Today's column is the first of a two-part series and written by Esco Strong, Director, Exchange Marketplace Management at Microsoft
Even if you’re but a casual follower of the digital display advertising space, one such option and term you’ve no doubt heard in kind over the past twelve months is "Private Exchange." From panels to blogs to product pitches, I have seen the term bandied about by a variety of players and in different contexts, to the great confusion of our industry. It is sometimes even used to describe fundamentally divergent concepts and products. I would like to end that confusion.
In this blog series, I will attempt to clarify the key concepts, verbiage and use cases of what a "Private Exchange " is, and is not. Part one will focus on explaining some of the different use cases and ways this terminology is used. In part two, I’ll dive deeper into what "Private Exchanges" can offer and analyze the various use cases and implications of using the different types of exchanges.
I won’t cover all of the possible permutations here, as the term has been used quite extensively within the industry to mean all sorts of different things. I will instead focus on the most common scenarios that touch the core functionalities involved in this area:
Use case #1: "Private Exchange" = a siloed marketplace with controls managed individually by publisher
This scenario describes the most common use of this term. It has been created as, and has come about as publishers seek to leverage the brand equity of their own inventory as well as exert control over the management of their yield and channel strategy. In this example, a publisher typically piggybacks off of an existing RTB platform, but sells within a separate instance of that platform. Their inventory is therefore "siloed off" from other suppliers and sold separately. , and the technology and marketplace are white-labeled with their branding.
In this model, some level of sell-side controls are typically granted to the publisher, such as transparency, pricing, creative auditing, and demand exclusion or biasing. In this model, the publisher has greater control of their destiny and is better able to control the quality of demand and ad experiences that appear on their inventory. This model also provides a publisher greater ability to manage and prevent conflict amongst their indirect and direct sales channels.
- Separate marketplace where publisher represents their own inventory
- White-labeled version of RTB technology built and maintained by others
- Publisher controlled yield management
Use case #2: "Private Exchange" = a tiered auction model
Sometimes the term "Private Exchange" can be used to describe a tiered auction or a tier within an RTB exchange auction where certain bidders are given preferential access. This can be due to technological limitations where an RTB platform is unable to perform a set of complex and varied rules within a single auction. The tiering may also be implemented by design in order to give certain bidders preference and allow them to exert greater control over the sale of the inventory.
A publisher may choose this option as a means of ensuring only high-quality demand against their inventory, an idea that seems particularly appealing to publishers wanting to expand into RTB sales, but that are also wary of the lack of control and visibility that that affords them into who their buyers are and their methods. The method can also be used to enact preferential relationships and deal terms for certain buyers that the seller has signed offline agreements with, such as trading agreements or broader selling agreements that may span direct-sold inventory in conjunction with RTB buys. Alternatively, they could also tier their auction in order to achieve differing price points in subsequently bidded auction rounds, where prices are initially higher and offered to select bidders, then decrease in subsequent rounds or tiers if the impression is not sold in the more expensive tier.
- Tiered auction with some bidders accessing the inventory ahead of others
- May be part of broader trading agreements or deal terms with preferred demand partners
- Different pricing, transparency, availability, or other characteristics by tier
Use case #3: "Private Exchange" = an exclusive-access ad slots with predefined transactional terms
This is another popular use of this term that doesn’t really refer to an "exchange" at all, at least in terms of auctioning-off the inventory with multiple bidders vying for each ad impression. Rather, buyers and sellers negotiate predefined terms for pricing, availability, transparency, etc., and simply deliver deals on those terms through an RTB-enabled exchange platform. This typically occurs independently from and prior to the auction tier within a publisher’s channel hierarchy, and is sometimes described synonymously as a "private ad slot."
- No competition for each impression
- RTB-style delivery to buyer to leverage real-time decision-making capabilities
- Pre-negotiated (offline) terms between buyer and seller
As alluded to earlier, there are instances where the "Private Exchange" term is currently being used to describe a combination of these scenarios that may incorporate some or all of the elements depicted above. Check back next week for Part II of this series (click here for Part II), which will build upon these definitions to offer some thoughtful analysis of each, as well as the implications for publishers.
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