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Understanding Ad Exchanges and How They Work

howdy re marketing fans and welcome back real time bidding. Otherwise known as our TB. Is the technology that powers the modern day at exchange ad exchanges And real time bidding. And a host of other very sophisticated technologies is what accounts for without a doubt the greatest technological revolution in online advertising that the industry has ever seen before. Ad exchanges, publishers packaged up their ad inventory and advertisers have had to rely on pre bought packages of impressions ad exchanges. Our marketplace is very similar to the new york stock exchange or any other stock exchange that trades ad impressions on the individual impression targeting individual users. Real time bidding allowed the ad exchange to run real time auctions every single time a web pages loaded for every single ad impression on that page. Advertisers no longer had to buy impressions in bulk. There were no more bulk buys advertisers with real time bidding on the ad exchanges were now able to target spe...

cific users specific visitors at the individual impression level. Perhaps more importantly, real time bidding allowed advertisers to set a true market value for what that impression was worth to them. No longer did advertisers have to set one specific bid or buy you know, x amount of impressions in bulk. Using a spread that some of these impressions will be really good And some of these impressions will be really poor. They were able to say for this impression for this user in this demographic on this website at this time. In this place with this ad copy with this image add with this interactive ad I am willing to bid a maximum of $1 or 50 cents or of 10 cents per impressions per mil. For all of you familiar with paid search Adwords PPC. This is exactly that live auction model that was created in PPC. Initially created by go to dot com which eventually was sold to Overture, which was, which was eventually sold to yahoo. But as we know, google Adwords with their um just a quick, you know, piece of history um, google Adwords with their second price auction model as opposed to the regular english auction that go to an overture ran in their PPC model. Adwords eclipse the entire industry and now accounts for 75 80% of all paid search advertising. And by the way paid search advertising spends more money per year than all of display advertising on the internet combined. So that's a very cool stat um about PPC But but this real time bidding on the ad exchanges back to our topic. It brought that live auction model over into online advertising. And previously, without the technology of real time bidding, that was not possible. So what now, every time a web pages is loaded and there's inventory that's running through the exchanges. Keep in mind we're gonna talk about this in a second ad inventory today, there are there's plenty of inventory that goes through ad networks there's plenty of inventory that goes directly in direct media buys. There's there's private exchanges. We'll talk about that in a second. But any ad inventory that runs through an exchange and most ad inventory online today on publisher sites do run through one of the major exchanges. There's a lot of things that happened really, really fast. We'll talk about the different things that happen, um, all the different technology, all the different steps that are involved, um, in that process. But it all happens in 200 milliseconds or less. It happens in a fraction of a second, which is really incredible. And that's, those are the sorts of, of technological advancements that allowed real time bidding to really take over the online advertising marketplace. So now advertisers are truly creating their optimal, most ideal audience. They're setting a specific bid the most. They're willing to pay for 1000 impressions of this unique, specific behaviorally targeted audience at the impression level. We're targeting specific ad spots. We're targeting specific users. Think about it this way before the ad exchange before real time bidding. There was absolutely no way in the world where I could target one human being on the display network, one human being in a display. And it was not possible. Ad networks didn't, didn't sell one impression, didn't sell even the third party party audience networks that we spoke about a couple of chapters ago. They didn't sell one person. They weren't, these weren't behaviorally targeted impression by impression bids. If I called up a publisher directly and I said I want to have um an ad on the home page of the Wall Street Journal, but only when um a female in this sip code with this income with this browsing activity who recently flew to Hong kong visits your site between three and 3:30 p.m. On a monday afternoon when the weather is 75° or warmer. They would have looked at you and they would have put you in the loony bin now with real time bidding with behavioral targeting with with the advancements in in cookie technology and pixel technology, which we will talk about. And this is kind of starting to get back into the marketing. Uh, we're able to advertisers are able to be extremely specific and