The Ad Exchange Value Proposition

By David Gould, President

A recent survey conducted by Collective Media claims that 89% of “top decision makers” plan to spend money with Ad Networks this year. That’s up from 5% last year. I’m not surprised to see an increase in that percentage although the magnitude of the increase is somewhat questionable. As the article points out, I suppose it’s no coincidence that Collective Media is an Ad Network.

The survey also indicates that less than 15% of respondents will spend on Ad Exchanges. Again, this is no big surprise considering the nascence of the exchange industry and the relative lack of experience and exposure for marketers. What really caught my eye was that less than 7% thought that Ad Exchanges would ultimately supplant Ad Networks.

That tells me there is a fundamental lack of understanding of the Ad Exchange value proposition. So where does the value lie?

1. Market Efficiency – the exchanges are rapidly moving to a place where real time bidding will take place on individual impressions (disaggregated buying). That ensures that both the advertiser and the publisher get a fair market-based price for each impression.
2. Buying the Audience Not the Content – Currently Ad Networks offer advertisers the opportunity to buy placements adjacent to content. The value of those placements is determined by inferences made about the types of people consuming that content. Ad Exchanges offer the opportunity to buy the audience. Bids will be placed on individual impressions. The bid value will be determined by knowing something about the individual who will see the placement and not by inferring something about that individual based on the site content. That means that two impressions on the same web page within minutes of each other could and probably will cost something different. That’s because the value is determined not by the page itself but by on whose computer or device that page is loading.
3. Audience Insight – Ad Exchanges provide transparency to whom each impression is served by shifting the decision to serve an ad from the Ad Network to the Advertiser. That enables advertisers to gain consumer behavior insight at the impression level. In other words, advertisers can learn a little something more about their audience with every impression served and action tracked. As this data is collected and aggregated, the advertiser’s ability to serve more relevant ads increases with every impression.

I believe it’s only a matter of time until the marketplace recognizes the value proposition here. When that happens, we’ll see an explosive growth in Ad Exchanges at the expense of the Ad Networks. I’ll be interested to read the results from next year’s version of Collective Media’s survey.