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Two Seconds on Ad Exchanges

I have recently been thinking about the value that Advertising Exchanges provide and here is my big conclusion:  They are daisy chain management systems.  Historically, every publisher would negotiate with a bunch of advertising networks to monetize their excess impressions.  One network might pay two dollars for the first one thousand impressions.  Another might pay a dollar for the first five impressions they get of every person on the site and a quarter for every impression after that.  A third might pay fifty cents for every impression they receive.  Publishers constructed complex chains to route and re-route impressions and maximize their value.

The problem with this model is that the way that networks were buying impressions was the easiest thing they could come up with to facilitate daisy chains and not always the best way for them to represent the value of an impression to a publisher. 

For example, if a user had visited several sites shopping for a product, he is probably eligible for one or more retargeting campaigns.  Many of the networks in the daisy chain may be willing to pay more for that impression, but they have no way to signal that without having the impression be explicitly routed to them.

Advertising Exchanges are working to offer tools to address this.  If networks can express the exact value of impressions in a real-time auction environment then publishers will maximize the value they receive for their inventory. 

Having said that, the tools today are nowhere close.  Fun stuff!

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