Ad Exchanges Reveal the Future of Online Advertising
by Lisa Barone, Bruce Clay, Inc.
The question at hand is: Will ad exchanges change everything?
If by “everything” you mean the face of online advertising, then all you really have to do is take a look at recent events to find your answer:
- In April, Google purchased online ad firm DoubleClick for $3.1 billion.
- That same month, Yahoo paid $680 million to acquire the remaining 80 percent of RightMedia.
- Microsoft purchased advertising firm aQuantive for $6 billion and then AdECN for an undisclosed amount.
All in all, my stellar math skills tell me that those figures account for nearly 10 billion of the search engines’ dollars during the past year. This number doesn’t even take into consideration the money already being spent by online ad companies like ContextWeb, Right Media Inc. and Turn Inc. So, if you’re asking me whether or not I think ad exchanges have the power to change the face of online advertising, my answer is a resounding “yes!”, followed by an “it already has!”
The reason ad exchanges will change the way marketers purchase online ads is simple. The exchange model gives publishers and advertisers the opportunity to complete ad auctions in a matter of milliseconds and to serve up contextually relevant ads in space that otherwise would have gone unused.
The way it works is this: A member advertiser states the price they are willing to pay for a specific type of ad spot (i.e. a banner ad viewable to men in New Hampshire). When a user fitting the specified demographic brings up a page of a participating publisher, the program will recognize the advertiser’s offer. If the price they entered matches the set price of that publisher, then the deal will be completed and the ad will be shown. If not, the site can then put up one of its own ads or try to sell it in some other fashion. The entire process takes less than a second and the user viewing the page will have no idea what just occurred.
Ad exchanges are super sly!
The system is attractive because with all the gobbling up of the smaller independent ad sites, media buyers are looking for a way to package together all the advertising opportunities available to them. By introducing the idea of an ad exchange, buyers and sellers are brought into a marketplace that is mutually beneficial. Publishers are able to profit off previously unused ad space, while advertisers are given an opportunity to purchase the exact type of ad they want at a discounted rate. It’s an environment that not only encourages efficiency, but also allows both parties to improve their ROI by taking advantage of the best pricing models and advertising opportunities available to them. As marketers continue to look for ways to make their lives easier, streamline advertising campaigns, and increase ROI, ad exchanges appear to be a godsend.
For me, the development of an ad exchange system really shouldn’t come as a surprise, as it reflects the same type of evolution that we’ve been seeing through the entire Internet marketing community. Search marketers are looking for ways to make their lives easier and simplify the marketing process. Participating in ad exchanges helps them do that.
What I’ll be curious to see is how ad exchanges are going to be used. Will they be utilized as a one-stop shop where advertisers and publishers come by and offer up their entire inventory? Or will they instead be used to sell the “leftover” space they couldn’t get rid of any other way? This kind of system can allow for deeper ad targeting and more control, but most of the traffic is going to be display and contextual traffic, not the more targeted keyword search that people enjoy now.
I’ve also heard fears that this type of bidding exchange may drive up the prices for ad space due to a bigger market being opened up. If ad exchanges are only going to be reserved for a member’s leftover inventory, then I don’t see this being much of an issue. We’ll have to see how it plays out and which camp is able to leverage this type of system the best.
What we do know is this: Google, Yahoo! and Microsoft are all playing in the ad exchange arena. The first one to get a viable exchange up and running will have a substantial leg up over their competition and probably a nice little profit base. Once they’re able to perfect the system, ad exchanges will change everything.
Lisa Barone is a Senior Writer at Bruce Clay, Inc., a leading provider of Internet marketing and search engine optimization services. She also writes for the Bruce Clay, Inc. blog.
Today’s Advertising Links: Google Operating System, Ars Technica, Saul Hansell, Wall Street Journal
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