What the Tech is header bidding?

The programmatic advertising technique known as “header bidding” became a focal point in the Department of Justice’s (DOJ) antitrust case against Google. It’s rare that the arcane world of advertising technology becomes national news, but the DOJ’s antitrust case against Google has shone a harsh spotlight on the tech giant’s ad tech operations — specifically its response to header bidding.

Publishers introduced header bidding a decade ago to increase the number of non-Google ad exchanges bidding on their ad inventory. By increasing the number of bidders, publishers would ensure the best possible price for their ad inventory, maximizing their advertising revenue. According to the DOJ, Google subsequently introduced a number of tools to neutralize the practice and maintain its hold on the digital advertising market. The DOJ alleges that this conduct was anticompetitive and allowed Google to maintain an illegal monopoly. In response, Google argued that its products were “better at addressing publisher needs.”

To a layperson, that brief synopsis may make little sense, which is why we’ve compiled a primer on header bidding — what it is, how it works, and why it bears so much weight in a legal case that could radically transform the digital media industry.

What is header bidding?

Sometimes referred to as “advanced bidding” or “pre-bidding,” header bidding launched in 2014 to allow multiple supply-side platforms (SSPs) to bid on a publisher’s inventory before the ads went to the publisher’s ad server.

SSPs are ad tech platforms that allow publishers to make their advertising inventory available across different ad exchanges simultaneously. (Ad exchanges are auction marketplaces where brands place bids on ads offered by publishers.) In doing so, publishers can field a larger number of bids, and in theory, receive the best-possible price for their ads. At the onset, publishers reported earning 10% more from their ads when using header bidding. This made header bidding wildly popular with publishers, which adopted the practice in droves in the late 2010s.

But the DOJ has called into question whether publishers are dealing in a fair marketplace, because most use an ad server, Google Ad Manager (GAM), that’s owned by Google. And that piece of technology has allegedly tipped the competitive scales in Google’s favor.

What’s an ad server?

An ad server is the decision-maker in the ad tech process. It ingests all of the data that goes into an ad campaign, such as who the intended target audience is, and makes sure the correct ad is placed in front of the right consumer on the publisher’s website. Ad servers also house all the creative assets for a campaign and help track performance. An ad server, in short, is the central platform for executing and measuring ads.

The vast majority of publishers in the U.S. use Google’s ad server, Google Ad Manager. (For years, the product was called DoubleClick for Publishers, or DFP, and many in the digital advertising industry still refer to GAM as DFP.) According to the DOJ, GAM’s market share is 90%, and that level of market penetration constitutes a monopoly on the ad server market and further proof of Google’s anticompetitive conduct.

How does Google’s ad server relate to header bidding?

Publishers created header bidding because GAM was funneling publishers’ ads to AdX, its owned and operated ad exchange, before making the ad inventory available across multiple SSPs. In industry jargon, Google’s AdX got “first look” at a publisher’s ads and was able to make a bid on them before other SSPs even had a chance. The DOJ alleges this allowed Google to buy up lots of the most valuable publisher inventory (as long as it hit the publisher’s floor price) and then to pass the table scraps on to other SSPs. (Google bundling its various ad tech services together, such that it can be on both sides of a transaction, is a self-dealing practice called “tying” and is the basis for the DOJ’s case against Google.)

To circumvent Google’s first look, publishers developed header bidding, which sent ad inventory to multiple SSPs before GAM ever got a chance to take a look at it. Internal Google emails revealed in the antitrust case that Google employees were frustrated by publishers adopting header bidding and acknowledging that header bidding delivered better revenue for publishers. So Google countered with a new tool, called Open Bidding, that the DOJ alleges allowed it to squash header bidding and reestablish its dominance of the digital market.

How does Google’s Open Bidding tool work?

Header bidding negated Google’s first-look advantage, but Google nullified header bidding with a last-look advantage.

In 2016, GAM began beta-testing Open Bidding, a tool that Google said would be a better alternative to header bidding and ensure revenue optimization for publishers. Open bidding would allow competing SSPs into Google AdX, where they could — Google claimed — all compete on equal footing and engage in a transparent, open auction for publishers’ ads.

But because GAM operated as a second-price auction, Open Bidding allowed Google to simply outbid its rivals and still win all the most sought-after advertising inventory. When a bid came in from a rival exchange, Google would allow its own demand partners to bid mere pennies more and win the auction (i.e., the “last look” at the inventory). 

Last-look was just as effective as first-look, and a tacit acknowledgment that header bidding posed an existential threat to Google’s monopoly on the digital ad industry, the DOJ argues. “Open bidding decimated header bidding,” Jed Dederick, chief revenue officer of The Trade Desk, testified in the case.

Google ceded its last-look advantage in 2019 when it moved to a first-price auction for GAM, and internal documents show that it lost revenue as a result. Google replaced its last-look advantage with unified pricing rules in GAM, a tool that it, again, said would help publishers increase their ad yield. But unified pricing rules prevented publishers from setting different price floors for different demand sources, and publishers were upset with the loss of control. Again, there have been internal Google emails revealed at the antitrust trial in which Google executives acknowledged that unified pricing rules would be unpopular with publishers, but they went ahead with it anyway.

Where do things stand now?

It’s still up in the air.

Trial proceedings in the Google ad tech antitrust case have ceased, with closing arguments presented In November 2024. The judge’s ruling, expected soon, could determine the future of the advertising industry.

In the meantime, header bidding and the quest for optimal ad pathways live on.

The Current is owned and operated by The Trade Desk Inc.