmented ad inventory for serving to particular audiences at a higher price. Ad networks are considered as less transparent as advertisers do not know which websites their ads will serve on, and publishers are unaware of who has purchased their ad inventory. Though ad networks brought efficiency to the buying and selling of ad inventory, ad exchanges can be considered as the evolution of an ad network.