This is the second article in an exclusive series that explores the complex world of Programmatic Media Buying. If you’d like to suggest a topic, please email us.
Media Buying 101: Ad Networks and Ad Exchanges
In the first installment of this series, you got a quick primer on Programmatic Media Buying. We talked briefly about how programmatic, ideally, makes our lives as media buyers easier.
But the evolution of the ad buying process towards programmatic through the years involves a multi-faceted ecosystem of exchanges, servers, data suppliers, and so much more. Together, all these technological cogs come together to make up the complex programmatic machine (and now-a-days, they can also come in one convenient platform).
Let’s take a step back and talk about this evolution, beginning with Ad Networks and Ad Exchanges. What’s the difference? How and why did they first develop and how have their roles changed in today’s programmatic ecosystem?
In the early days of the internet as the digital advertising industry grew in complexity and volume, advertisers found it difficult to maintain efficiency with their direct media buys. Running ads across hundreds of advertisers could be seriously vexing – how does one communicate negotiations, renegotiations, and changes to ads effectively enough to boost reach on more than a handful of publishers? Publishers, on the other hand, ran into the trouble of not being able to sell their remnant inventories and maximizing their real estate efficiently.
What is an Ad Network?
An Ad Network is a company that aggregates available ad space across a large collection of publishers (websites), marks up this inventory and sells to advertisers. Some examples of large Ad Networks include Google AdSense, Media.Net, BuySellAds and Conversant. Based on the aggregated data, they forecast the amount of publisher inventory available for purchase by advertisers who then purchase based on these predictions. Inventory wasn’t sold in real-time in the beginning, although this has changed a great deal as more networks adapt towards programmatic (AdvertisingAge).
Think of Ad Networks as the real estate agents of the digital ad world. Larger publishers often sell all their remnant (unsold) ad inventory through ad networks. Smaller publishers might sell the majority, if not all, of their inventory through networks.
A simplified version of the Advertiser-Network-Publisher relationship.
So What Types of Networks Exist?
Targeted Networks are armed with audience targeting technology that tracks behavioral and contextual data. These networks enable advertisers to serve their ads to specific audience segments. Advertisers can buy their audiences by contextual data (e.g. publishers that run material on specific categories), demographic data (e.g. age or gender), or by their audience’s behavioral interests (e.g. interest in football).
Blind Networks allow direct advertisers to buy inventory at lower prices as a result of bulk purchases of remnant inventory from publishers; however, advertisers might lose some control of where their ads are served.
Vertical Networks, like the name implies, specializes in representing publishers of specific niches.
Today, such characteristics are not exclusive to each type of network and many overlaps in terms of technology and strategy (Openx).
The bottom line benefit of Ad Networks?
Ad Networks help advertisers extend their audience reach by brokering higher volumes of ad placements across more publishers in a more targeted manner since publishers are well categorized by Networks. Running direct buys alone, at high volume, was not sustainable, especially for advertisers trying to scale up. Considering the number of direct buy relationships they would need to maintain, Ad Networks helped to simplify the upkeep of these relationships.
For publishers, Ad Networks enable them to sell their (often non-premium, remnant) inventory efficiently. For smaller publishers, Ad Networks help connect their supply to a broad base of advertisers on the demand side. But of course in all this, the networks take a share of the profits.
Over time, more Ad Networks entering the marketplace meant an increase in competition and problems with inflated prices for inventory. Some networks started to complicate the landscape by aggregating ad inventory from other networks and selling these, in addition to the inventory they aggregated themselves.
Networks buy and sell inventory among themselves and pass this along to advertisers.
If there were only a few networks in the world brokering the relationships we see in Figure 2, cost issues when buying/selling ads through networks would be a non-issue. But, alas, this is not the case. As more networks began to sell inventory between themselves (and between other intermediaries involved in this ecosystem), each mediator takes a cut out of the ad buy/sell happening between publisher and advertiser.
As a result, networks that were unable to sell some of their inventory might offer it on the cheap to another ad network, which might do the same.
What’s the problem?
First, an ad call might go through a dozen networks before finally being served which can slow down the time it takes to serve it. Added to this is that each of these mediators selling and reselling inventory takes a cut of the publisher’s margin, reducing their profits.
Moreover, ad inventory predictions made by the networks could have inconsistencies on a month to month basis (and between networks), meaning that networks could over or under sell on inventory. Note that networks historically purchased ad inventory in bulk rather than in real-time on a CPM model. This in turn affects both publishers and advertisers who are given inaccurate demand and supply data.
For advertisers, there is a lack of transparency when it comes to their ad pathway. Knowing exactly which ad is being delivered through which final network and on which publisher could be rather convoluted, making it difficult to measure results and to optimize.
The same transparency issue plagued publishers as well since they often could not identify which advertisers were making the final placement on their site. Unable to pre-emptively screen out low-quality ads and advertisers, could potentially hurt the credibility of a publisher.
Enter the Ad Exchange!
Ad Exchanges were an innovation in the digital ad landscape to combat some of the complexities and inefficiencies of the ad buying process.
An ad exchange, like DoubleClick (Google), Microsoft Media Network, OpenX, and AppNexus, is a marketplace that auctions ad impressions in real-time, among multiple bidding advertisers and/or networks and sells the impression to the highest bidder. You can think of them as digital stock exchanges where impressions are shares. The auction takes place and the winning ad is served within the milliseconds it takes for your browser to load and serve you an ad impression (DigiDay).
The diagram above demonstrates how the ad exchange acts as the intermediary between
networks, advertisers, and publishers
The bottom line benefit of Ad Exchanges?
For advertisers, the key innovation of ad exchanges is that they offer considerable increase in transparency, control, and targeting capabilities. They allow advertisers to serve ads to the right viewer, (based on behavioral targeting), at the right time of day, on the right publisher. Budgets can be kept in check and tracking where your ads are served is simplified. They allow advertisers to know which ad space is best to repurchase on and how best to optimize (AdAge).
For publishers, this means the value of impressions shown on their site can be maximized through bidding, boosting the CPM and their own profits as opposed to an opaque system of selling and reselling. And it’s easier to know who is buying their inventory and at what price.
For networks, exchanges also function as an impartial intermediary where networks can trade ad inventory between themselves.
With ad exchanges entering into the fray, we move away from selling inventory in bulk and in advance, towards a real-time auction-based model where ad impressions are served immediately once sold.
Private exchanges also exist and are employed by publishers to tightly control the cost of their inventory and who can buy it (AdAge). Private exchanges help publishers limit the number of parties involved in the auctions for their inventory. An open exchange enables just about anybody to purchase inventory.
Will Ad Exchanges Supersede Networks In the Future?
The answer to this depends on who you ask. But many agree that with the rise of programmatic media buying technologies, ad networks are on the decline. ExchangeWire reports that 45% of all online display ads are bought and sold with programmatic technologies as of 2014. In the UK, trends indicate that ad networks’ share in the overall display market have dropped from 22% to just 6% between 2013 and 2014.
But ad networks are not going away any time soon and the mobile market is still booming. Ad exchanges, along with the multitude of other technologies that have entered into the digital advertising landscape, have forced networks to adapt and change to meet the needs of clients who demand more control, more transparency, and more data from every impression and every click.
As we shift into a fully Programmatic driven environment, the dynamics of the digital advertising ecosystem are definitely changing. Involved in this evolving ecosystem are also multiple other entities including DSPS, SSPs, and DMPs. And don’t forget about the deeper complexities of RTB (real-time-bidding). But we’ll explore these in the upcoming installments of our Media Buying 101 series – stay tuned!