How to Create an Ad Exchange

William Chen

There are many different players in the ad tech world, with some bigger than others. Major DSPs include MediaMath, theTradeDesk, and Google DBM. Major Ad Exchanges include Google AdX, OpenX and Index Exchange. These days these companies facilitate billions in ad spend. How were these players first created and how did they become as big as they are today? This article serves to provide a very basic overview of the moving parts and pieces that must be considered when establishing an ad exchange.

 

Ad Exchange Creation Methods

In general, these methods are interchangeable between different ad tech layers such as DSPs, ad exchanges, and SSPs.

  • Managed Service. A company posing as an ad exchange can utilize its ad operations team to pull the levers using other DSPs, Ad Exchanges, or SSPs to reach the client’s desired result. This is by far the largest stretch to be an “ad exchange” as the ad operations team would be utilizing the UI of other established platforms.
  • API Integration. A company can act as an ad exchange by white labeling another company’s proprietary technology. This is an easy way to get the ad exchange up and running without going through the troubles of having to create your own ad exchange. The limitation of this method is that customization goes as far as the features that the white labeled company has available.
  • Ad Exchange Technology. Companies such as IPONWEB provide ad exchange technology that can be licensed for the creation of an ad exchange. The benefit of this route is that companies will be able to customize a wide variety of features of both the ad exchange integrations and UI layout. However, the integrations with DSPs and SSPs will have to be set up whereas white label solutions will already have the integrations in place.
  • In House Built. This is a truly “made from scratch” method in which a company’s engineering/ad ops team creates the ad exchange without white labeling or licensing another company’s technology. The major downside to this method is that it takes major engineering resources and time.

 

Integrations

This may be the most important aspect of any ad exchange. The integrations of an ad exchange determine the quality and safety of the marketplace for both the buyers and sellers. This is one of the very first questions that potential media buyers and sellers ask when evaluating an ad exchange.

In order to integrate different sources, the ad exchange can directly negotiate deals with desired supply partners and demand partners and implement a direct connection. Alternatively, the ad exchange can utilize aggregators such as Bidswitch to easily turn on/off demand/supply partners that are part of the aggregator infrastructure.

The integrations will determine:

  • Total Monthly Avails
    • By Country
    • By Device Type
    • By Product (Display, Video, App, Native, etc.)
  • Availability of Exclusive Inventory
    • When creating a private exchange, it is very likely that much of this inventory will be exclusive
  • Buyer Quality
    • Select quality DSPs and buyers to minimize the chances of serving malicious or harmful ads
  • Seller Quality
    • Select quality publishers to prevent bot traffic, spoofed sites, and other factors that may render the ad buy less effective.

 

Infrastructure

Some ad exchange infrastructure specifications to consider are:

  • Maximum QPS (Queries Per Second). The ad exchange can set up servers via a cloud or data centers. QPS allows those servers to listen to ad requests. For outside users, the more QPS the better as it provides more opportunity to purchase/monetize. For the ad exchange, more QPS comes at a cost of more expensive infrastructure, leaving some exchanges to selectively “listen” to ad requests to capitalize on the most effective ones.
  • Ad Verification/Measurement. Common measurement metrics include CTR, Viewability, VCR, etc. The ad exchange can evaluate and select an ad verification partner such as IAS, DV, or Moat to provide measurement reporting.
  • Fees and Pricing Options. At every level of the ad tech chain there are tech fees that are taken out. The ad exchange can decide the different fees that it will charge depending on its business strategy. These fees can include an integration fee and buying/selling fee (percentage or flat based). The buying/selling fee can be in the typical CPM format, a CPA format or another custom format. Another factor to consider is whether the fees will be paid out via client reporting, 3rd party reporting, or in-house reporting.
  • Security. Utilize companies such as GeoEdge or The Media Trust to block and prevent malicious ads. This is especially important for ad exchanges to sustain long-term relationships with publishers who will have these ads displaying on their pages.
  • Transparency/Hidden Fees. The exchange will also need to determine what data is shown to both the buyer and seller. This includes the number of bid requests, the number of bids, the clearing price, etc. Although it is widely frowned upon, some players in the ad tech industry can falsify clearing prices and pocket the difference between the false clearing price and the actual clearing price.
  • Targeting Options/Reporting. Determine what targeting and reporting options to provide. The targeting options can work in conjunction with the DSPs targeting layer, but this may result in reduced scale. On the reporting side, determine what reporting metrics/ granularity to provide. Also determine the data refresh rate and how far back data is stored both on the back end and in the UI.

 

White Label/Technology Providers

These companies provide services such as white labeling and/or licensing technology that companies can utilize to create their own ad exchange.

  • IPONWEB
  • Epom
  • Kritter
  • AppNexus
  • AppLift (Acquired Bidstalk)
  • SmartyAds
  • my6sense
  • Axonix
  • Bidsopt
  • AtomX

 

Sources

Whatever you pay attention to grows.

— Kevin O’Leary

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Published by William Chen

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