not only where their ads show up but to whom those ads are shown. So it's it's a, it was an incredible, incredible technological advancement. It also created much more transparency with pricing as we described. So let's go take a quick look at a, at a quick presentation here that that shows the basic ad exchange model. Um, and it might give you a little bit more context to the, to the other software and technologies that are at play. Um, and who those major players are so in modern display advertising. Uh, you know, publisher direct and and buying through networks is still, it's still a large part of modern advertising, but like we said, ad exchanges have become by far the most popular way to buy and sell ads. Of course PPC paid search is still the most popular. The most money um in the United States is spent on PPC. That's that's primarily google adwords in the yahoo bing network primarily. Um, but but a lot of analysts are predicting that that ad exchange RTB, programmatic, real time bidding is going to eclipse even PPC spend in the very near future. So you have the advertisers on the left hand side and you have the publishers on the right hand side. Keep in mind this is still all these technologies that we're going to discuss is really just about making this relationship between advertiser and publisher work as efficiently and as profitably for both parties as possible in the middle. You have these ad exchanges now the ad exchange. If you're trying to conceptualize it, it's not really, it's not a software that you log into. You don't have an account, you're not uploading your ads into the ad exchange. It's, it's a very broad back end software that's created by these huge conglomerates. And it's really just, it's, it's, it's, it's algorithmic lee driven. It's pure technology. You're not logging into an ad exchange. So that might help you conceptualize it. You're not gonna see, you know, an ad exchange dashboard per se. Um Real time bidding is the technology that powers the ad exchange. The ad exchanges the concept. It's the structure and real time bidding is the technology that allows the ad exchange to work. It's the engine. Programmatic is born and it continues to grow and expand. So programmatic bidding is really just a name that the industry has given to real time bidding on the ad exchanges. Programmatic essentially means that I'm using advanced computer algorithms, advanced data management platforms, advanced customer segments to appropriate my marketing dollars to the right person at the right time and with the right message. That's the idea of programmatic. Um, it's it's really just a way to describe how much the human aspect of advertising is being diminished. The sales teams, the phone calls, the relationships, the intuition, the research, all that stuff is now shifting to these very sophisticated algorithms that are running your marketing budget to your ideal audience. That you pre select some of the major ad exchanges is the google doubleClick network. Um you must have heard you probably have heard of google doubleClick. Um They bought google didn't own double click. They didn't start, they didn't create double click but they bought it a number of years ago and at the time they had bought it, it was the largest ad exchange. You have the Microsoft advertising network, you have Open X. You do have some other ones like app nexus and the Rubicon project and bright role that our other ad exchanges that that are major players in this space. Advertisers and publishers needed systems to allow them to use the ad exchange in the most efficient way possible. The ad exchange opened up huge areas of opportunity. So um they need the publishers and advertisers they needed technology that would allow that that that would allow the publisher, let's talk about the publisher first. The publisher to optimize they're at inventory to figure out how to make their inventory available to all the different ad exchanges out there, how to predetermined kind of a a floor of how much minimum revenue. Certain ad inventory on these publisher sites should go for. So what was created was Ss PS these are called supply side platforms and DSPS demand side platforms for the advertisers. So SSP could stand for supply side platforms. Some people call it, sell side platform. It's a layer of technology, it's simply a dashboard, it might look like google adwords is a dashboard that you log into. That that the, you know, owners of websites like so the marketing team at at Forbes or the Wall Street Journal uses. And they might use multiple supply side platforms that help manage their inventory that help make their inventory accessible to the ad exchanges. So that's the actual software that you log into DSPS are the technology layer that helped the advertisers create more efficient ad campaigns using the inventory available on the ad exchange. So they syndicate the ads out. It's where you set your bid is where you upload your ads. It's where you optimize your campaigns. It's where you um you might create deals in in in private exchanges. So the DSPs and the S. S. P. S. Were technologies where software that allowed the the advertisers and the publishers to maximize their