Story Highlights:
• The acquisition of AdMob instantly thrusts Google to one of the leaders of mobile advertising
• There are concerns that Google overpaid for AdMob
• The biggest benefit of acquiring AdMob could be data, not advertising
Speak softly but swing a big stick. Those were the gist of Teddy Roosevelt's words describing the Roosevelt Corollary of 1904, but Google put those words to action last Monday.
On November 9th, Google announced it will be purchasing AdMob, a mobile ad technology company, for $750 million in stock. The transaction is one of the search leader's biggest to date, but with a $175 billion market cap, the potential and strategic value it offers far outweighs any damage it could do.
The deal shows the importance firms are placing in the exploding mobile technology market. The sector has seen tremendous growth with the rapid proliferation of smartphones. This is partly why Google took two years to develop Android, its own mobile operating system. For Google, the deal thrusts them into the forefront of mobile advertising. The acquisition of AdMob, once featured as one of 50 companies that could become the next Google, enables Google to display pictorial ads that are the predominant source of mobile ad revenue for websites and mobile apps.
"Mobile advertising has enormous potential as a marketing medium and while this industry is still in the early stages of development, AdMob has already made exceptional progress in a very short time," said Google's vice president of product management Susan Wojcicki.
In addition, Broadpoint AmTech analyst Ben Schachter noted, “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.”
But not everyone shares his view. Some see the deal as a mobile misstep for Google.
Said Bronte Media's Niki Scevak, “Everyone is so bullish on mobile advertising but nowhere near as bullish on mobile commerce. They are very much inter-linked. If there is no mobile commerce, there will be no mobile advertising.”
Another issue brought up is that unlike traditional desktop web, search has not been as pivotal to the mobile web. Desktop web surfing is defined by scattered surfing and looking up information whereas mobile web surfing tends towards meaningful, directed activities.
However, Forbes's Ian Schafer among others claim that the biggest driver of the transaction was not mobile advertising, but data. With Google entering the mobile OS market, the acquisition gives Google access to data of some of the most popular apps, including those for its major mobile competitor, the iPhone. In turn, this allows Google to tailor its Droid smartphones to directly compete with Apple. As the market continues to grow, it will be interesting to see if Apple or another smartphone company counters with its own acquisition of a mobile application analytics company.
Again, the same concerns exist since Google ventured out of its dominant search market. It's acquisition of YouTube sparked concerns that Google is entering markets it does not have an advantage in and that it will eventually dilute its brand and overall profitability. However, for Google, it can afford to take gambles on entering new markets and the upside of one successful entry can outweigh all the unsuccessful ones.
