An ad exchange is an automatic platform for selling and buying online advertising inventories where space buyers (advertisers, media agencies, retargeting networks) and suppliers (networks, publisher) meet.
An ad exchange allows automation for buying / selling phases and campaign implementation.
On an ad exchange, a campaign can be set up without any direct contact between the seller and the buyer of advertising spaces. Thus, an ad exchange vocation is to reduce market costs and to gain efficiency.
An ad exchange is financed by an exchange commission which is much lower than the one taken usually by a network and possibly by users’ membership fees.
On ad exchanges, publishers set a minimum price for their different available ad spaces and possibly a filter on accepted advertisers. Advertisers or agencies create their campaign by choosing their formats, their targeting criteria and a CPM bid price or more rarely a CPC bid price.
Ad exchange compares supply and demand in real time and can display campaigns in real time impression by impression or by blocks of impressions.
Real time bidding is the norm on ad exchanges.
A well designed IAB UK video showcasing ad exchanges :
Operating principles of an ad exchange ( Source Doubleclick white paper):
According to Forrester, programmatic exchanged-based trading will comprise 30% of total spending by 2017