profitability. That's all what it comes down to. Some of the big players for the DSPs and the SSP. So you have you have media math for the DSPs, you have DataXu for as a as a as a big demand side platform. You have Rocket fuel is a big demand side platform. There are many more google doubleClick has the google DoubleClick bid manager which is a DSP that helps you run your campaigns. It's a DoubleClick products. So there's a lot over the last couple of years there have been a huge crossover. So um some of these DSPs also run exchanges. Some of these exchanges have their own DSPs and S. S. P. S. I know Open X has has a DSP and SSP that allows publishers and advertisers to run ads. And through the through the open exchange on the supply side platforms, some of the famous supply side platform companies are admirable Open X, the Rubicon project. And there are many more, there are hundreds more there are only a, you know 56, maybe, maybe eight. Some might say major major players in the ad exchange space. But there are literally hundreds of DSPs and SPS now re marketing, we're gonna talk about, we're gonna talk about, you know, a few different re marketing platforms throughout this course. Admiral. Perfect audience retargeting talk radio. These are essentially the same thing as demand side platforms. There a layer of technology you have a login, you upload your ad, you set your bids, you what you see your data and this these are technologies that that and we call them, they have a seat on all the major exchanges. So if you're using Admiral or your remarketing from google adwords and if this is confusing, we're gonna talk about this later. All these different demand side platforms. They're just they're literally technologies with their own algorithms that help optimize the campaigns. And they all have, you know, it's called having a seat at the table of these big ad exchanges. So it's not like if you're using ad role, you're only going to be able to show your ads, you know, through inventory available through the google doubleclick exchange, you're still gonna be eligible to show your ads through inventory made available to through any of the major exchanges because all the big average re marketing platforms, the re marketing demand side platforms, they all have seats at the major exchanges. So what you have here is this big system with the ad exchanges and real time bidding and programmatic technologies in the middle with all these different technology providers um like the ad exchanges themselves, the S. S. P. S. And the DSPs. But all ultimately connecting publishers and advertisers in the most transparent, efficient and profitable way possible. This is very much an oversimplification of this ecosystem how it is today. There are literally hundreds of different technologies. There's hundreds of different players and there's many more steps between loading a webpage and seeing an ad. Um Some of those players are D. Mps data data data management platforms. These are third party data aggregators that will sell their audience targeting, sell their behavioral advertising targeting cell um demographic information, sell purchasing patterns, all that information that they sell them to. The different exchanges. The facebook exchange um double click to you know to different to different agencies. Um You have private exchanges. So you have um ad exchanges that are kind of like those more exclusive ad networks that only deal with kind of private pre arranged pre negotiated deals but once you arrange those deals between um an agency and advertiser and a premium publisher then the real time bidding. And the programmatic technologies kick in on those private exchanges. So that's a really fun. I'll post some links to some reading material about private exchanges as well. Um You have audience network. So you have a lot of these companies that are similar to data management platforms that will start aggregating different audiences. Um using technologies to to to standardize um a lot of different audience targeting. So for example you know net household income things like that. So if I wanted you know giving giving these ad exchanges and giving these data management, the DSPs, demand side platforms, the ability to offer advertisers um really, really nuanced and specific ways to target their audience. And we're gonna see, we're gonna be primarily using google adwords for our re marketing campaigns. And you'll see that we could really get very granular um and really specific with how we target our ads and and and who we want our ads to be seen or who we want our ads to be seen by. And then you have a lot of these fraud protection um networks and companies, I don't want to get so deep into click fraud. Um but let me just be honest, let's just lay it on you. There's more fraud in these ad exchanges that that you would care to believe. Long story short. Um A lot of experts are anticipating that over the next couple of years, a lot of this fraud is going to be exposed at a major scale and the reason that a lot of this fraud hasn't been exposed because the main players, it's not really to their advantage to expose it. The primary sort of fraud. And once again, I don't wanna get too deep into