Ad Exchanges, what’s that all about?

This is the first in a series on “ad tech for developers”.

I’ve come to realise that a lot of very smart people who are familiar with development, but not with advertising as an ecosystem, can find the terminology confusing. When it’s explained with a non-technical mindset, it can be really confusing.

So for this first post I’m going to discuss, on a systems architecture level, what a programmatic exchange is. It’s actually pretty simple.

Okay, here goes …

So most people in the industry will tell you that a programmatic exchange is an auction. Bids are made on inventory* and ad units are delivered if they win the auction. We won’t get into auction dynamics, but that’s basically a good analogy.

*inventory is ad space a publisher is offering

**a publisher is just some owner/operator of a website – see, terminology

But if you’re developing system A that needs to interact with an exchange, knowing it’s an auction isn’t that useful. Here’s a better way of thinking about it. An exchange is a classic example of the broker pattern.

Let’s say you have 20 publishers all wanting to sell their ad space, and 20 advertisers all wanting to buy it. One way is for each publisher to send an object defining the ad space they have to each advertiser, who in return sends back individual offers to each publisher, per unit of ad space. The publisher then looks at all the offers and makes a decision.

Sounds super scalable.

Instead we have exchanges which act as middleman. First the publisher defines the properties of the ad space (dimensions, domain, format, etc.) and sends that definition to the middleman.

Any advertisers who are listening receive a notification from the middleman that ad space is available and it’s properties. The advertisers send their responses (the bids) to the middleman and an auction occurs to decide the winner.

The winner is then sent to the publisher.

From the Publisher view, all they need to do is send ad space definitions to the middleman and get appropriate ad units back. For the advertiser, all they do is receive definitions of ad space and return bid objects, with one of two flags, ‘bid’ or ‘no bid’.

Everything else is handled by the middleman.

Super simple. Next time, DSPs and SSPs or … “How the heck do publishers and advertisers communicate with the middleman?”