Web ads

Web advertising's master auctioneers

January 5, 2012: 12:38 PM ET

Upstart AppNexus holds its own with heavy hitters like Google in a booming field for online ads -- the real-time auction.

By Alex Konrad, reporter

FORTUNE -- When you visit just about any website these days, ads appear as the site loads. But what you can't see is that many of those ads were not predestined for your eyes -- advertisers won the spots in near-instantaneous auctions occurring in the quarter of a second between click and use of the site.

Real-time online advertising through such auctions is a rapidly growing business, and Google (GOOG) has made it a critical part of its advertising ecosystem. But the far smaller AppNexus has emerged as another leader by taking a page out of Google's playbook.

AppNexus is a product of CEO and co-founder Brian O'Kelley's goal of broadening the online ad exchange platform that he developed with Right Media (which he sold to Yahoo (YHOO) in 2007) to offer an open market that works across the gamut of software platforms that companies use to buy and sell online ads.

The ad exchange itself emerged to solve one of the major problems of online ad sales: much ad inventory (spaces where ads appear online) would go unsold as buyers and sellers couldn't always match up in time. The first step was for companies to aggregate their available ad across a swath of sites, says eMarketer analyst Lauren Fisher. From there, basic exchanges emerged, increasing the scale of ad sales, and real-time exchanges have become the latest turn of the wheel.

Google and AppNexus both plunged into that space but, unsurprisingly, their paths have not been so similar. O'Kelley recalls that when he was first seeking investors for AppNexus, Silicon Valley venture capital was largely steering clear of New York-based startups -- although the company would receive backing from "super angel" Ron Conway, Venrock, First Round Capital, and others. Google, on the other hand, had the resources to build from within, and has grown rapidly in the advertising space thanks to its extensive reach on the web and some aggressive acquisitions, from DoubleClick in 2007 to Admeld last year.

Cordial competitors?

But ask members of the ad tech space about real-time ad exchanges, and you'll probably hear both companies mentioned in the same breath. For Google, the exchange is "one key piece of the puzzle" in producing an end-to-end advertising solution, according to Neal Mohan, vice president of display advertising. Google's exchange has grown 150% in the last year, Mohan says, with much of the sales from within its own network and clients of other ad managers like DoubleClick. More

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