In a recent piece for AdAge OpenX’s Tim Cadogen makes a strong case for more interoperability between the growing number of ad exchanges and inventory aggregators. He argues that efficiencies can be achieved by letting ad impressions flow from one exchange to another. He outlines four key benefits of interoperability:

First, there are scale benefits. Scale is important for both the breadth and depth of monetization. Connecting exchanges means connecting more pools of supply and demand to each other. This increase in scale attracts more buyers and sellers to exchanges, which increases the chances of buyers and sellers successfully executing a transaction. That means fill rates, or the percentage of time buyers and sellers complete a mutually valuable transaction, increase. This can be thought of as more breadth.

In addition, scale increases the depth of competition by attracting more buyers. For example, if there are 5 bidders for an impression the chance of the impression achieving its true (maximum) economic value is generally higher than if there are 2 bidders. Scale therefore drives up effective RPMs (revenue per 1,000 impressions) by encouraging deeper and thus more intense competition.
Second, interoperability could reduce economic search and discovery costs. A larger pool of inter-connected inventory increases the chance of buyers finding the inventory or targeting the users they are trying to reach with their ads.

Third, interoperability can further reduce economic transaction costs by reducing the friction associated with using multiple exchanges. A seller or buyer only needs to participate in the exchange of its choice. Through interoperability sellers and buyers will be plugged into other exchanges, eliminating the need to sign-up and manage multiple accounts, bids, budgets, or reconcile reports from different sources. For buyers there is the added benefit of campaign controls (like frequency capping) being applied globally.

Fourth, interoperability enables a heterogeneous exchange environment. That means that rather than there being one uber-exchange there can be several that cater to various sectors of the market in different ways, whether through regional focus, particular functionality or market segment focus. This also helps keep the market open and preserves choice for buyers and sellers.

How will it work? Cadogan gives an example of how the different platforms might interact with each other:

To make the idea more tangible, consider a hypothetical example involving Right Media and OpenX Market (my firm) inter-operating. For instance, OpenX could have an ad impression that it makes available to Right Media demand. Right Media inspects the impression, ascertains if there are interested ad buyers and then responds to OpenX Market in real-time with its top bid (or maybe several bids). OpenX Market then factors that into the auction for that impression. And of course this can also work in reverse, with OpenX Market-sourced demand competing for Right Media-sourced supply. Then apply the same concept to the idea of Right Media inter-operating with the Doubleclick Exchange and OpenX Market inter-operating with the Doubleclick Exchange and you get the idea.

Chart: Ad Exchange Interoperability

It's an interesting perspective, but it's difficult to see how Doubleclick, RightMedia or the yield optimisers will work together. Interoperability is a problem we'd like to have in Europe. The major issue we have at the minute is actually getting publishers to trade on the platforms.