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What is Header Bidding, and why did Google cut a backroom deal with Facebook to kill it?

by Harry Higginson, Media and Press Officer, Movement for an Open Web

The UK Competition and Markets Authority has opened an investigation into a backroom agreement between Google and Facebook, with a parallel investigation also being opened by the EU following the Texas Attorney General and others all suing Google in the US. But to understand this not-so-sweetheart deal, we must start with how Google has come to dominate online advertising – and why “Jedi Blue” was just the latest tool in the monopolist’s arsenal.

Jedi Blue is, at its core, a response to a response; a way for Google to counter moves made by a group of publishing competitors, which attempted to use other channels to market to by-pass Google’s monopoly and its abusive behaviour. 

There is an argument from those in the industry that Google basically operates by discriminating against third parties in pretty much every aspect of its business. Online advertising, as Google’s largest revenue source, is no different – and here’s how:

In the process of advertising something online, there are a number of different processes and systems that interact; from ad marketplaces, to servers where ads are stored, to automated systems that actually carry out the business of bidding on ads and clearing ad auctions. 

Google has its own systems that all interact without much friction in this system, but the same is not the case if you’re interacting with a Google service using a competing product. For instance, if Google’s Ad Marketplace AdX sends bid requests to non-Google buying tools, the two systems aren’t immediately compatible and have to be ‘synced’, causing delay for anyone not using Google’s products. In a time-sensitive environment, where serving a relevant ad takes a fraction of a second, Google’s products having frictionless access, while third parties experience delays, seriously harms competition.

The back story

Google started its journey to manipulation of online marketplaces following its acquisition of DoubleClick in 2008. Google changed DoubleClick to allow itself a first right of refusal over the advertising market – discriminating against publishers and depressing publisher revenues. 

Like insider dealing in a financial market, Google gave itself an advantage from information about bids on the market that only Google knows. This is because Google has control over final auction on publisher pages and owns a buying platform that competed in this auction, thus enabling it to see all the bids and adjust its rules to steer more transactions to its own software.    

Publishers then responded by introducing a key component in the story of “Jedi Blue” – Header Bidding. This system was designed by publishers to push back on Google’s control over the ad sphere, by allowing rival ad tech solutions – which compete to win the publisher’s ad inventory – to submit their bids ahead of Google’s own buying platform. This increased demand for the same advertising inventory, increasing publisher revenues often by over 30%. 

A key advantage of the system is that it allows for disintermediated access to ad inventory. In other words, it cuts out the middleman for advertisers looking for places to put their ads, meaning that advertisers no longer had to go through systems like Google’s AdX. Header Bidding, though a complex concept in itself, made the whole process easier – and Google trying to kill it would effectively put those walls back in place for other market participants.

Header Bidding also allows publishers to set a higher floor price for Google than other ad exchanges, which helped to maintain a competitive marketplace. This worked by preventing bids on other exchanges being undercut by Google’s self-preferential conduct. Google had, prior to header bidding, imposed auction rules that benefited itself far more than the publishers’ yield management, despite the original premise of better outcomes for publishers that had enticed them to depend on this software. 

Header bidding sought to level the playing field, but Google didn’t appreciate the competition. Google realised it was losing out, and appears to have then decided to use all of its online muscle to force others into submission.  

Google strikes back

Google’s initial response to Header Bidding was Last Look – which doubled down on Google’s practice of insider dealing and discrimination in favour of its own products. Last Look functioned by coming in at the end of the bidding process and offering Google the ability to override it. Once the header Bidding auction was over, Google ad manager would give the winning price to Google’s AdX, which was then allowed to buy the slot if it was prepared to top the winning bid – meaning if Google really wanted what was being bid on, they could secure it for themselves.

Google also introduced Accelerated Mobile Pages, which allowed it to technically block header bidding, and also introduced a new system called Dynamic Revenue Share. Normally Google was paid by taking a cut of 20 per cent of publishers’ revenue for each ad slot. Dynamic Revenue Share allowed Google to reduce its revenue share to, say 10 per cent when it faced competition – to offer a better pay out to publishers – and increase it to, say, 30 per cent when there was little or no competition. Again, Google utilised its market position, wealth and control to win no matter what happened.