this. The primary type of click for that happens in display advertising our robotic software that will crawl a website similar to let's say google's, you know, legitimate bots that crawl websites to index the internet for google servers, but you have these bots that will go to websites undetected. They will look like human advertisers. They will trigger impressions, they will trigger ad clicks, but they're not real athletes and they're not real impressions because they're not really seen by human beings. The problem is, advertisers pay they pay per 1000 impressions. Even if they're paying per click, they're getting charged for a lot of fake traffic that real people are not really seeing. Publishers, they're okay. Publishers are okay with traffic because publishers get paid every time an impression is loaded. Publishers are able to sell these ad impressions as audiences to the through the ad exchanges or through ad networks, agencies. And advertisers are buying these impressions and they know what's going on. They know that there's a lot of fraud. Um but listen, there's no reason for them to expose it to their boss. Um and the the cmos and the Cfos of of their clients because that just makes them look bad and it's their business. That's how they make money. The agencies make money by having clients that want to run advertising. Um on the internet. Some analysts project that Up to 82-85% of impressions and clicks on the general display network are fraudulent clicks are not real impressions are not real clicks. Um but the reason I'm getting into this is because re marketing, which we're going to start diving really um deeply into in the coming chapters. Re marketing is one of the most successful and useful ways to combat and and protect yourself against click fraud because if you're getting traffic from legitimate sources like social media, um from targeted display campaigns and we'll talk about avoiding click fraud and the technologies that that help prevent it. If you're getting organic traffic, if you're getting PPC traffic, if you're getting referral traffic, email campaign traffic, that's legitimate traffic, those are real people. And because we're using this concept of real time bidding and ad exchanges and specifically targeting people who have been to your website before, we're only going to be showing ads to actual people who have been to your website before. And just because there's click fraud, that doesn't mean I am in any way, shape or form, um invalidating display advertising. It's a gigantic industry. It's incredibly profitable for many, many advertisers, but it's mainly profitable for big companies that have big marketing budgets that have long sales cycles that are able to take an immediate loss and build brand awareness most of you guys and and correct me if I'm wrong. But most of you guys that are watching this, I know, you know, basically all of my students and most of the clients we have at our agency Are small to medium sized businesses even even are publicly traded clients, they don't have 250 grand to build brand awareness. They want to see results. They want people to download their white papers, they want people to buy their products, they want people to sign up for their newsletter. They want engagement. So it's important for them to not pay And have 10 15% of that traffic being really legitimate traffic. So re marketing is one of the most powerful successful ways to to really expand your advertising through the ad exchanges using real time bidding using programmatic technologies. But you're ensuring that you're paying, you're paying for real people to see your ad almost all the time. But just not to say that sometimes you get, you know, fraudulent things, but that's that's just part of the game. That's just how it works. There's a couple of quick, interesting stats in 2010, 4 of the major DSPS demand side platforms, aggregated their data and they concluded that real time bidding outperform the traditional media buying media buying by a factor of 749%. So that's incredible in the comparison of google ad exchange, the google doubleclick network Advertising campaigns running in April May of 2011. The study showed that campaigns running using the R. T. B. The real time bidding mechanisms had a 19% decrease in cost per 1000 impressions CPM than the advertising campaigns running on non RTB mechanisms and non programmatic technologies and even more important in a collaborative study between four major DSPS campaigns that were running on our TB technologies had a more than two times the return on investment than campaigns running on non RTB programs. So these metrics are really showing a massive seismic shift away from direct media, buying away from the ad network model and toward this RTB programmatic. And everybody really agrees that this trend is going to continue um, at an exceptional pace. So I hope that helped to give a basic overview of of the advertising ecosystem. I really do believe it's important, and it's very useful to have this basic, fundamental understanding of what's happening when you're paying for for remarketing ads. Thank you very much. And looking forward to seeing you guys in a few minutes in the next lecture.