Programmatic advertising is a vast and rapidly developing industry. In the US alone, ad spending on mobile programmatic transactions increased by over 30% in 2019, and is expected to surpass $40 billion in 2020.1 With this scale comes a variety of players operating in different functions across the ad tech ecosystem. Publishers looking to monetize their apps through ads, as well as advertisers looking to purchase audience-targeted inventory, find themselves choosing from a number of technologies and partners.
In previous posts, we examined the differences between supply-side platforms (SSPs) and ad networks and also looked into how demand-side platforms (DSPs) compare with SSPs. In this blog post, we will cast some light on the differences between ad networks and ad exchanges.
Defining Programmatic Roles: Ad Network vs. Ad Exchange
Though they share a similar purpose (collecting ad inventory from app publishers and offering it to advertisers) ad networks and ad exchanges are distinct elements of programmatic advertising. Let’s begin by describing the roles that they have within the in-app advertising ecosystem.
What Is an Ad Network?
Acting as intermediaries between advertisers and publishers, ad networks are online platforms that collect publisher inventories and segment them by the app category, user demographics, and ad formats. Buyers can inform the ad network of their campaign criteria, and the ad network can then match it to available inventory from publishers. Some ad networks have a key focus, such as pricing, scale of inventory, or specific audience demographics.
What Is an Ad Exchange?
Ad exchanges are online marketplaces where both supply and demand partners (including publishers, advertisers, agencies, ad networks, DSPs, and SSPs) can buy and sell inventory directly, without involving any intermediary. Ad exchanges generally use real-time-bidding (RTB) technology to auction off inventory on an impression-by-impression basis. While ad exchanges are open marketplaces for the entire ecosystem, ad networks essentially act as a middleman between advertisers and publishers.
Ad Network vs. Ad Exchange: The Key Differences
Accuracy and Transparency
As discussed, many ad networks specialize in certain types of inventory and audience data — often termed ‘vertical ad networks’. These networks can be selected based on how well they represent an advertiser’s target audience. Alternatively, within an RTB ad exchange system, audience data is passed directly from the publisher to the open market, allowing for robust and precise targeting options.
Furthermore, when purchasing inventory through an ad network, advertisers do not have full details of the apps serving their ads, and in turn, publishers are unaware of who is buying their ad spaces. By using an ad exchange, both parties are aware of the transaction and the parties involved, allowing advertisers to gain better control over where their ads are placed and the safety of their brand.
Ad networks generally focus on offering first-tier inventory that has not been sold before. However, this often means that publishers can be left with unsold ad spaces. In contrast, ad exchanges offer all available inventory, including any remnants that may have been unsold, which maximizes publisher revenues.
Within an ad network, inventory pricing remains at a stable level as it is set by the network and based on value estimates and historical data. For ad exchanges, the inventory price is dictated by bids from advertisers in real-time and through the RTB auction mechanism. The price of impressions with ad exchanges is allowed to form organically and is influenced by competition in the market, allowing for more transparent transactions.
Although ad networks provided the first solution for advertisers looking to buy inventory at scale as opposed to directly from individual publishers, ad exchanges have advanced this technology even further. Since arriving in the industry, ad exchanges have proven to be key for publishers, allowing them to ensure maximum value from their inventory by auctioning it to the highest bidder. They have also been revolutionary for advertisers, allowing them to set a maximum price that they are willing to pay for ad inventory and offering the best value for their ad spend.
If you would like to learn more about in-app advertising and the programmatic supply chain, check out the In-App Advertising Playbook.
Sources: 1eMarketer, October 2019