The "last-look" advantage Google’s ad server gave to Google's ad exchange so bothered publishers and exchanges that it gave rise to header bidding. As of this week, that advantage is no more, AdExchanger has learned.

Google just reworked its auction so it no longer favors itself in the allocation of bids.

A support document this week detailed the switch for Google's Exchange Bidding in Dynamic Allocation (EBDA) feature, which is still in a beta, unfinalized state.

Google’s director of product management, Jonathan Bellack, confirmed the change to AdExchanger.

“We are collecting the price each exchange would pay, including AdX, and then putting it in a unified auction where the highest price wins,” Bellack said.

Here's how the programmatic auction will work: All EBDA exchange participants – including Index Exchange, Rubicon Project, PubMatic, Sovrn, Smaato and Gamut – submit their final bids. The DoubleClick AdExchange (AdX) also submits its final bid. And the best price wins.

Previously, AdX would wait for all those other exchanges to submit their bids, and then give itself a chance to outbid the winner. So if Google’s exchange had two bids of $1 and $5, it would be able to beat a $4 bid from an outside exchange. Under the new auction rules, it would submit a bid of $1 (the second price) and lose the auction.

While at a glance this might seem bad for the publisher, since Google is restrained from submitting a higher bid, in fact the outcome should be the same given the rules of second-price auctions. In the above example, the impression clears at $4 regardless of which exchange takes it.

According to Index Exchange SVP of product Drew Bradstock, who had been briefed on the change, removing last-look signals a shift in how Google works with its partners.

“This is a big change in how exchange bidding works that shows they are open to having it and DFP be a lot more neutral,” said Bradstock, who spent five years at Google before joining Index Exchange. “We like that they are willing to listen and be a lot more transparent.”

During a Google forum late last year, the biggest concern voiced by publishers and exchanges centered on this last-look advantage. Bellack said feedback from those constituents influenced the decision to level the playing field.

“The exchanges and publishers we’ve been working with like this [change], because they think this is a fair way to make competition,” he said.

Google wouldn’t say how changing the auction rules will affect its win rate and revenue.

But AdX includes unique demand from AdSense and performs strongly even without its last-look edge, Bradstock said.

Google’s infrastructure is also more robust than most companies, meaning it can return more bids before the auction closes – something other exchanges and DSPs have struggled to keep up with as header bidding has multiplied the number of auctions taking place.

And Google will retain one additional advantage in the auction: It knows more about the user than it passes on to the other exchanges.

Since Google’s exchange bidding project uses a server-to-server integration, its partners can’t see as much information – think full-page URL, contextual details or viewability predictions – as they would if they had their own tag on the page.

If all buyers see the same impression, but buyers through one exchange have more information about that impression, that will be more valuable than the same impression offered up through other exchanges.

Bellack emphasized that it's not in Google’s best interest to retain that information advantage. “We only succeed when our partners succeed,” he said.

Industry Impact

Google making its server-side auction fair moves the header bidding wars to a new chapter.

As a primer, publishers first started implementing header bidding to allow outside exchanges to compete on every impression, a privilege Google previously reserved for its own exchange. As publishers saw massive increases in yield, the trend caught like wildfire.

Technical upgrades, like moving the header bidding auction server-side, followed.

Google announced that it would allow exchanges to compete via a server-side integration last April, with its EBDA release. Index Exchange, AppNexus, Media.net and Sonobi operate server-side solutions.

And a large, outside player – Amazon – unveiled a server-side wrapper last December. Publishers could use it as an alternative to Google’s exchange bidding or other server-side solutions.

But the shift to server-side solutions, which make auctions run faster, also threaten to make the auctions lose transparency again and replicate the last-look advantage.

“It’s not clear that even the rest of server-side implementation of header bidding are operating this way,” Bellack said.

With Google removing its last-look advantage, other players with server-side solutions may feel pressured to do so too. Could ad tech enter an era where transparency, not hidden fees and rules, win the day?

“Changes to a fair auction will not be an advantage for those that aren’t open or transparent with fees,” Bradstock said.