Open Exchange vs Private Exchange

With programmatic ad spend growing at a record speed over the past few years, it is important for publishers to know the nitty-gritty of programmatic advertising for seamless implementation of ads.

What is an Ad Exchange?

Ad exchanges are at the centre of programmatic advertising and are credited with the feat of making digital advertising transparent and somewhat seamless for both publishers and advertisers. An ad exchange is a digital pool of ad impressions that publishers and advertisers use to sell and buy ads respectively, through real-time bidding. Demand-side Platform (DSP) and Supply-side Platform (SSP) are two softwares used by marketers and publishers respectively to sell or buy ads.  Publishers make the ad impressions available through ad exchanges and DSPs automatically decide which impressions an advertiser should buy. An SSP is a software used by publishers to sell ads by connecting their inventories to multiple ad exchanges. Through real-time auctions, the highest bidding advertiser wins the impression, if the targeting of the advertiser matches the publisher inventory.

Open Exchange

An Open Exchange is basically the standard ad exchange where numerous advertisers can bid for seemingly infinite publisher inventory in real-time. The bidding auction is designed in a way to ensure that the publishers get the maximum possible price for their inventory, thus helping them to maximize revenue. Publishers can set price floors to make sure that the RPM never goes below a certain limit. The process is cheaper for advertisers as there are no intermediaries who can also be unreliable. The ad exchange matches the targeting of the advertiser with the publisher inventory and upon finding a match, the highest-bidding advertiser wins the impression.

Ad exchanges have brought in the much sought-after transparency in the ad tech industry. Advertisers are able to see the entire range of publisher inventory and publishers also have knowledge of the buyers.

With billions of impressions flowing through open exchanges daily, policing them has become a bit of a struggle. Perhaps 50 percent of their content is from bogus operators, fraudsters, robots or of terribly low quality. This inconvenience gave rise to the need for Private Exchanges.

Private Exchange

A Private Exchange is an ad exchange auction held by a single publisher for a select group of advertisers of its choosing. A private exchange is an invitation-only private auction where the advertisers can bid for impressions only if they are invited by the publisher. This kind of exchange gives great control to the publishers who can sell their inventory to the advertisers and brands they want on their sites, generally at higher rates. Like in an open exchange, the highest bidder wins the impression. Advertisers who get to bid in a private exchange get access to premium inventory exclusively, before it becomes available in the open marketplace.

Open Exchange vs Private Exchange

The main difference between an open exchange and a private exchange is that while the former gives advertisers access to a wide range of inventory across multiple publishers, the latter has one singular publisher per private exchange. In a private exchange, a publisher has much more control as buyers need publisher approval to bid and the terms for bidding are also set by the publisher. It is good for advertisers who want exclusive access to a specific publisher’s inventory. But private exchanges limit the scope for buyers. Buyers looking to advertise on smaller, long-tail sites may be better utilizing the open exchange model. When considering opening a private exchange, a publisher should ask itself what will draw buyers to its exchange as opposed to the numerous other programmatic options available in an open auction, and what will make those buyers pay higher prices.

So, there’s no one right way when it comes to choosing between an open exchange and a private exchange. A publisher needs to keep the quality of his inventory and the targeted advertiser pool in mind before making a decision.

We hope this article has been comprehensive and will help you further in your understanding of programmatic, RTB and ad exchanges.

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