Online Ad Exchanges Sprout Up

  |  June 20, 2006   |  Comments

A few start-ups believe the time has come to bring stock market-like efficiency to the online ad buying process.

Finding the most value for available ad inventory has always been a problem for publishers, and advertisers are of course interested in getting the best deal when they make a buy. Several companies, including Right Media and AdECN, have begun to address this problem by creating auction-style exchanges to facilitate transactions between advertisers and media buyers.

"We're seeing lots of new inventory being created, and a lot more money flowing in once the pockets of inefficiency are removed," Right Media CEO Michael Walrath told ClickZ.

The Right Media Exchange (RMX) auctions every ad in real-time to the highest bidder. Online ad networks participate in the exchange by putting their publishers' remnant inventory up for sale, and by buying relevant inventory on behalf of their advertisers. Publishers and advertisers don't participate directly in RMX, but are instead represented by ad networks.

Without an ad exchange, unsold inventory today is sometimes passed through multiple ad networks to find avails, with each network along the path taking a cut. RMX is designed to keep that from happening by identifying the inventory that offers the most efficient path, providing the highest ROI, and otherwise delivering the most value to the advertiser and publisher, Walrath said.

Right Media's Yield Manager product is the interface for ad networks to buy and sell inventory on the exchange. The company also offers tools for publishers to create a private exchange and link it to RMX, or to sell their ad inventory on RMX as well as manage inventory sold elsewhere. It also has a similar tool for buyers to manage all of their campaigns, both on and off the exchange, in one place.

More than 50 ad networks representing 2,900 advertisers and 7,900 publishers are using the exchange already; numbers that have been growing steadily for the past 15 months, according to Walrath.

Online advertising exchange AdECN is not quite as far along. It's currently running with only one ad network, Experclick, in which it holds a controlling interest. It was necessary to create Experclick as a proof of concept for AdECN, according to CEO Bill Urschel, but the company is examining ownership options for Experclick once AdECN invites other networks to the exchange next month.

"It's important that we keep the two separate in order to avoid any conflicts and remain neutral," he said. "I expect we'll spin it off soon."

Another key to maintaining neutrality is its pricing model, Urschel said. AdECN charges participants a flat fee per transaction, so it remains a disinterested party in the deal, and has no incentive to favor one ad network over another.

Like Right Media, AdECN does not do business directly with advertisers or publishers; it works instead with ad networks, ad brokers, and a few ad agencies that maintain relationships with buyers and sellers, acting as a network themselves. Urschel likens it to a stock exchange, where buyers and sellers work through a broker.

AdECN, through Experclick's network, currently supports five IAB-standard in-page units and a pop-under format. It does not allow ads with adult content, and publishers working with a participating network are able to exclude ads by category.

The AdECN model lets advertisers decide up-front how much they're willing to pay and only delivers ads when those requirements are met. AdECN also monitors individual placements on publisher sites, and will adjust an advertiser's bid downward if it determines that a given position is worth less than others, such as being at the bottom of a page or surrounded by other ads.

"It's one thing to create a liquid market, but it still needs to be a fair market," Urschel said. "The spot where the ad appears needs to be up to par, so we keep a history of every spot and compare it with its peers before allowing the ad to go through."

Publishers benefit because they are assured of getting the highest price an advertiser is willing to pay at the time for their inventory, and can even end up selling more inventory in smaller chunks than they would ordinarily, Urschel said. Publishers also have a safety net, in that they can choose a back-up provider of ads if their requirements are not met at a given time by an AdECN-brokered ad.

The exchange model will not cut out ad networks, as long as they are providing value, both Walrath and Urschel insist.

"It holds networks accountable to a value standard. If they're taking more margin than they're providing in value, they'll get disintermediated," Walrath said. "If the ad network is creating value, they'll get more business from the exchange."

"We're not going to change the way good ad networks do business," Urschel said. "Extraneous middlemen will suffer. If there's no value-add, and they're just brokering a deal, that's not bringing anything to the table."

Ad networks can provide value and benefit by participating in RMX in many ways, Walrath said, including offering advanced targeting, reporting and optimization; or packaging inventory creatively to improve revenue optimization for publishers.

Support for creating these kinds of exchanges for ads has been growing. Walmart, HP, Microsoft and several others are reportedly exploring an online marketplace for TV ads through eBay.

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ABOUT THE AUTHOR

Kevin Newcomb

Kevin Newcomb joined ClickZ in August 2004, covering search marketing and other online marketing topics. He has been reporting on web-based businesses since 2000.

Before the bubble burst, Kevin was a marketing manager for an online computer reseller, handling copywriting, e-mail marketing, search marketing and running the affiliate program.

With a combination of real-world marketing experience and years of business journalism, Kevin brings to ClickZ a unique ability to deliver news and training materials that help online marketers do their jobs better.

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