Private Ad Exchanges 101

Private exchanges are controlled environments, typically run by major publishers or a group of them, with ads sold through carefully selected agencies or advertisers using trading desks and/or demand side platforms. They are used by publishers to more carefully control who can buy their inventory, and at what price. Instead of releasing its inventory into an “open” exchange and letting anyone buy them, a publisher may prefer to offer its inventory (particularly its more premium or exclusive inventory) to a pre-selected set of advertisers, or an agency it has a close relationship with. It might also wish to cut off access to networks and other third parties that could sell those ad impressions on.

How widely used are they?

The adoption of private exchanges by publishers has steadily grown over the last twelve months but their uptake is expected to increase significantly over the coming years with more and more publishers encouraged to take the financial risk of developing its own private exchange (either for itself or in conjunction with other publishers) and moving its inventory away from open exchanges. Yahoo, AOL, Microsoft and other media owners are launching their own private exchanges and selling directly to advertisers and agencies which connects supply with demand.

Some publishers, as a point of principle, are reluctant to put their inventory on open and public exchanges. They fear a race to the bottom in CPMs, as they compete against the sheer volume of impressions thrown off by the range of digital media spaces, which would undervalue their prime content. The use of private exchanges is therefore an attractive alternative to such publishers.

Agencies are also signalling a move towards private exchanges, GroupM recently pulled its clients from open ad exchanges citing that they did not want to compete in a “fictitious marketplace”.

Why would a publisher move to a private ad exchange?

• Private ad exchanges are closed systems and controlled environments.
• Publishers can decide on how the ad exchange platform operates and how the resulting data, targeting and impressions are captured and ultimately, controlled, by the publisher.
• Publishers can place controls on the price at which advertising is sold, for instance by setting pricing or CPM floors and thereby protect the pricing of its more premium inventory.
• Publishers can proactively sell its ad inventory on a private exchange, rather than the indirect and passive sales to advertisers which arise through open ad exchanges on RTB platforms.
• Publishers can also control and moderate who is able to purchase via their platform and has full transparency of buyers.
• The publisher can also set the terms on which advertising is sold on its private exchange, rather than the transaction being subject to the terms of an open exchange which multiple publishers, agencies and advertisers are using.
• Also, the benefits for advertisers are that private ad exchanges usually consist of premium content such as large-scale formats, homepages and other prominent advertising space that will interest advertisers. It is also easier for an advertiser to track transactions and results on a closed exchange and there is less ad fraud.

Why would a publisher avoid private ad exchanges?

• Open / public exchanges handle a wide range of advertising budgets which will not be accessible to publishers in a closed private exchange.
• It is expensive for publishers to develop a platform for a private ad exchange. Only large media companies have the financial resource to set up their own platform. Ultimately, before committing to a private ad exchange, publishers will have to consider how sought after their ad inventory is (i.e. how premium?), the proportion of its ads which are sold through automated platforms, the reach of their content and their financial standing within the industry.
• Publishers wanting to develop private ad exchanges will need to convince advertisers why their inventory is valuable and should command a higher price and why they should sign-up to their exchange.
• A private ad exchange does not have the same level of bidding competition which an open exchange offers since there will always be fewer advertisers competing to buy advertising space.

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