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If you haven’t already, be sure to read The Ad-Exchange Model (Part I) first as this is a continuation of that post.

Technology Integration

I’m sure you’ve got a picture in your head by now that there’s an annoying manual process here. Well, the technology piece gets worse. Today, most technologies that companies will consider “competitive advantages” are either optimization/prediction algorithms, contextual engines or behavioral datasets. Say we have this company called Google that has a great technology that matches ads to page content. The payout on each click depends greatly on what the ad is for. Pages relevant to autos or medication will net far higher payments than pages about the local pizza joint. So how is the publisher to decide when to show ‘Adsense’ over the $1.00 CPM deal he just signed? There’s absolutely no way for the Publisher to know the effective CPM of the adsense ad before he shows it.

Currently there are two ways that publishers manage this problem. The first is to simply accept an inefficiency in pricing. He may prioritize Google Adsense at $0.95 CPM across all pages because on average that’s what he can expect to receive at the end of the month. The other option would be to setup tens or hundreds of different tags targeted to different types of pages and then setup different prices for each. Again, this would require setting up tens or hundreds of categories in Adsense and then trafficking tens or hundreds of different tags into the Publisher’s adserver. Not really the best solution.

What about a behavioral advertiser that wants to buy New York Times traffic because he thinks he has data on some of the users. Since the behavioral data is stored in his cookie (see my post here about behavioral advertisers) there is no way for the Publisher to know which of his users will be valuable to the advertiser! How is he supposed to price this? This one isn’t so easy. One way is for the advertiser to simply buy a flat rate for all New York Times users and then simply count the users for which he doesn’t have data as a loss. The other would be some sort of rudimentary integration where the advertiser drops a pixel for the Publisher’s cookie domain for his users. Again, not ideal, not simple and INEFFICIENT!

High Latency/Slow Adserving

Each call to a different adserver costs time. The more hops that a user’s browser has to go to to receive the actual ad, the more likely that he is to click-off to another page before he actually sees it. Try it, go to and click through on a few links. How often did the actual ad finish loading? The higher the number of systems involved in an ad call, the higher the difference between how many impression the Advertiser and Publisher’s systems count. Last I heard, 5-10% of impressions are lost for each additional adserver that is added to an ad-chain.

The Exchange Model

Fundamentally I believe people don’t quite understand why Ad-Exchanges are key is because they don’t realize that an ad-exchange is simply a glorified adserver. Really… nothing special, just one centralized system instead of three or more. Take a look a the following diagram:

Exchange Model

Notice a difference? In this case, there’s only ONE request to ONE system, the ad-exchange. The exchange is the ecosystem through which advertisers, publishers and networks all manage their businesses. Some may integrate their contextual technologies, some may simply use the system to set prices. But it’s ONE ADSERVER! Lets revisit the three main challenges we listed before.

Pricing/Operational Inefficiency — On the Exchange

Now that the advertiser and the publisher are both on the same system the whole world changes. There is no longer a need to transfer “tags” back and forth, as all the data is in the same system. Pricing is also no longer an issue as the advertiser has integrated his technology solution with the exchange and can now bid a different price on each ad impression depending on the page the user is visiting.

Technology Integration

Although there is still a significant amount of work to be done to integrate an Advertiser’s technology solution with the exchange, it’s worth it since it’s work that only needs to be done once. Once done, this technology will work across any and all publishers. Imagine this, the New York Times starts using Googleclick as their adserver, which is, of course, fully integrated with adsense. The NYT no longer has to worry about inefficient pricing for Adsense as the technology will be integrated with exchange. On every ad-call, Adsense can check the page content and place and appropriate bid according to the types of ads that it would place. Genius right?

Now what about the Behavioral network? Of course it will integrate it’s data with the exchange, and again, on every ad call it can enter bids on the users that it has data on and even price differently based on the types of data. Of course it will be slightly more difficult to integrate technology with the exchange adserver as by nature it’s more complex than a basic adserver, but this doesn’t really matter. Since the Advertiser only has to integrate his technology once, with one adserver it’s worth the effort.

High Latency/Slow Adserving

This one should be pretty obvious. Since there is only one request, ads serve faster and fewer impressions are lost.

Final Thoughts

I realize this post is long, but I think it’s important that people realize the true value that Exchanges bring to the market. It’ll be fascinating to see how the market changes as Google and Yahoo each attempt to take control of the billions of dollars of advertising that flow through the internet every day. This new model will truly change the online advertising world for the better, except perhaps for those ad-networks out that there purely benefit from the pricing and operational inefficiencies that exist in todays world.

Stay tuned for more thoughts on the potential acquisition of 24/7 by Microsoft, securing an exchange, ‘broker networks’!

