The ad tech industry is waging a secret war on Google

Bien Stephenson / FlickrA secret war is waging.Ari Paparo is the CEO of ad tech startup Beeswax.Ever since Google acquired DoubleClick for $3.1 billion, its standing on top of the ad tech heap has been undisputed. But an obscure and hacky technical workaround called header bidding is letting the rest of ad tech nibble away at Google's position, and in the process it has become the hottest topic in digital media.Header bidding allows third-parties like Criteo, Amazon, and Rubicon (to name a few) compete for the first time on an even-footing with Google's juggernaut AdX ad exchange. If you want to understand how, we have to go down the ad tech rabbit hole …The problem with selling ads on your website: Sometimes indirect (programmatic) ads are more valuable than the ads sold by your human salesforceFrom a publisher's perspective, there are two different channels for making money from ads on your site: You can sell the ads directly, using your salesforce, or you can sell the ads indirectly (sometimes called remnant) using ad networks and exchanges. Most of the time, the ads you sell directly are worth more than the indirect ones. But - and here's the key point - some individual users come to your site that have extremely valuable profiles, and there are many companies that are willing to pay far more for those specific users than your internal salesforce can realize.Thomson ReutersUsers that have been previously searching for SUVs like this one are highly valuable to automakers, but a publisher's salesforce may not even know they have been visiting the site. Let's use an example to make this clear: Imagine you run a news site, selling general audiences based on demographics and context. But the user coming to your site just searched for new lease on mid-range SUV then clicked around similar topics on various auto-enthusiast websites. In the process of which, the user was cookied [cookies are the small pieces of code that websites and ad tech companies drop on your browser in order to track your internet activity] and various ad networks put the cookie into high-value user profiles. When the user comes to your site, there's enormous, high-priced demand to reach that user with ads, but the deals your salesforce closed are at way lower prices without any knowledge of the fact the user is shopping for a car. Back to Google: Its DoubleClick for Publishers (or DFP) product has enormous market share among publishers using software to serve ads directly on their websites. Virtually everyone in the market uses DFP.The indirect market, however, is fairly fragmented, with many exchanges and ad networks competing to win over publishers, including Google's Ad Exchange (AdX). Google AdX has a unique advantage in the indirect market, however, because it integrates tightly with DFP. Google allows DFP publishers to turn on a feature called dynamic allocation that lets AdX compete directly for impressions with the deals sold by the direct salesforce. In the example above, if the publisher was using DFP, AdX could bid for the car-shopping user at a very high price, and beat the price sold by the direct salesforce, resulting in more money for the publisher and more revenue for Google.Ari PaparoFor every other ad network besides Google, the car ad would have to wait for an available slot after the direct deals were sold, since there would be no way for DFP to know that the demand exists, and most publishers would set their direct deals to get the priority impressions. If the user only clicked on one page before clicking away from the site, the ad network car ads might never show and both the publisher and the demand source would lose out.The solution: Header biddingHeader bidding changes all this. With header bidding, third-parties like publicly-traded Criteo, or Amazon's A9 ad unit ask publishers to put a special Javascript call in the header of their webpages. This header makes an ad request before DFP and figures out if there are any advertisers willing to pay for the impression and how much they want to pay. In roughly 200 milliseconds, the header tag determines a price, then uses Javascript to pass the auction price into DFP to compete with all the ads the salesforce may have sold, as well as the AdX price. It's a bit of a hacky workaround, but it works, and publishers will do anything that produces more pennies on each view of their page.Ari PaparoThe future of header biddingThis header bidding technique has been around for years. Some people say Criteo invented it, others say it was ad tech leader AppNexus. But it was a small part of the business until this year when seemingly every source of demand in the marketplace started rushing to implement it on publisher pages. In June of this year, AdExchanger ran an article describing the technique in depth, and suddenly implementation became widespread.Important questions remain about the deployment of header bidding, including which demand sources to include, how many to include, whether publisher data is leaking to those bidders they can use elsewhere, and the effect of these additional calls on page load times. But what is not in question, is that header bidding improves publisher yield and takes away a key advantage Google has held with publishers since the DoubleClick acquisition in 2007. 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The ad tech industry is waging a secret war on Google

The problem with selling ads on your website: Sometimes indirect (programmatic) ads are more valuable than the ads sold by your human salesforce

The solution: "Header bidding"

The future of header bidding

NOW WATCH: See if you can spot the subliminal messages hidden in these corporate logos