SAN FRANCISCO (AdAge.com) -- In a bid to bolster its toehold in mobile-display advertising, Google is acquiring mobile-advertising network AdMob for $750 million in stock, sparking what could be the beginning of a major consolidation in the mobile-display advertising sector.
Google's strategy to buy rather than build was an admission that it needed outside expertise in display advertising, as it seeks to shore up its brand-building capabilities, creating a parallel mobile marketplace to its recently relaunched DoubleClick display-ad exchange.
"Google's display capabilities were quite weak by comparison to AdMob," said mobile analyst Greg Sterling. "This fills in a missing piece in their mobile strategy and accelerates Google to a leadership position in mobile-display advertising to complement search."
"Having [AdMob's] kind of talent and innovation within our own engineering teams is one of the primary drivers for this deal. ... We think it really accelerates our progress in a very critical and strategically important area for us," said Vic Gundotra, Google's VP-engineering.
For others in the industry, it also portends more deals in a space that is in sore need of consolidation, as the stockpiles of unsold inventory pile up and drive down ad rates. Bankers had speculated that AdMob would be the most likely mobile ad network to stand on its own absent a major industry consolidation, given its size and leadership; by the same token, it was also seen as one of the first to get snapped up for the very same reasons.
"This is a catalyst event and could spur others to come forth and kick off more consolidation," said Andy Miller, CEO-founder of mobile-ad network Quattro Wireless.
Signals complexity of mobile
Even more, Mr. Miller said the transaction is proof that the mobile space is not merely an extension of the online world and that winning in mobile requires special expertise.
"It sends a signal that even a company that is arguably the most sophisticated mobile monetizer has decided mobile is hard; it sends the signal that there is need for the expertise of mobile ad networks," said Mr. Miller. "It's an acknowledgment that behavior on the mobile internet is different from online internet."
Industry execs believe AdMob and Google will play well together.
"We predicted consolidation in the industry, and AdMob's broad, high-volume business model is highly synergistic for Google," said Paran Johar, chief marketing officer of mobile-ad network Jumptap.
Google and AdMob did not provide specific details on how AdSense, its advertising product for publishers, would integrate with AdMob's technology, nor how the deal would affect advertisers and publishers.
"AdMob has its own technology; Google also has its own advertising product," said Susan Wojcicki, VP-product management at Google, adding that the two will be integrated eventually. "Google's advertising system brings a lot of expertise to scale because we do our advertising across the web and in many different countries. We see an opportunity to be able to work together to deliver faster and more innovative experiences to users and advertisers."
As online search growth has slowed, mobile has ramped up: In the last quarter, Google's mobile queries grew 30% over the second quarter. Though mobile advertising is still considered nascent, the growth for this medium is expected to outpace online spending and is predicted to reach $1.14 billion in 2012, about double what is projected for next year, according to eMarketer.
Others await their turn
With its mobile site drawing about four times the audience size of its nearest competitor Yahoo, Google's mobile ambitions are playing out in areas besides display, as it recently inked a deal with Best Buy in which the retailer would demonstrate Google mobile apps and install them for customers. Perhaps its biggest prize so far is having an entry into Verizon Wireless' subscriber base as the two companies agreed to develop Android-based handsets together in the coming years. Already, the relationship is paying off: Users of Verizon's new marquee smartphone, Droid, can access Google services right from the home screen. Even Google's mobile blog, which until a few weeks ago saw an occasional post each month, now has news and tips for marketers every few days.
The winner here is undoubtedly AdMob, as Google's acquisition values at the ad network startup many times more than its revenue; some industry bankers and execs have said mobile ad networks should be able to fetch up to six times sales. On that basis, sector leader AdMob should be worth $240 million, based on a $40 million annual sales projection floated by industry watchers.
Others in the business now eagerly await their turn, and see the deal as healthy for the industry.
"The announcement is causing tremendous excitement as it validates the enormous potential of mobile advertising," Mr. Johar said. "The future frontrunner will be determined by who can deliver the most advanced targeting capabilities for better ROI for advertisers and publishers."