Google buys DoubleClick, Yahoo buys RightMedia. Microsoft buys aQuantive and AdECN. Important? Absolutely. Relevant to you as a website owner in constant pursuit of Web success? Maybe not right now, but definitely in the near future.

Those acquisitions, made by these already massive media and software outlets, indicate not just their focus on Internet advertising as a whole, but more specifically the viability of the ad exchange model. Unfortunately, few people grasp the actual value proposition these exchanges provide, much less the players in the advertising network space or how to make them work to their advantage.

How Ad-Serving Works (In General)
There is more to the economics of the advertising exchanges than the “advertiser buys, publisher gets paid” scenario. In fact, there are often numerous variables (and often middlemen) that come into play - all of which affect these advertisers and their publishers greatly. As such, it is important to understand how all the pieces come together.

Most publishers, networks and advertisers (regardless of size) have their own ad servers. What happens is that a website must request (typically through an HTML or JavaScript snippet) content from the ad server. When a user loads a page, the code informs the browser to open a new in-page window which returns content from the ad server.

The situation gets more complex however when each and every party (advertiser, network, and publisher) has their own ad server – specifically when each has their own tracking and reporting to follow. Unfortunately, this is where it gets complex. The problems with stand-alone ad servers are that there are pricing inefficiencies, integration challenges, high latency and often slow ad serving.

Pricing inefficiencies come to light when advertisers (as they rightly deserve) request more advanced targeting (geographic, demographic, and psychographic). This adds a much more dynamic and complex level of ad serving which smaller networks have difficulty achieving with any measurable success. In the end, smaller publishers must implement manual processes while larger publisher develop advanced prediction algorithms to serve the right ad, to the right person at the right time. The result of this advanced segmentation is the majority of dollars spent on ad networks goes to the larger players.

Technology integration makes the ad serving process much more complex as well. Enter prediction algorithms, contextual targeting and behavioral marketing and finding the right mix which produces the best return on investment for advertisers and the highest revenue for publishers is nearly impossible. The only solution for advertisers and publishers is to either accept pricing inefficiencies or work harder (or smarter) to develop advanced segmentation technologies.

Latency and slow adserving are other problems as they currently exist outside of ad exchanges. Why is this an issue? Each request made from a web page takes time – crucial time. The more nodes that a user’s browser must make to get to an ad, the longer the page will take to fully load. When a page is not completely loaded, the number of impressions will not add up.

The Solution: Centralize
The answer for many of the larger enterprises has been to centralize their entire ad serving needs into one central location – commonly called an exchange – which serves up the ads. DoubleClick, RightMedia and smaller independent agencies like AdECN (recently acquired by Microsoft) operate in an environment where pricing inefficiencies, technology integration and latency are less of a worry as everything is centralized. There is obviously a lot of value being brought into the market through these exchanges and large-scale advertisers (and publishers) recognize this.

For example, Terra Networks, a popular Internet portal for the U.S. Hispanic audience, announced in late June that it began offering the DoubleClick DART Adapt system as an enhancement of its online advertising service which Terra hopes will help clients maximize the performance of their online campaigns. A number of Terra Networks’ clients have already experienced significant improvements to their online campaigns as a result of DART Adapt (in some instances seeing increases in clickthrough rates as much as 200 percent).

The problem as many see the situation however is that since both Yahoo and Google (and now Microsoft) have their own exchanges, it will be nearly impossible for them to offer a neutral environment, instead perhaps favoring their own proprietary advertising outlets.

If your enterprise is simply not large enough to compete with the likes of the Google’s and Yahoo’s of the world when it comes to serving, buying and selling advertising, know that there are alternatives which work exceedingly well. For example, OpenAds, an open source adserving solution, is immensely popular and is currently used on over 20,000 publisher’s websites. So what kind of opportunity exists for users of OpenAds and the company itself? According to James Bilefield, CEO of OpenAds, “The industry has consolidated fast over the past few months, and many online publishers are getting concerned about the consequences. In this environment, Openads, which offers a fully independent, reliable and free solution used by thousands of publishers all around the globe, offers a really attractive choice for their ad serving needs.”

It’s the “choice” that is, and will remain, so appealing to independent publishers.