Posted by: Rob Hof on November 9, 2009
In its third-largest acquisition to date, Google announced it’s buying AdMob, a provider of mobile ad technologies, for $750 million in stock. The purchase, announced this morning, could give the relatively small market for ads on mobile devices a big boost.
The move also gives Google, whose Android software is being used more widely in smartphones such as the Motorola’s new Droid, a key set of technologies to expand its advertising footprint beyond its signature text search ads. “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.”
In particular, AdMob provides Google with 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 AdSense for Mobile in a bid to provide Web sites with display ads akin to its multibillion-dollar AdSense program for conventional Web sites.
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 on the iPhone, which has more than 100,000 apps. That has prompted Android, with 12,000 apps; Palm; Blackberry maker Research in Motion; and others to join the apps frenzy.
At least one analyst views the role of AdMob in mobile ads as similar to that of DoubleClick, which Google bought early last year for $3.2 billion, in Web display ads. “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.”
Google said acquiring the team at AdMob, which employs about 140 people, was as important as the technology in accelerating Google’s mobile display ad efforts. “We got a chance to get an unbelievable engineering team,” Vic Gundotra, a Google vice president of engineering, said in an interview. Susan Wojcicki, Google’s vice president of product management, added that AdMob founder Omar Hamoui is “really a visionary in this space.”
Google CEO Eric Schmidt said recently that the search giant planned to make about an acquisition a month, mostly small purchases, while making a large acquisition every year or two. AdMob is seen as one of the large acquisitions, though the money involved is small next to Google’s $178 billion market capitalization. Besides DoubleClick, Google has paid more only for video sharing site YouTube, which it bought for $1.7 billion in 2006.
AdMob’s growth has attracted attention, though the privately held company doesn’t reveal revenues. BusinessWeek recently featured AdMob as one of 50 companies that could be the next Google. Even more recently, a BusinessWeek story mentioned AdMob as a possible acquisition for Google.
Founded in January 2006, AdMob has some blue-chip customers such as Ford, Procter & Gamble, and Coca-Cola. It has raised $47.2 million in funding from Sequoia Capital, Accel Partners, DFJ Growth Fund, and Northgate Capital. AdMob claims on its Web site to have served more than 125 billion ad impressions.
Analyst Schachter said he was surprised Google decided to buy the technology rather than build it itself, given the nascent nature of mobile ads. He also said he would prefer Google pay cash from its $22 billion war chest to avoid share dilution. Google’s share were rising 1.7% in midday trading, outpacing the Nasdaq’s 1.4% increase.
For its part, Google clearly is seeking to blunt anticipated objections to the company’s ever-growing power in online advertising, dedicating another Web page to the issue of competition. Google said AdMob is “just one of more than a dozen mobile ad networks in the U.S. that have proliferated in recent years.” Google said it expects a regulatory review in the U.S., but not in Europe, because the mobile ad market is so small there.
Google then goes further to note how small the entire mobile ad market is to date. It notes that eMarketer estimates mobile ads brought in $416 million in 2009, compared with almost $24 billion for online advertising overall, $51 billion on television ads, and $38 billion on newspaper ads. That’s an interesting point to make when it just spent three-quarters of a billion dollars on it.
Still, Google’s entry not only will be seen as the biggest force in mobile advertising, but will signal that ads on cell phones could be the next big opportunity in online advertising.
Benefits for mobile website publishers and app developers
The deal will give mobile publishers and app developers more choices for monetizing their content, by making ad-supported mobile apps a more viable option (alongside pay-per-download and in-app transactions). By combining the advertising technologies of AdMob and Google, the deal is likely to yield better ad performance on mobile applications and websites.
Mobile website publishers and app developers will continue to have many choices of ad networks to utilize on their sites and applications. AdMob is just one of more than a dozen mobile ad networks in the U.S. that have proliferated in recent years, including Millenial, JumpTap, Quattro Wireless, and AOL's Advertising.com mobile network.
Benefits for users
The deal will provide users with more free mobile applications, in some cases as an alternative to pay-to-download apps, since it will allow developers to subsidize their products through effective mobile advertising. It will also encourage more mobile web content by providing mobile web publishers with better monetization options. Mobile users will see more relevant, useful ads on their devices.
Benefits for advertisers
Advertisers will be able to better serve their relevant ads to mobile users, by marrying AdMob's mobile publisher network with Google's network of advertisers. Combining the advertising technologies of AdMob and Google is likely to yield better ad performance on mobile apps and websites.