Then, in 2018 Google then launched Open Bidding as an even more direct response to Header Bidding. In Open Bidding non-Google ad exchanges had to pay a 5-10 per cent fee to participate, Google’s own products didn’t, which gave Google a price advantage. Publishers were also forbidden from setting differential price floors for different exchanges, so could not encourage non-Google demand on their end.  In practice, price floors had to be set at the level of the lowest common denominator. But the result of Open Bidding was that it helped Google to buy up a larger and larger proportion of ad inventory at lower and lower prices for publishers, with Google reducing the opportunities for competition and making more and more profit.

Google publicity made much of the fact that Open Bidding did away with the obviously anticompetitive “insider dealing” accusation which has been levelled at its “Last Look” system  – but this was not the end of that story. It introduced a new system called Minimum Bid to Win, whereby after an auction price information would be shared with bidders who had taken part via Google’s tools AdX and Open Bidding, but not those who had come in via Header Bidding. This enabled AdX and OB bidders to train their algorithms to bid more effectively, and discouraged bidders from using Header Bidding – again shutting out non-Google competitors.

The deal

And now we arrive at Jedi Blue. In 2018, Google made a secret deal with Facebook, which had signalled it was going to join the Header Bidding publishers who were seeking to bypass Google’s systems. Facebook entering Header Bidding was a huge threat – as one of Google’s largest advertising competitors was about to line up with the competition which the tech monopolist wasn’t going to let happen without a fight. 

As such, the arrangement that came to be known by Google as Jedi Blue was struck. It was only revealed to the public by legal disclosure in the Texas Attorneys-General Coalition’s complaint in the US. The deal saw Facebook agree to commit hundreds of millions of dollars a year to Open Bidding, in return for a series of advantages in matching user ID – and crucially not to go against Google by supporting the rival Header Bidding technology. 

In an even more brazen attempt to circumvent competition, the deal ensured Facebook would hold “information, speed and other advantages” that would come from sticking with Google’s systems. Google would also guarantee Facebook 90 per cent of the auctions it took part in regardless of the bids, and promise longer time windows in which to place bids.

In recent weeks, Google has asked the court presiding over the Texas Coalition lawsuit to dismiss the case, arguing the case was wrong on the facts and the law – and that Jedi Blue had nothing to do with Header Bidding, because it was not explicitly stated that this was what Jedi Blue was designed to do. 

However, this has been met with robust opposition from the Texas Attorney General’s camp. It was highlighted that Google’s senior management recognised internally that header bidding as an “existential threat”, and explicitly made ending Facebook’s support of header bidding a “personal #1 priority.” Simply put, Jedi Blue actively and unfairly incentivised Facebook to continue using Google’s AdTech systems, at a time in which the social media platform were considering other options which threatened Google’s business.

Fall of the Jedi?

For Jedi Blue to be framed as entirely incidental to this attempt to “kill header bidding” is at best improbable, and is at worst a transparent farce on Google’s part.

“Jedi Blue” is, in plain terms, the culmination of Google’s anticompetitive and toxic market behaviour. It suppresses competition at every turn – and when it can’t, it will simply try to buy off big competitors, and split the spoils. Even when the market threatens to bite back with collaborative manoeuvres like Header Bidding, Google always has the power and security to snuff it out or neutralise the threat.

After all, who was Jedi Blue? An obvious reference to the Star Wars franchise, it is speculated to be related to the blue-skinned jedi Aayla Secura, a lesser-known character who was killed when her troops turned on her and betrayed her, after being ordered to do so by Chancellor Palpatine. 

Why the name was chosen is anyone’s guess. That said, there’s a certain ominous irony to naming the backroom deal after a character who was ultimately killed by a powerful figure, who had lulled those around him into a false sense of security by appearing as a benevolent ruler, disguising his malicious intent. We hope the same story won’t play out in real life – and Facebook will come to their senses, and see Google’s true colours before it is too late.

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