Clearly the recent acquisitions of both Doubleclick and Right Media by Google and Yahoo respectively signal a strong vote of confidence in the ad-exchange model. Reading all the news coverage of these two acquisitions made me realize that very few people out there realize the true value proposition of a centralized exchange. Sure, “transparent marketplaces”, and “auction models” are great, but why is this better than any of the existing ad-networks — Google Adsense,, YPN, etc.?

The Basics — A simple publisher serving ads

First lets start with a really basic question — What is an adserver? Before we can talk about an exchange, you have to understand how adserving works today. In it’s most basic form an adserver serves ads on web pages, tracks clicks on those ads and then provides reporting on the ads served and the number of clicks received on those ads. In the online space today, the vast majority of publishers, networks and advertisers all have their own adservers.

Ok, so how does it really work? Well, the first thing you need to understand is how the ad-request actually happens. To request an ad from an adserver the publisher, or website, must place an ad-tag on their page. An ad-tag is simply a snippet of HTML, generally either some Javascript or an IFRAME that tells the browser to request some content from the adserver. Here’s an example tag:


This little snipper of HTML, when placed on a web page, informs the browser to open a small window (460×60 pixels), and in that window place whatever content is returned from “×60&s=2948&”. When I loaded this in a browser I got the following response (truncated for clarity):

<a target="_blank" href=",AAAAAIQL[...]AOUINkYAAAAA,,,"><img border="0" alt=""height="60" width="468" src=""></a>

Which essentially tells the browser to load an image from (the ad), and then when the user clicks to send him to Here’s a basic little diagram that outlines this simple process:


Ok, so you understand the most basic implementation of a web-page with an adserver. Now lets look at reality.

Life gets complicated — the advertiser has his own adserver

In the example above, when an ad was requested the adserver immediately responded with an image. This implies that when it comes time to pay for the ads served that the advertiser is going to rely on the Publisher’s reporting system to determine how much money he owes. In reality the advertiser is interested in tracking information as well. What this means is that both the advertiser AND the publisher need to have their own adservers. Now, the publisher’s adserver can’t immediately return an ad, instead it returns a SECOND ad tag that points to the advertiser’s adserver. Here’s another pretty diagram:

Two Adservers

Now imagine that there’s an ad-network representing the advertiser that’s sitting in the middle, in which case what we get is:

Three Adservers

What’s wrong with this picture?

So by looking at the diagrams above I hope you get a sense that this isn’t the most efficient of ways to buy and sell media. Think about it, for each individual ad we have to request content from three different systems! This means three times too much work is being done. So lets dig a little deeper. Essentially, the traditional adserving model has three key problems:

  1. Pricing/Operational Inefficiency
  2. Technology Integration
  3. High latency / Slow Adserving

Lets dig into these three.

Pricing/Operational Inefficiency

One of the things I forgot to mention above is that each point of integration between two adservers is manual work. If the Advertiser wants to buy 10 million impressions at $1.00 CPM from a Publisher the following process generally happens:

  1. Publisher sales rep contacts advertiser
  2. Publisher and advertiser negotiate contract terms (e.g. 10M @ $1.00)
  3. Publisher and advertiser sign a contract
  4. Advertiser sets up the ads in his adserver and sends over the “ad-tags” for the media buy
  5. Publisher has trouble trafficking ad-tags into his system and contacts his support department
  6. 5 days later, Publisher finally manages to get the ad-tags live and the campaign starts

So what’s wrong here? First off, there’s a certain inefficiency here. When the advertiser decides he wants 10 million impressions he probably specifies a certain set of targeting parameters to ensure that the Publisher sends him users that will be likely to be interested in his offer. For example, he may want over 18 males with a maximum of 4 ads shown to each user every day. Clearly there is a problem here. Depending on the offer, 18-25 males might be far more valuable than 50-85 year old males. Also, the first ad the user sees is far more likely to elicit a response than the second or third. So what do people do? Well, instead of setting one fixed price for all over 18 users he could setup 20 difference prices. Ten different age buckets (e.g. 18-25, 25-30, 30-35, 35-40) and two different frequency buckets (e.g. first ad, second through third ads). Well, this makes life a little bit better but there are still some problems here. First off, the higher the number of pricing points, the longer the entire process outlined above takes. 20 price points means 20 different tags in the Advertiser’s adserver, and 20 tags to upload into the Publisher’s adserver, and 20 different tags for which the Publisher may need to contact his support department for help. Here’s a nice little diagram –

Many Lines

In this new digital age of APIs and digital systems, why the hell does this take so much work? Can’t we do this in a better way? Well, at some point people realized that pricing flat CPM rates for inventory wasn’t the most efficient way to do things and came up with Cost Per Click (CPC) and Cost Per Acquisition (CPA) pricing models. In these systems the advertiser simply specifies how much he’s willing to pay per Click or Acquisition (generally a purchase, or lead form) and lets the publisher’s system determine the best users to deliver ads. Although this system is better than the above it introduces another set of problems. The advertiser now becomes wholly dependent on the Publisher’s optimization/prediction algorithms, which may or may not be any good! I can continue here for ages, but I’m pretty sure you are getting a sense of how inefficient the current system is.

