• by Ryan , Anand Subramanian , January 30, 2008

In online advertising, relevance is everything. Internet users hate and ignore ads randomly rotated on the Web pages that they visit, unless the ads are for products and services pertinent to their lives.

The genius behind Google's search business is the ability to deliver users text ads that are highly relevant to the terms that users have entered in the search box. (Well, most of the time. There are those occasions when the suitcase ad runs next to the story about the headless body found in a suitcase.) The challenge for media buyers of graphical ads, which are preferred by most major brands, is to find inventory at scale that's contextually relevant (and appropriate) for the brand message without having to buy from 100 different Web sites.

Ad networks have evolved in their sophistication so that in the case of vertical specialists such as The Travel Ad Network and Good Health Advertising, media buyers can reach tens of millions of users who demonstrate their interest in vacation travel or medical conditions by visiting one of the many sites in those networks.

Since they control most, if not all, of the inventory they represent, the networks can offer premium inventory. But they're limited by the number of sites included in their networks. In fact, not even the biggest general interest ad networks or the portals control enough premium inventory to be able to shift significant dollars away from TV.

This is where ad exchanges come in. The mission of exchanges is to provide media buyers with inventory at vast scale, at the best possible price and make the buying process as easy as possible. And provide media sellers access to vast number of buyers at the best possible price making the selling process as easy as possible. It's about eliminating barriers to business.

Exchanges, unlike networks, site rep firms or marketplaces are agnostic and let both buyers and sellers control pricing and what they buy or sell. Ad network arbitrage that makes money on the inefficiency of the market place is serving the advertises more than the publisher. Site rep firms create a service fee and so, serve the publisher more than the advertisers. Marketplaces serve the owner of the marketplace more than any other party.

If you take a close look at the ad exchange market, it's easy to see that not all exchanges are the same. Some focus on moving inventory of any size and shape (read: remnant) through the system, without differentiating one eyeball from another, unconcerned about the contextual relevance of the placement to the advertiser's message.

Others incentivize publishers to allow them first crack at their premium inventory by enabling site publishers to set a minimum price that they will accept for their inventory and assure that the ads run in a clean, well-lit contextual environment. This takes very specialized and evolved technology that not every exchange has.

There's no risk to publishers to offer their inventory to exchanges that might earn them more money than the ad networks or Google's AdSense. If the exchange doesn't clear the inventory at the asked for price, it can be rerouted to the ad networks and remnant exchanges.

An exchange is only as good as the buyers and sellers. Period. The exchange that can attract buyers and sellers of all types of inventory, of all sizes (small or big), without disrupting how people earn their keep in the business today will be the exchange that becomes the standard. There are the 4 things an exchange must do:

1. Allow everyone to participate

2. Allow everyone to control pricing (not just one sided auction but double sided auction)

3. Allow for control over what they sell and what they buy (no blind buying or selling)

4. Allow for them to adapt to this with no opportunity cost or cost to switch over.

At the end of the day, when ad exchanges can deliver the buying efficiency they promise agencies and their clients, you'll see billions of dollars flowing through them.

Subramanian is CEO of ADSDAQ, an online advertising exchange. His vision was to develop an easy-to-use ad exchange that brings together advertisers and publishers to enable mutually beneficial advertising transactions. Before joining ContextWeb, Mr. Subramanian was Vice President of Product Development at Gobi, Inc., a provider of accessible home computing and Internet connectivity.