Ad exchanges (sometimes, referred to as programmatic ad exchanges) are technology platforms that facilitate the real-time buying and selling of online media ‎advertising inventory from multiple ad networks. The approach is technology-driven as opposed to the ‎historical approach of negotiating price on media inventory.‎

In today’s advertising arena, technology is a main factor in how, where, and when an ad is served. In ‎this article, we will outline the process in which the Ad Exchange works, and the process in which an ad ‎is served in an auction decision making.‎

There are 2 major players; the Publisher and the Advertiser. The online user is the initiator of the ‎process, while the exchange makes it all happen.‎

The auction process:

A user is reaching a publisher’s website (with an Internet browser) – a page request is made.‎

The site is loading with its page, images, articles and HTML data (arriving from the publisher’s ‎web server). While the site loads, areas in the site (that are set as ad slots) are calling the ad ‎server. The ad server recognizes that an ad slot is on the page and that it needs to be filled. ‎An Ad request is then made. Basically, what this request to the Ad Server is stating – is that the ‎publisher is willing to sell his specific inventory, allowing advertisers to buy this inventory.‎

The Ad Exchange is then promoting to sell the Ad Slot, allowing the advertisers to bid for the ‎impression.‎

The Ad Exchange is presenting the Ad Slot request for the bid (defining the publisher’s ‎requests; Geo Targeting, Frequency capping, allowed advertisers, and more targeting ‎options).‎

All advertisers on the exchange are applying for the auction. The Ad Exchange is then ‎reviewing all advertisers. First, the Ad Exchange  eliminates the advertisers that do not meet ‎the Hard Targeting requests of the publisher. For example, assuming the ad is set to be placed ‎in a France web site, the publisher has specifically requested a French Ad, and as such – the ‎exchange will now eliminate all non-French advertisers. With this, the Ad Exchange assures ‎that only the requested Targeting for this Ad Slot are met.‎

Next, the Ad Exchange will review the likelihood of an Ad to convert. How best this Ad will ‎perform, based on historical data that is kept on the exchange.‎ Having all the data in place, the Ad Exchange then reviews the bid presented by each ‎advertiser. Adding all the information gathered (bid + prediction) the exchange set a lowest ‎common denominator (in order to compare all bid options).‎

Since the advertiser can have campaigns in CPA, CPC, and CPM payment models, the Ad ‎Exchange response is to align all campaigns to one common denominator – in order to ‎compare all applied advertisers as optional bidders, and a winner is set (based on the highest ‎CPM).‎

The Ad is then served to the Ad Slot and the impression is presented to the user.‎

This entire process has to happen virtually instantaneously to ensure a quality experience for a ‎website user. From the moment the page begins to load, to the publisher’s tools farming it off ‎to an exchange, to the exchanges receiving bids from their own users (advertisers), to being ‎filtered through the verification systems (targeting), and finally returned by an ad server – it all ‎takes place in around less than half of a second.‎