Rising search marketing costs, rich media and targeting advances and a re-emphasis on branding are infusing online media with new energy today. One of the most substantial concepts driven by this energy is the new model for buying and selling online ads: the online ad exchange. These exchanges introduce an ad sales model that serves both ad buyers and sellers by opening access to inventory and pricing based on market demand.
Shar VanBoskirk, principal analyst, Forrester Research
What is an online ad exchange?
Forrester defines an online ad exchange as ‘An automated marketplace that connects advertisers to desirable inventory at a price advantageous to both ad buyers and sellers.’
One may confuse online ad exchanges with ad networks, because both facilitate online media buys between advertisers and publishers. However, there are key differences between the two. Although different flavours of exchanges are emerging, a company can be called an exchange if it:
• Enables marketplace pricing. The fundamental trait of an exchange is that it creates a universe where supply and demand determines the price for ad inventory. Most exchanges also manage relationships between participating buyers and sellers.
• Provides a technology platform to support its marketplace. The other key characteristic of an exchange is that it owns a platform that manages the bid-based transactions. Like ad networks, exchange platforms usually also provide ad serving and targeting, billing management, and reporting, although these functions are secondary to its primary purpose of enabling auction-based ad sales.
Choosing an exchange
In the wake of skyrocketing online media supply and more and more marketers adopting bid-based buying, publishers and advertisers would do well to embrace this concept — swiftly. However, before securing an exchange partner, marketers must first evaluate the differences among various exchanges in order to ensure they find a partner that best suits their marketing goals and approach to ad sales. How? Choose an exchange that:
• Is transparent. As opposed to blind ad networks, a transparent exchange allows publishers and advertisers to identify each other before agreeing to a match. This lets advertisers control where ads run and lets publishers control which advertisers have access to their inventory. Some exchanges — such as RMX — extend transparency into data ownership as well. RMX owns the exchange platform, but exchange members own, and can trade, data assets — like user site behavior or response to previous ad campaigns — with other members.
• Matches their media needs and preferred commission model. Publishers and advertisers should partner with an exchange that fits their business model and targeted media. For example, AdBrite auctions placement in mid- and long-tail media including user-generated content, blogs, and niche Web sites and makes commissions on all ad sales. RMX delivers primarily branded site inventory and charges for any transaction managed through the RMX platform, while AdECN processes a mix of inventory, but only through ad networks.
• Has an open architecture. Forrester believes that successful interactive marketing technologies will be those able to network with other best-of-breed solutions to create an online marketing suite. To this end, the more easily the exchange can integrate with other applications, the better. For instance, AdECN has an API interface that allows it to connect with third-party systems for functions like order management, CRM, or reporting.
Additionally, advertisers should look for an exchange that:
• Scales. Advertisers will get the best deal from a large exchange — one with a volume of impressions diverse enough to support demand-based pricing. Since its beta launch in late summer, TRAFFIQ already has more than 1 billion impressions in its exchange. Advertisers should also seek exchanges that can accommodate new ad formats as they emerge. In addition to supporting IAB ad units, AdBrite has proprietary ones — such as a branded video player, page takeovers, in-line contextual ads, and ads on photos and images — that yield strong results. Advertisers like buy.com and Safeway find that consumers spend 30-35 seconds engaged with their AdBrite full-page takeovers.
• Auctions both spot media and futures. Smart advertisers care about more than just paying for a particular ad spot on a given Web site. They also want — and will pay for — the ability to select the date and time an ad runs. Recently launched exchange AdBidCentral focuses solely on auctioning guaranteed future placement in premium inventory. This self-described ”rolling upfront” marketplace contrasts with the DoubleClick Advertising Exchange, which primarily auctions well-targeted spot inventory.
Publishers, specifically, should evaluate an exchange on its:
• Workflow. Publishers should make sure that their exchange partners have easy-to-use tools that suit their business goals. Some exchanges, like TRAFFIQ and AdBrite, have Web-based interfaces that walk publishers through the process of profiling inventory and audience. Others, like The RMX, provide a customizable interface so publishers can use the RMX platform to create their own proprietary exchanges. Personality quiz and social networking media company Tickle did this and increased non-premium revenue by 771% across Tickle.com and its viral site network, the Tickle Grapevine.
• Transaction management. As with a good ad network, publishers should expect an exchange to offload billing — but exchanges can often provide additional value on top of simple transaction management. While processing payments for its publishers, TRAFFIQ found that many US publishers were selling their UK IP addresses at a discounted rate to US advertisers. TRAFFIQ targeted these addresses for UK advertisers like BSkyB’s Sky Sports and generated higher premiums for the publishers while delivering UK advertisers valuable customers for 25% less than their cost outside of the exchange.
As exchanges evolve and online ad exchange sales become commonplace among publishers and advertisers, Forrester expects exchanges to become more important in all facets of ad sales. The day is not far off when these ad exchanges begin forcing ad network consolidation, and, uprooting common ad servers without exchange compatibility.
At Forrester Research, Shar’s research focuses upon overall Interactive Marketing Strategies and advises firms on how to leverage interactive marketing channels and technologies to drive sales, and deepen customer relationships. Email marketing, online advertising, search engine marketing, ad serving and targeting, are the specific topics of her research and workshops for interactive marketing professionals globally.