Enough for one post. Stay tuned tomorrow for Part II — Tech issues and how the exchange model helps.

Update: Part II is ready, read on here: The Ad-Exchange Model (Part II)

ClickZ has a great post tearing apart the Financial Times for writing an absolutely TERRIBLE article about the Googleclick acquisition.

Come on guys! Doubleclick sells adserving. Adserving + Search == Great match. Display is growing like crazy.

NYTimes — DoubleClick to Set Up an Exchange for Buying and Selling Digital Ads

This will make things interesting for my employer Right Media — is this the beginning of the next era of online advertising?


Battle over the Cookie

March 5th, 2007

The latest craze in online advertising nowadays seems that everyone wants to build an ‘exchange’ or a ‘marketplace’. Sure, there are certain efficiencies that a marketplace provides, but in all honesty, it’s all about the cookie.

You see, there’s no need for more marketplaces, there are plenty of them — Adsense,, Tribal Fusion, and any other ‘ad-network’ that you can think of. The problem with each of them is that they are ‘closed’ marketplaces. Not just from a ‘business’ perspective, but from a technology perspective as well. Sure, anybody with credit and a legitimate offer can buy from any ad-network, but lets say you want to buy based on your own data. It’s simply not technically possible to do that today. Well, sorry, it is technically possible, just a royal pain in the a$$ if you do.

Lets say you’re a marketer and you have some information about a set of online visitors that is extremely valueable. E.g., lets say you know for a fact that they want to buy a car because they took part in one of your promotions. Now, first off, lets just assume that every network has behavioral capabilities (which they don’t). If you wanted to buy your users when they hit inventory that’s available on one of the many marketplaces (networks) out there, you would have to pass that data into your users’s cookie for each marketplace’s cookie. You see, when you come to this site, you get a cookie from I can write whatever I want into that cookie. I can’t see any of your others cookies nor can anybody see my cookie when you go to other sites. So, how do you get data into each Marketplace’s cookie? Sadly, this is not something you can “push out” to the user, you can only set or change cookie information when a user comes to you. E.g., if after-the-fact you decide you want to work with Marketplace D when you’re already working with A,B & C, then the only way in which you can tell put your data into Marketplace D’s cookie is when the user comes BACK to your site!

So how do you actually set information in another person’s domain if you can only access information in your own cookie space? Rather simple actually, anywhere on your page you include a link to a tiny 1×1 gif image to the 3rd parties server with some information attached to it. For example, you could put: would then interpret that as “marketer1″ just told me that this user “likescars”, let me store that in my cookie. Can you imagine putting 20 pixels on your promotion page just to gather data? Well, that sounds like a pain doesn’t it? Well it is — and hence, most people don’t do it. So, you say, I hear there are these new ‘exchanges’ out there (e.g. Right Media has one, DoubleClick is building one, and several others are trying). Well, what really defines an exchange? It’s a platform that lets buyers, sellers and brokers all work together using the same system. And what is the only way that will work in online advertising — a single cookie domain.

If all the mini-marketplaces out there worked on the same platform, then our marketer earlier wouldn’t have much of an issue reaching his audience. He would simply put his data into the exchange cookie and then buy from whichever sellers on the exchange have ads to show to his users. It’s not just behavioral targeting that benefits from an exchange, many other factors as well.

Lets say a second marketer wants to reach as many unique users as possible with his new ad campaign. So, he goes out to all the major ad networks and places a buy with the top 10 networks and portals and informs each of them that they are only to show each user his ads once and only once. Well, ignoring the fact that some people clear cookies and hence they lose the ‘frequency cookie’, how many different ad networks serve you ads on a given day? If you go to one site, they might be working with, another with Tribal Fusion, etc. etc.. Well, if this marketer is paying big bucks, each network will choose to show you this ad, but only once of course! The problem is, none of these mini marketplaces knows about the other, so nobody will know if you first saw the ad on the NY-Times from when you show up on Yahoo. The end result, you might actually end up seeing the same ad many times! Guess what — a unified cookie solves that problem!

