Ad exchanges are similar to stock exchanges but the biggest difference is that in ad exchanges you buy ads and not stocks. Ad exchanges were introduced when the internet was exploding with a lot of new websites coming in but not knowing how to monetize their unsold inventory. Ad networks were a norm but even they were not able to sell all of their inventory. Since a lot of this inventory was now being unsold this is where right media exchange saw an opportunity to create an exchange where in all these websites could start listing their inventory which was unsold.
Programmatic which had already evolved in search engines was now adopted in display advertising through ad exchange. Advertisers could not just come in the ad exchange and buy the inventory that they were looking for buy placing a bid and if all the criteria matched from the inventory that came in from the websites and if the bid was higher than the next advertiser then the ads were delivered. Doubleclick was another ad server which entered the adexchange market when ad exchanges started evolved in mid 2000’s.
Ad serving in general is not a very profitable business but since being an ad server gives the tech companies good look at the inventory that the publishers have and since they already have the presence on the publishers websites, it was much easier for them to create an exchange and allowing publishers to just tick a box in their ad server to list their inventory within this exchange.
Ad exchanges will usually make a percentage of every transaction that happens between the advertiser and the publishers. Doubleclicks major revenue came from its exchange similar to rightmedia exchange which then got bought by Yahoo. Doubleclick was then bought by Google.
Ad exchanges have evolved a lot as technology adoption has changed in past 10 years or so. The use of cookie and introduction of RTB has changed how the transactions happen in ad exchange. With introductions of SSPs and DSPs an ad exchange can play different roles now. Even though at one point it was very profitable ad exchanges except some of the big ones like Google are now sort of dying down.
I will talk more about ad exchanges and its future in my next few articles.