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Is an ad exchange right for you?

Tim Surowiecki
Is an ad exchange right for you? Tim Surowiecki

Online media buying has always been a challenge (read: inefficient mess) as marketers continuously seek the best placements for reaching their target audience by working with multiple publishers to negotiate rates and manage results across a range of different web sites. And this all happens while dealing with IOs, signatures, terms & conditions, and faxes.

This administrative hassle has been eased in recent years with the evolution of ad networks, which provide more convenient access to a group of publishers through a single point of contact. But ad networks still have their share of well-documented problems -- namely high CPM mark-ups and sketchy website distribution. In their wake, a new platform has entered the scene, and is poised to revolutionize the media buying landscape as we know it.

Enter ad exchanges, the "supposed" future of online media buying. But are they?

Online ad exchanges take their cue from search marketing's auction bid model of aggregating the entire universe of advertisers, publishers, and networks within a single platform. This allows for centralized placement, management, and optimization of display buys across any number of online publishers.

Through an ad exchange, advertisers and agencies can determine what CPM or CPC they are willing to pay for a target site, then bid for that CPM/CPC to reach the audience without the hassles of negotiation. This is done while accessing broader, cheaper inventory without the significant ad network markup. At the same time, exchanges provide better website transparency, not to mention an ability to assess and adjust campaigns on the fly.

All of this adds up to a more flexible, more intuitive environment for online media buying that has the potential to maximize both dollars spent and ROI. And the major players are already getting in on the action. Microsoft, Google, and Yahoo all have media exchanges under their advertising offerings and are now in the process of rolling out the next generation of exchanges with real-time bidding, which is seen as the holy grail of media buying.

But ad exchanges are still relatively uncharted territories for most, which means they come with a host of still-unknown variables. So should you attempt to conquer this wild west of the online advertising landscape? Here's a look at some pros and cons.

The good

  • Zero negotiating, waiting, or administrative hassles. By offering constant campaign analytics and reporting, exchanges are making the process of media buying more streamlined than ever before. In a traditional media buy, it can take dozens of steps (and weeks at a time) to plan, buy, and launch a campaign in order to achieve the desired results. Exchanges allow campaigns to be planned, bought, and launched all in a matter of minutes.

  • Price transparency with no markups. Still mastering the art of negotiation? Forget about it. Ad exchanges essentially allow you to name your price. What you're willing to pay for a CPM is exactly what you'll pay in an exchange; no more, and no less. This allows you to purchase individual impressions in the most efficient way. Do the math, determine what an impression is worth to you, and then buy it. It's as simple as that.

  • Flexibility. Exchanges allow advertisers to instantly modify their campaigns based on results of what's working and what's not. No more haggling over 14- or 30-day out-clauses. Now you're looking at minutes now instead of days.

  • Site transparency. Exchanges, in most cases, allow you to define exactly where you want your ads to run and at what time and frequency. This is a huge shift in mindset from ad network methodology, which relies on a fuzzy list of sites you "may appear on."

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The bad:

  • Too much information. Ad exchanges offer so many sites, targeting options and flexibility that it's easy to get overwhelmed. While this new model can offer more efficiency, there is exponentially more effort involved in doing so. Be prepared to spend time on managing your campaigns.

  • Too much choice. Ad exchanges put the entire world of online advertising at your fingertips, which means you'll have an endless array of possible targets, ad types, categories, websites, and more. It can be tough to know the difference between these various ad offerings and zero in on what will truly deliver the metrics you want. There's the potential to test, test, and test some more, without ever really figuring out what's working and what's not.

  • Too much unknown. This is still a relatively new and untested distribution channel, so you will need to determine up front how much you're willing to spend (both in time and money) to learn about it. Make sure to manage daily budgets, and establish some well-defined metrics before you get started, such as cost-per-action or return on advertising spending. This will help you take advantage of the opportunities that ad exchanges present, without burning through your media spend in a matter of days.

Still not sure? Don't worry, you're not completely alone in this; a host of tools and services in the "demand side" world are available to help guide you through the process. There are platform providers, such as AppNexus and AdReady, that connect you with pre-built tools and help you take advantage of exchanges. Just be aware that they will take a percentage (usually a minimum of 10 percent) of your spend as payment.

And if you really want to test-drive an ad exchange but simply don't have the time to lead the effort, there are companies, like MediaMath and DataXu, that will help manage and optimize your campaigns to manage target CPMs or CPAs and have developed intelligent algorithms to buy inventory on your behalf. But keep in mind that while this can be a much more efficient option, it has a high barrier to entry because these companies typically require a test budget that starts at $25,000.  

At the end of the day, ad exchanges offer unparalleled opportunities and are an absolute must-test for most marketers. But it's important to remember they are not a cure-all for marketing woes. While they must be approached with careful consideration and a degree of caution, they also offer an exciting new avenue of untapped, unlimited opportunities. It all lies in how you use them.

Tim Surowiecki is, director of media services at iMarketing LTD.

On Twitter? Follow iMedia at @iMediaTweet.


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