So why the title “Battle over the Cookie”? Well, people are starting to catch on that if they own the cookie, they own the market. Think about it, if one exchange succeeds in capturing a massive percentage of the market, the barriers to entry will be practically insurmountable. What value is your exchange if you can’t provide services like global frequency caps, cross publisher behavioral targeting, etc. etc.

So who’s fighting? Well, my employer (Right Media) for one. Doubleclick is said to be launching a marketplace, AdECN is another. I’d expect others to start soon — as long as someone hasn’t won, there’s still a chance.

Doesn’t it sound scary that an entire industry is so dependent on a little piece of data that many users hate? How many spyware-detection programs flag cookies as ‘desktop software’? Well, in case it hasn’t gotten to you, it’s terrifying and the industry is scared. If Congress were to pass a law that said 3rd party cookies are illegal, what would we do? There are some interesting technology solutions out there that claim they can identify you by your computer ‘fingerprint’ that might be able to help, but in the near-term, the industry would be screwed.

So kids… hate online advertising? Clear your cookies. Like the websites you vist? Keep ‘em =).

So, time and time again you see people rant and rave about how your privacy is being seriously compromised by the use of cookies. I must say, if you just read around on google, advertiser cookies are one of the most misunderstood beasts out there. Nowadays, practically every spyware removal program flags advertiser cookies as ‘SPYWARE/ADWARE’. Try it, google up tribalfusion cookie, or yieldmanager cookie, etc. etc.

Take this SpywareNuker page:

Some of the components are listed below. The list is compiled as a reference. The list might not be complete and it doesn’t represent instructions for manual removal. We DO NOT recommend manual removal. Incorrect removal of certain software might make your computer unstable or even unusable.
Removal of adware component might affect the related ad-supported software.

Sorry to say, but this is total bullshit.’s cookie doesn’t infect a thing and can be removed easily and safely by yourself. So what are adserver cookies and what’s stored in them? The most basic information that most adserver will want to know is:

  • which ads you’ve seen, and how many times you’ve seen them
  • which ads you’ve clicked on
  • which ads you’ve converted on

Yes — that’s right, adservers know when you buy things after clicking on an ad — but that’s another post. Now more advanced behavioral companies will also want to track which sites you’ve been to and what behaviors (or segments) you belong to. Allowing adservers to track you using cookies means you won’t repeatedly see the same ad, and you should see more relevant ads to your interests as you continue your path along the internet.

So how do companies store this information? There are two ways — client-side or server-side. Client-side involves storing all the information about you in your cookie whereas server-side the cookie simply stores an ID and all information about you is stored on some database somewhere. Doubleclick as seen in the below screenshot seems to have gone the server-side route and simply stores my “id” which maps to some data they have on me in their databases. The server-side route is great if the advertiser wants to store a lot of data since there are size limiations on cookies and you don’t necessarily want to transfer 10kb back and forth on every ad call. It’s not so great as it requires some serious database infrastructure to handle 10-100k read/writes per second to a single database.

Doubleclick Cookie

Burst seems to have gone the client-side route and stores all ads I’ve seen from them directly in my cookie files. It’s actually interesting to note that the cookie data from Burst is not-encrypted (big nono!).

Burst Cookie Files

Ok, so what does this all mean for the end-user? Well, indeed, there are companies out there that are tracking most of everything that you do online. Ad companies like Tribal Fusion know what you’re interested in and what you like to browse for. Hell, if Google succeeds in pushing Checkout to the world they’ll know everything you’ve bought, how much you paid for it and much more! All in all this sounds scary but it really shouldn’t be. Why?

First off, none of the information _should_ be personally identifiable. Cookies are tied to your computer, not your name. So if you switch machines often, or clear your cookies, all history is immediately erased. Now, some argue that if your browsing history is stored it should be possible to figure out exactly who you are. Lets be honest, why go through all the trouble if there are much easier ways of figuring out what you’re doing online? If you’re worried, go download an anonymous browsing tool (there are plenty), or visit the little known-of ‘opt-out’ pages that almost all online advertising companies have. Some examples: Opt-out, Yieldmanager Opt-out, Doubleclick Opt-out. If you do go the opt-out route, don’t clear your cookies because that’s the only way they’ll know you don’t want them to track you!

So whichever route you take, don’t forget that the websites you visit can provide you with free content because of the money they receive from advertisers. Cookies are one tool that advertisers use to help track revenue and regularly clearing them can cost your favorite sites money. My personal choice? I clear my cookies every month or so but am perfectly happy to let companies track my behavior to show me more relevant ads. Hell, I’d much rather look at an ad for some new tech gadget than ‘punch the monkey’!