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Thanks to the Department of Justice, we now know what Google really thought about header bidding

Thanks to the Department of Justice, we now know what Google really thought about header bidding

In less than two weeks, the Justice Department and Google will face off in a federal district court in Alexandria, Virginia, over allegations that Google operates and maintains an illegal monopoly in the digital advertising market.

In the run-up to the trial, hundreds of statements, emails, witness statements and other documents filed with the court have been unsealed since last week and this week – and that is a real goldmine.

Some of the documents have been heavily redacted and other evidence remains under seal, but what is available offers a fascinating glimpse into how Google talked about its own products when no one else was watching – particularly tools designed to counter the rise of header bidding.

The trial begins on September 9th under the chairmanship of Judge Leonie Brinkema. Here you can get a brief insight into the agenda.

“Why the first look is crucial”

One of the main allegations in the government’s lawsuit is that Google manipulated auction dynamics to insulate itself and deprive rival ad exchanges of the scale they needed to compete.

A prime example of this is header bidding. It was first introduced by publishers about a decade ago as a partial workaround to circumvent the close relationship between Google’s ad server and its ad exchange.

To neutralize header bidding, which Google viewed as a serious threat, the company began testing a product called DFP First Look, which allowed publishers to give certain preferred buyers access to their inventory before they had access to the reserved inventory in their ad server.

Google positioned it as better for publisher revenue and better for win rates on open exchanges. But in fact, according to Google’s own internal documentation, it was better for Google in particular.

A slide from a Google presentation on DFP from April 2015 entitled “Why First Looks Matter” was presented as evidence.

The slide states: “First Look provides access to the most valuable cookies and therefore the highest paying impressions. Without First Look, we are left with inventory that other buyers have already viewed and were unwilling to pay for.”

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Last look “gives big advantage”

Over time, Google took further steps to prevent header bidding.

The company began beta testing a tool called Open Bidding (OB) (previously called Exchange Bidding in dynamic allocation) in 2016, which allowed publishers to bid for impressions in AdX using their own demand.

Google portrayed OB, which was fully rolled out in 2018, as an improved and more publisher-friendly version of header bidding that would maximize demand. But according to the Justice Department, it was actually a Google-friendly attempt to disadvantage competing exchanges by hurting their chances of getting impressions.

Because even though Google eventually gave up its first-look advantage, it continued to run a second-price auction in AdX. This meant that Google still had the opportunity to cherry-pick the best impressions and outbid other exchanges.

It’s no big deal to give up the first look when you have the last look.

In 2019, Google moved to a first-price auction and also gave up its last-look advantage in AdX, partly because it had to. Most exchanges had already moved to first price.

Google was well aware of what it meant to give up the first look.

In an unsealed but still largely redacted Google position paper marked “Privileged and Confidential (Please do not share)” on the migration to a first-price auction, Google acknowledges that the “last look” “creates a big advantage.”

According to the documents, the loss of this advantage will result in a 21% loss in revenue for Google’s display ads and 9% for DV360 – a total of 14%.

In 2019, Google moved to a first-price auction and also gave up its last-look advantage in AdX, partly because it had to. Most exchanges had already moved to first price.

“Extremely sensitive”

Meanwhile, other ad exchanges saw spending decline after switching to First Price and Unified Pricing Rules (UPR), a feature that automatically optimizes minimum prices in Google Ad Manager.

According to the Justice Department’s original complaint, Google used the move to first-price auctions as a cover for introducing what the company calls other “controversial” changes, including the introduction of the UPR agreement, which eliminated differential minimum pricing.

Publicly, Google told publishers and others that this combined change was a good thing because it would simplify the programmatic buying process. Internally, however, Google admitted in the complaint that the move to a first-price auction was primarily a smokescreen to introduce UPR and thus prevent publishers from favoring other ad exchanges.

These other ad exchanges, including Rubicon, quickly felt the impact.

In an August 2019 email thread, Lindsay (Adishian) Pursell, then an Authorized Buyer (AB) Account Manager, observed that “Rubicon and the larger Exchange Bidding (EB) community have seen a decline in spend since First Price/UPR.”

A little later in the chain, Barbara Piermont, then head of industry and exchange bidding at Google, asks what advice Google should give Rubicon.

“It’s just that it’s now more competitive and they’re having to increase their bids to win as well as they did before,” she asks. “Do we think this trend will increase when we move to 100%, or will AB buyers have ‘learned’ how to bid properly in a 1p auction by then? What impact is the EB business likely to face when this happens?”

Art Price, Google’s head of analytics, said in his response that the team should meet to “discuss how we want to communicate this information (verbally) to Rubicon.” (“Verbally” is in parentheses in the original email, supposedly to highlight the danger of putting certain points in writing.)

“Bid higher to compete in a more competitive environment is part of this,” Price continues, “but another important aspect is the imposition and use of minimum requirements, as in many cases these did not apply before but will in the new post-UPR world.”

Then Haskell Garon, then senior product manager for sell-side platforms at Google, chimes in with a little warning:

“Just a reminder that any information regarding share shifts between OB/AB is extremely confidential and is not something we should share externally (and should be treated with caution internally). Let’s talk about it in communications if there are any questions about how we should communicate this to Rubicon or other buyside clients.”

Now there are undoubtedly questions about how all this will be presented to Judge Brinkema in court starting September 9.

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