Why Google Is Buying AdMob

If approved, the deal will give the search engine a big head start in cell-phone advertising

By Robert D. Hof

In a move likely to give a big boost to the mobile-phone ad market, Google announced on Nov. 9 that it's buying AdMob, a provider of mobile ad technologies, for $750 million in stock.

If approved, the acquisition would provide Google (GOOG) with a key set of technologies to expand its advertising business beyond search-related text ads that make up the bulk of revenue. "Google could have built this itself, but this gives them a head start," says mobile analyst Greg Sterling of Sterling Market Intelligence. "It will thrust Google into the forefront of mobile display ads." Google has already pushed into the wireless market by backing the development of Android, an operating system used in smartphones such as Motorola's (MOT) new Droid, carried by Verizon Wireless.

Google's third-largest acquisition to date, AdMob would give its new owner the ability to serve display ads, the pictorial banners that are the chief revenue source for most Web sites, to cell phones and other mobile devices. Google last June introduced a program called AdSense for Mobile in a bid to land display ads on mobile phones, akin to its AdSense program, which places ads on conventional Web sites.

Ads in Mobile Apps

But Sterling said AdSense for Mobile was still "fairly undeveloped." By contrast, he says, AdMob has richer advertising formats, especially ads inside mobile apps. These mini-programs have become enormously popular, and developers have concocted more than 100,000 of them for the iPhone. Software programmers are rushing to create apps for other smartphones, including those from Palm (PALM) and Research In Motion's (RIMM) BlackBerry. Some 12,000 are available for Android. Ads are seen as the key revenue driver for many of these apps.

At least one analyst compares AdMob to DoubleClick, a company purchased by Google for $3.2 billion last year. DoubleClick serves as a go-between for advertisers and Web sites. "To us, AdMob looks in some ways to be a DoubleClick for the mobile Web," Broadpoint.AmTech analyst Ben Schachter said in a note to clients. "It should help not only to provide more relationships with mobile ad publishers and buyers, but also to provide a tested technology platform for monetization of mobile inventory and the delivery, tracking, and reporting of mobile ad campaigns."

Acquiring the team at AdMob, which employs about 140 people, was as important as the technology in accelerating Google's mobile display ad efforts, Google executives said in an interview. "We got a chance to get an unbelievable engineering team," says Vic Gundotra, a Google vice-president for engineering. Susan Wojcicki, Google's vice-president for product management, added that AdMob founder Omar Hamoui is "really a visionary in this space."

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