#5 Concept Series : What is the difference between Ad Exchange and Ad Network
Online Advertising is the currency that keeps major publishers, networks and search engines, well oiled and running in the current internet world. It offers innovative ways to target millions and billions of connected users and is increasingly trying to extract higher share of advertisers’ budget, which for decades has remained locked to traditional TV and print channels. Today, online advertising controls over $100 billion in annual marketer’s spend, and includes marketing campaigns through email, search, social, display and more recently mobile . Among online channels, search remains as the chief revenue contributor with display, fast emerging to challenge traditional channels and garner higher share of advertising budget. Overall, advertising ecosystem is evolving fast, led by expanding breed of Ad networks, Ad Exchanges, DSPs, DMPs and SSPs, and remains amongst most researched and innovation led industry sectors.
Digital Advertising Evolution
In the early days of online advertising, as demand grew both publishers and advertisers sought ways to efficiently manage their buying and selling needs. While publishers wanted to increase revenue, advertisers struggled to make their campaign reach growing audiences. Beginning 90’s, industry saw emergence of online trading platforms to solve bulk ad buying and 
selling needs, ability to create inventory tiers, manage transaction complexity and bring more transparency in the system. Advertising operations also underwent changes with internal sales team giving way to agencies, contextual giving way to behavioral targeting and manual to programmatic way of buy and sell. On the flip side, there has been controversies related to privacy, loss of revenue realization (due to growing number of intermediaries) and concerns on quality of inventory. Today the stage is getting set for programmatic buying and selling covering transactions across all channels inclusive of direct, remnant, auction, premium and non-premium inventories. A recent survey predicts increased uptake of marketer’s buying using Real time bidding (RTB) offered by Ad Exchanges and DSPs in their overall ad budgets. The Online Advertising landscape continues to evolve to meet advertisers and publishers requirements. Advertisers need for efficient and cost effective media buys meeting their campaign goals, and publishers needs for media sell by seeking rightful pricing of sold inventory.
Evolution of Ad Networks
Traditionally, ad inventory was sold and purchased through internal sales teams which made confirmed buys against specific inventory. While the model provided comfort to review and predict, it faced major challenges as the volumes grew, and volumes grew faster than expected. Publishers had difficulty engaging with multiple advertisers to sell, while advertisers faced similar bottlenecks to reach multiple publishers. Meanwhile, industry also witnessed gross fragmentation, dispersed audiences, growth in connected devices and expanding role of networks. Beginning 2000, web saw rapid expansion of news, user generated content, bogging and social networking sites, adding complexity for both advertisers and advertisers to manage inventory. The environment was set for emergence of technology providers to aggregate, categorize and offer inventory to run optimized campaigns. and Ad Networks were born!
Evolution of Ad Exchanges
While Ad networks provided a platform to simplify selling and buying of inventory, publishers still faced challenge of large unsold inventory, which they had to offer for a faction of premium inventory sell. Similarly, advertisers could make bulk buys but lagged transparency and budgeting flexibility. Growing need to target specific audience profile increased the case for behavioural targeting, coupled with management of unsold inventory, and a new platform category emerged – Ad Exchanges. Ad exchanges enabled publishers to command market price for their unsold inventory and advertisers to target identified customers. Nowadays, large publishers and even group of small publishers have ad exchange created to auction off their unsold inventory to multiple buying platforms using RTB protocol. Advent of ad exchanges has brought technology to allow buyers and sellers to value inventory on an impression-by-impression basis, has reduced number of players and lowered administrative overheads for buy and sell.
Difference between Ad Network and Ad Exchange
| Category | Ad Network | Ad Exchange |
|---|---|---|
| Definition | An online arbitrage platform, which aggregates publishers’ inventory, segments it (geo, age, gender etc.) and sells slices of it to advertisers / agencies. A controlled marketplace between buyers (advertiser), sellers (publisher) and ad networks. | An Online marketplace where publishers, advertisers, agencies, ad networks, DSPs can buy and sell ad inventory. It works by auctioning each impression to the highest bidder. |
| Key Innovation | Platform met growing inventory buy / sell needs of advertisers and publishers. Innovated mechanism to offload unsold inventory, bring efficiency and transparency. Publishers - Sell inventory across advertisers and other networks. Sell unsold inventory, deliver creative across websites. Advertisers - Got inventory across range of publishers, enabled to reach mass audiences and efficiency to coordinate ad campaigns across sites. | Improved transparency and targeting with real data by auctioning each impression in real-time between multiple bidders. Reduced cost of operation by direct buying and removal of intermediaries. Publishers – Helped maximize value of impression by providing best price under competitive bidding. Advertisers – Enabled data driven decision making for ad buying, budgeting and targeting. Ability to target consumer based on rule settings with provision to define maximum bid value for given impression. Offered flexibility to budget spends. |
| Inventory Category | Non-premium / remnant inventory. | Non-premium / remnant inventory. Mostly used today for the lowest denominator ad formats. |
| Ad Target | Follows bulk buying and selling. Predominantly contextual | Follows per impression buy and sell. Predominantly Behavioral |
| Key Players | Google's AdSense, Yahoo Publisher Network, AOL’s Advertising.com | DoubleClick exchange, Yahoo Right Media, OpenX Market (OpenX), AdECN (Microsoft) |
| Pricing | Negotiation based on media inventory | Market/Competition led Real time bidding |
| Key Challenges | Introduced new intermediaries (unsold inventory sold to other networks), complex transactions, overheads and lesser share from same ad dollar. Publishers – Increased time & effort to sell and deliver. Less transparent, inability to optimize inventory for best advertisers. Advertisers - Increased time & effort to buy and track ads. Limited view on quality of inventory and its performance. | Struggles with the problem of low quality inventory and often caters to lowest remnant inventory. Offers limited potential for rich media buying and selling. Publishers - Revenue potential remains challenging Advertisers - Quality challenges with large number of publishing sites associated with low quality. Need for semantic filtration to verify/compliance of ad servicing. |
| Transparency Quotient | Often referred as blind networks with limited transparency Publisher : Little knowledge on who is buying and at what cost. Advertiser : Little transparency on who see the ads. | More transparent compared to Ad Networks for both publishers and advertisers Publisher - Knowledge on who is buying at what cost, helps optimize inventory. Advertiser - Impression level data to target users |
Download comparison between Ad Network and Ad Exchange
While ad exchanges have not decimated ad networks, which continue to play an integral role in bulk buy/sell strategy, ad exchange have brought more transparency and flexibility. Ad networks and Ad exchange play specific roles and co-exists together as industry endorses programmatic and automated ad exchanges.
