Something has to change in the open exchange market, argues Irfon Watkins, CEO of Coull. Fraud, lack of transparency and the increasing popularity of private marketplaces are the main problems assailing open exchanges. But with a proactive approach, today's exchanges could be set back on track for continuing growth.

The purpose of an exchange is to provide an efficient platform for the selling and buying of inventory at scale. Scale in both supply and demand creates liquidity; which, in an ideal world, enables continuous transactions without price degradation.

By 2016, ad spend on private marketplaces is expected to hit USD$3.31bn and practically a third of display ads on auction in the US will be sold through private marketplaces, while investments in open exchanges are not expected to increase at all. The opacity of the exchanges, and the fraud that they allow, is upsetting the balance of the ecosystem; and the rise of the private marketplace is a proof that things need to change. In the current open exchanges pricing has declined rapidly, reflecting the well-known issues with oversupply and lack of trust in the video advertising market; which has triggered the movement of brand budgets into more tightly controlled private marketplaces. How can we address these concerns and catalyse a resurgence in the open exchange model and the transactional efficiencies they bring?

Be proactive in restricting inventory

Most exchanges take a cut from both their supply and demand partners, sitting pretty in the middle as an impartial, agnostic connective tissue between buyers and sellers. While paying lip-service to the inventory quality concerns of advertisers, until recently, there hasn’t been a concerted push by exchanges to proactively restrict the inventory that flows into their marketplace, as it would hinder short-term revenue.

This recalcitrance to taking responsibility for questionable inventory has enabled fraudulent practices to blossom, with bot traffic and misdeclared inventory fuelling the exodus to more rigorously controlled PMPs. The first step in bringing trust back to open exchanges is cutting out fraudulent inventory before it reaches the auction house. Steps to address this issue are being taken, with AppNexus recently announcing at ATS London their move to cull suspect inventory, but there is plenty more to be done.

Optimisation can’t happen in a vacuum

Data is held up as the digital messiah, the key to delivering targeted advertising at scale and moving away from the scatter-gun approach of old. Despite this, there’s a real paucity of data being made available to DSPs during the bid request process. A DSP’s job is to deliver results from media spend for less, to be relentlessly optimising and refining buying practices. This process just isn’t possible in a data vacuum and that needs to change.

For starters: win/loss notification. DSPs are crying out for a simple callback to let them know they whether they’ve won an auction they’ve bid on or not. It sounds simple, and it is, but it’s not something that’s common and leads to DSPs often exceeding a frequency cap on a particular user because they didn’t know how many auctions they had won. This is inefficient.

Today’s exchanges are, to an extent, restricted by the OpenRTB specification, but it’s astonishing to think efforts haven’t been made to enable automated bidding on specific IAB-standard content categories and that in these turbulent times pre-bid viewability data isn’t being included in bid requests. These are data points that can enable buyers to make more informed decisions about the media they’re buying.

Trust and data availability are the keys to removing buying siloes

The only real difference between an open exchange and a private marketplace is the availability of information. You can’t blame buyers for seeking the safe havens of private channels when there’s such little rigor applied to open marketplaces.

However, I believe the future lies in a new breed of ad exchanges. Ad exchanges that validate and filter inventory pre-bid, creating trust, and add multiple data points to every bid request to give buyers the most information possible upon which to make decisions.

If this framework for the trading of inventory can be delivered at scale the opportunity exists to satisfy the needs of media sellers to access demand at a fair, resilient price-point and for buyers to access quality media at scale.