Open exchanges vs. private exchanges: Which is right for you?

Open exchanges vs. private exchanges: Which is right for you?

By: Cortland J. Fondon

With spending on programmatic advertising estimated to rise 74 percent this year, digital publishers need to become familiar with resources of the ad exchange market.

What is an ad exchange?

An ad exchange is a digital marketplace, commonly used to sell display, video and mobile ad inventory. Ad exchanges enable advertisers and publishers to buy and sell advertising space, often through real-time auctions.

An ad exchange is a virtual marketplace where publishers and advertisers buy and sell online display inventory, video and mobile ads. Offers and sales are made through real time auctions, with advertisers bidding on ad impressions, based on the value they assign a viewer. Buy decisions are driven by criteria such as previous behavior of the user in response to an ad, type of device, and ad position.

More and more online display inventory is being purchased via ad exchanges than ever before, with a special premium placed on retargeting. Retargeting tags viewers who’ve left a website unconverted and then presents an ad to entice them to make a purchase.

Exchanges have proven convenient, effective and efficient—they empower the simultaneous purchase of ads across multiple sites, eliminating negotiations and, in the case of open exchanges, the requirement to buy directly from an individual publisher. Exchanges are reflective of the rapid evolution of programmatic and automated advertising.

With programmatic advertising spending increasing steeply this year, digital publishers can’t afford to ignore the bustling ad exchange market. Nowhere is this dynamic expansion more apparent than in the rise of the private ad exchange and differences between it and public ad exchange.

Open exchange v. private exchange

The public ad exchange is akin to a virtual auction place, with buyers bidding on the billions of ads that flow through daily. They’re operated by such behemoths as Google, Yahoo, OpenX, The Rubicon Project, and AppNexus. With over 70 billion impressions daily flowing through open exchanges, policing them has become increasingly difficult. Perhaps 50 percent of their content is from bogus operators, fraudsters, robots or of terribly low quality. Growing discontent with them has helped fuel the growth of private exchanges.

Private exchanges are far more staid and controlled environments, typically run by major publishers or a group of them, with ads sold through carefully selected agencies or advertisers using trading desks and demand-side-platforms (DSPs) the private exchange assures:

  • Full transparency of buyers
  • Publisher control
  • Premium inventory
  • An editor who’s a technology vendor, not a commercial middleman

Open Exchange or Private?

If you’re considering having a private exchange, first ask yourself what’s unique about your data that would bring buyers to you? Buyers have many programmatic choices. “Publishers,” said Yieldex CEO Andy Nibley, “need to be able to show brand advertisers why their inventory is valuable and should command a higher price.” A private exchange is probably the safest environment for your first party data, but you’ll need to offer premium, realtime biddable data distinctly better than the less costly third party data offered on the open ad exchanges. Only when you have this quality in place should you go forward with a private exchange. Notes Pubmatic president Kirk McDonald, “Data is the critical piece.”

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