…and how to pick one

Editor’s note: A while back, we told you about our purchase of Right Media, creators of the Right Media Exchange, but you still may not be sure why we bought them or even what they do. At Right Media, they get asked these questions every day. Now that they are part of the Yahoo! family, we thought we’d have them tell you in their own words.

You’re probably aware of what a stock exchange is—or at least aware that it somehow controls your destiny. But an ad exchange is something a little more foreign. In 2005, Right Media launched the Right Media Exchange and the online advertising community responded with a resounding “WHAT??”

An ad exchange works on the same fundamental concept as a stock exchange: it’s a (virtual) place where you can buy and sell stuff, in this case online advertising. Publishers and ad networks make their inventory available for sale, and buyers—advertisers and other ad networks—attempt to purchase that inventory.

Ad networks are critical for aggregating audiences. But if they’re disconnected from the rest of the market, they can hinder efficiency and profitability because they offer limited supply and demand. For publishers who “daisy chain” networks together based on their best guesses as to which networks will be able to pay them the most, manually prioritizing and allocating inventory to networks can be a hassle. For example, how do you know that the network at the top of your chain can pay you more than one at the middle of your chain? You don’t.

The online ad exchange was conceived as a way of opening up what’s closed, simplifying the complicated, and making more money as a result. In the exchange, all market players—advertisers, publishers and networks—are interconnected on a common platform and have open access to each others’ supply and demand. They trade inventory in a real-time auction, letting the market determine pricing.

Instead of juggling networks based on a lot of guesswork, publishers simply let all buyers (networks and advertisers) compete for each individual ad impression, and allocate it to the highest bidder automatically. The publisher gets more revenue on the impression with little effort, and the buyer, bidding according to its preset goals, can get better return on investment.

So what makes one ad exchange different from another? 

When you’re looking at joining an exchange, ask these questions:

1. Does it work in real time?  Using historical data is like checking yesterday’s weather to predict what to wear today.
2. Is it neutral?  A neutral exchange simply provides a technology that allows for buying and selling, and doesn’t attempt to hold all the relationships with the buyers and sellers.  
3. Is it scaleable?  If your site goes from 100,000 to 100,000,000 impressions a month, will that exchange be able to handle that volume?
4. Is it secure?  How does the exchange protect you as a publisher? (This is key: It isn’t as easy as you may think.)
5. Is there open competition?  Does the exchange allow non-members to compete with exchange members?
6. Is it a community?  Sure, there’s competition, but are there also forums so that people can communicate with each other and form partnerships?
7. Is it a technology platform?  Is it open, with APIs that anyone can connect to? 
8. Does it have publishers, advertisers AND networks?
9. Is there a solution for me?  Does the exchange offer a solution for both enterprise and non-enterprise publishers?
10. Are there strings attached?  What else does the exchange require you to do?

Making choices about your online advertising is difficult.  You are paying for bandwidth, building content—even feeding your families—so learning how to make a wise choice is imperative.  Be prepared to ask questions—HARD questions—when choosing an ad exchange. Most importantly, learn how to effectively use it.  Testing an exchange is different than testing a network, so learn from the community, get assistance from the exchange business teams.  Remember how different your world became when you went from dial-up to high speed?  Your online advertising is about to start moving that much faster.

—Jerri Gillean, Business Development Manager, Right Media Exchange