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The Basics of Ad Exchanges

Online advertising space has become the primary way for websites to make money. At the moment, 35-40% of advertising transactions occur directly between publishers and advertisers. Industry experts forecast that the volume of ads purchased through ad exchanges will surge in the future. While eMarketer analysts like Lauren Fisher have lower estimates, some industry experts expect it to rise to as much as 90%.

Basic Online Advertising Terms

Website owners who sell advertising space on their websites are called publishers. Google, Facebook, Wikipedia, and Amazon own some of the most of the popular online sites available for advertising. When posting online content like e-books, whitepapers and blog articles, publishers reserve page sections for various formats of advertising, including pop-ups and banners. Since website ad space is the product sold by publishers to advertisers who want to insert their ads there, it is often referred to as inventory. Ad exchanges enable ad inventory to be purchased on many sites at the same time; they coordinate online auctions of advertising space between buyers and sellers.

Why Ad Exchanges?

Advertisers optimize their ad costs by dealing with publishers whose content is aligned with their target market. It is possible for publishers to directly contact advertisers for an inventory sale, but it is a time-consuming and tedious task requiring sales staff and is done only for premium ad spaces that sell for high prices. In all other cases, ad exchanges are preferred.

Early on, people negotiated each transaction in the initial ad exchanges. They dealt with less valuable online spaces of no interest to premium advertisers, or "remnant inventory". Gradually, online ad networks became fully automated for higher efficiency, to serve the demands of large, national advertisers. The ad exchange inventories are now on par with those that are direct buys.

Ad Exchange Platforms

Ad spends are increasingly moving to ad networks, thanks to new technology-based platforms. When the target market segment is narrow, such as affluent parents living in a specific geographic range, it is difficult to have a wide reach by using a single ad network. The ROI does not justify the ad costs. Vantage Local has created a platform to offer one-stop ad space shopping. In this way, businesses of any size can purchase from many exchanges simultaneously.

Once you understand the working of ad exchanges, their place in the online advertising landscape and their contribution to a marketing mix, you will gain confidence in your advertising strategy where a proven agency will look after the details, leaving you to focus on running the core business.

Leslie Van Zee is passionate about entrepreneurship and understanding what makes small businesses successful.  An avid fan of lean startups, she makes sure to get out of the building as much as possible in her role as manager of marketing...

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