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Introducing the world of the ad exchange

Introducing the world of the ad exchange Grant Keller
Ad exchanges are not a new phenomenon in the online advertising world. Companies including AdECN, AdBrite, ADSDAQ and Right Media have been around for a while. However, it is the potential scale and impact of the Google/DoubleClick exchange that has got the industry interested. Like any exchange, an online advertising exchange requires liquidity, and this pairing will provide just that.

One of the things I find most interesting when reading articles about ad exchanges is trying to guess who wrote them, or at least what line of work they are in. While many things about ad exchanges are unclear, one thing is clear: our views on the value of them and whether they are likely to succeed are entirely dependent on the sector we work in.

Essentially, an ad exchange is an online service that brings together buyers and sellers of digital advertising to make the whole process faster, easier and more transparent. The service provider acts as a broker between publishers and advertisers, where they can participate in real-time auctions for digital ad space.

The main attraction of an ad exchange is that it provides an open marketplace for digital ad space that ensures -- in theory, at least -- that inventory is bought and sold in the most efficient way. Because data can be aggregated across verticals and segments, the ultimate price point of any inventory within the exchange will be an accurate representation of its quality based on tangible conversion metrics and compared to potential substitutes.

An efficient and transparent exchange where price is driven by market forces is all well and good, but will the exchange still allow the control that publishers and buyers have had in the marketplace? The answer to this is very simply yes. On an exchange, publishers can choose to sell their inventory blind, private, or branded. Which they choose will differ from publisher to publisher, but obviously branded inventory will still be able to command a premium, taking it out of the commodity area.

Publishers can also disqualify particular advertisers from whom they do not want to accept advertising (for competitive or other reasons), or make positive qualifications regarding the type of advertisers they will accept (e.g., women's interest only). On the buy side, marketers or their agencies are offered similar control.

Many from the network world feel that ad networks do everything an ad exchange does, and then some. Those from the media planning world believe that there is no way an ad exchange can deliver the result that comes from years of relationship-building within the industry. The two audiences that seem to have been fairly quiet on the topic so far are the advertisers (buyers) and publishers (sellers) themselves.

It should come as no great surprise that those with the opinions are the intermediaries, who are not sure whether to view ad exchanges as friend or foe. Ultimately, an ad exchange works in the best interest of buyers and sellers, and those intermediaries who add no value to the transaction will find themselves disintermediated.

Don't get me wrong. I'm not saying there is no role for intermediaries, quite the opposite in fact. In my view, ad exchanges provide enormous opportunities, but only for those who are prepared to evolve their business models and work to add value in an exchange world. Those who choose to ignore them do so at their peril.

So how do we add value in an exchange world, and who is best suited to deliver it? Looking at the fundamental construct, there is a buy side and a sell side. Buyers want to get the best inventory at the best price, and sellers want to make as much revenue as possible from the inventory they have available. The key point in all of this is that each and every transaction on the exchange happens in real time.

Traditionally on the buy side, what advertisers have paid for is planning and buying. There is a budget, there is a time frame, and there are objectives. Based on these factors, a plan is developed, approved and bought ahead of the campaign. This happens over an extended period of time, but in essence it is an event. This is where the value has lain, and this is what advertisers have paid for.

On the sell side, publishers have either undertaken the task of selling their inventory themselves or de-risked their business by selling it off in bulk at rock bottom prices to networks, well in advance. The sheer effort to monetise each and every single impression has simply not been worth the effort, as the process has been too work intensive to justify. The benefit has simply not outweighed the cost.

A new breed of intermediaries whose skill set is a hybrid of more traditional online planning and buying and trading desk expertise will emerge. Soft factors such as the bargaining expertise on the buy and sell sides and the perceived visibility or importance of particular publishers will be diminished in the face of hard price efficiency data.

Exactly who will view ad exchanges as a positive or negative remains to be seen. But one thing I'm sure of is that advertising will look radically different to what it does today. It will be a combination of people, processes and at the centre of it all, technology. Specialists will pop up, and over time be absorbed into the mainstream. For those of us who've grown up in the fast changing world of digital, it's nothing to fear; it's just business as usual.

Grant Keller is EMEA director, Acceleration.

Grant Keller is a Director of Acceleration, and is primarily responsible for driving the company’s growth in Europe. Based in London, he brings a passion for online marketing into the workspace, helping companies to make the most of their...

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