Ad Network vs Ad Exchange

by    |    Feb 17, 2017    |       5 min read

In a digital world where online advertising is the fuel that keeps publishers, networks, search engines, advertisers, and everyone else up and running, there’s often a bit of confusion in terms of what’s what and who’s who.

The advertising ecosystem is rapidly growing beyond its initial boundaries, expanding thanks to the emergence of ad networks, ad exchanges, DSPs, SSPs, and a long line of technologies that make this industry so intriguing and successful. The move to a programmatic ad buying process created a multi-layered environment replete with different elements. This time, we’ll focus on the ad network vs ad exchange aspect: what makes the two similar, different and above everything else, effective.

Ad Network vs Ad Exchange – the Basics

Looking up the definition of both ad network and ad exchange, one might conclude they were one and the same. It’s a breeding ground for confusion and frustration if someone is looking to get a grasp of the big picture. Still, there are some notable differences in the ad network vs ad exchange comparison (apart from the name, duh) that bring more clarity to the discussion.

At its most basic, ad networks gather inventory from a wide range of publisher websites and sell it to advertisers. Ad exchanges are a continuation of that process, acting as an online marketplace that allows both advertisers and publishers to buy and sell advertising inventory. Google’s AdWords is a prime example of an advertising network, (in fact it’s split into two networks, the Search Network, and the Display Network) along with Bing Ads, AOL’s, and a number of independent ad networks. Some of the ad exchanges include AppNexus, DoubleClick, Microsoft Ad Exchange, AOL’s Marketplace, and many more. So far, so good, right?

Where It Gets Confusing

At a certain point, the line between the two gets blurry and things get a bit perplexing. And that point routinely seems to be the following: an ad exchange is a platform that also facilitates the buying and selling of media advertising inventory from multiple ad networks and other exchanges. On the other hand, ad networks buy inventory from ad exchanges as well, which seems like it’s the same looping process à la Groundhog Day. This is not the case (well, not entirely, at least, because there’s no Bill Murray here and some other things) and we’ll do our best to explain why.

The Differences

Ad networks aggregate inventory from publishers, filter or segment it based on different targeting options and sell it to advertisers. Ad exchanges are digital marketplaces where ad networks, along with advertisers, publishers, and others can buy and sell inventory by auctioning impressions to the highest bidder. For one, the nature of each system is different. Take pricing as an example. Ad networks base their model mostly on negotiations that rely on media inventory in question, such as the package and scope of the campaign.

Ad exchanges, on the other hand, use real-time bidding (RTB) as their weapon of choice, based on the market or competition. Both parties in question enjoy flexible pricing models, with ad networks also using RTB, which grants them a slight edge due to more options. In addition, typically the better performing creative enjoys a lower price since it requires fewer impressions to get the desired KPI.

Then, there’s the issue of transparency. Ad networks are often referred to as “blind” networks because of their limited transparency. Publishers have very little or no insight into who is buying their inventory and at what cost, whilst advertisers have little control and knowledge on where their ads are appearing and who is looking at them. That’s not to say things are all that bad. Several ad networks have high transparency levels and offer control over ad placement, it’s just a matter of sticking out between fellow competitors who give the entire business a bad rep. Basically, both sides experience a certain lack of transparency when it comes to the inventory/ad route.

An example based on Procter & Gamble illustrates how this issue is affecting the market. As one of the world’s largest advertisers, the company cut its digital media spend up to $140 million in 2017. The reason why is the increasing levels of ad fraud, an issue especially evident with ad networks where bot traffic can reach up to 80% in some cases.

On a contrasting note, ad exchanges are typically more transparent to their fellow ad networks. Publishers know who is buying and at what cost, which is an added bonus as it helps optimize their inventory. Advertisers also have actionable insights in terms of impression-level data to better target users.

Positioning of Ad Networks and Ad Exchanges

The positioning of ad networks and ad exchanges in the online advertising ecosystem

Source: Dheeraj Son

The most notable (and often most relatable) comparison between the two sides is the stock exchange metaphor due to the seemingly natural balance of supply and demand in the digital ad market. In this Wall-Street-like plot, ad networks assume the role of stockbrokers who offer part of ad inventory that pertains to a specific intent or need. This is all done in the stock exchange – the ad exchange itself – which enables the buying and selling of the said ad inventory automatically on an open market.

What’s Better?

There is no clear-cut answer to this as it depends on your needs. For advertisers, there is usually little to no available time to cherry-pick through available inventory on display, which is where ad networks are super handy. They can do the work needed to present advertisers with specific inventories according to specific parameters (demographics, behavior, interests, etc.). As such, ad networks are not created equal, as some focus on wider reach and quantity while some focus on the inventory’s quality. Either way, they offer specificity in terms of niche ads that suit particular needs.

Ad exchanges take a different approach and move away from selling inventory in advance and in bulk quantities. They allow advertisers to measure prices for ad impressions across multiple websites, thus directly resulting in a cost-effective approach. By integrating with other tools (most likely DSPs and SSPs, just like ad networks do), the entire process of buying is automated through a real-time auction-based model, which adds to a more transparent and effective experience. Hence, you can say that ad exchanges offer variety.

It’s important to remember the mutual relation between the two parties. Ad exchanges often function as mediators for ad networks where they can freely engage in ad inventory deal-making among themselves. The ad tech industry, for better or for worse, has quite a few technologies that all together add to a baffling number of confusing terms. What’s more, the majority seems to be stepping on each other’s toes in terms of seemingly identical roles. Hopefully, by now, you gained a pretty good understanding of how ad networks differ from ad exchanges and what their roles are in the grand scheme of things so that you can use them to your advantage.