Google-AdMob Deal Aims For Mobile Users

• Pete Barlas
• On 7:03 pm EST, Monday November 9, 2009

In a bid to do on mobile phones what it did on the Web, Google is buying AdMob, a services provider that will help serve more ads in more places.

The all-stock deal, valued at $750 million, marks Google's (NasdaqGS:GOOG - News) first acquisition since Oct. 15 when CEO Eric Schmidt said the firm was "open for business" to buy companies in key areas such as Web search and mobile devices.

Google has scrambled to adapt its leading multibillion-dollar Web-search business to mobile devices.

In addition to short text ads on searches conducted via mobile phones and mapping software, Google is pushing its Android operating system for mobile phones and other devices.

As many as 20 portable devices will carry Android or other Google services by year's end.

Acquiring AdMob helps Google move further into the mobile display ad market, which it has all but ignored until now, says Marianne Wolk, an analyst for Susquehanna Financial Group.

"It's the next big opportunity for them," she said. "They have a significant share in search advertising. (Mobile phone) display advertising is a young, fragmented market with no significant leader with a dominant market share -- so it's a ripe opportunity for someone who wants to invest in the space."

Wolk maintains a "positive" rating on the stock.

More than 60% of all Web searches in the U.S. occur through Google, far more than through rivals Yahoo (NasdaqGS:YHOO - News) and Microsoft (NasdaqGS:MSFT - News). And the company has been working to replicate its dominance on the Web by placing its ads on thousands of publishers' mobile properties.

In June Google ranked as the third-largest mobile ad network in the U.S. with 31.9 million visitors, says Nielsen Online, a research firm. It trailed only Yahoo with 36.1 million and Millennial Media with 45.6 million.

AdMob ranked fifth with 25.7 million. Clients include heavyweights such as Coca-Cola (NYSE:KO - News) and Ford Motor (NYSE:F - News).

"You could argue that Google is now No. 1 in that category," said Greg Sterling, principal for research firm Sterling Market Intelligence.

Snapping up AdMob could also be a pre-emptive strike against rivals, says Ross Sandler, an analyst for RBC Capital Markets. He rates Google outperform, or buy.

"This (mobile ad) market is growing, and it's still very early," he said. "But rather than let Microsoft or Yahoo or another company come in and gain meaningful traction, this cements Google as the leading company in mobile display."

Mobile ads represent a fraction of the online ad market, but they're growing. By 2013, sales of mobile ads in the U.S. will reach $1.56 billion, up from $320 million last year, says eMarketer, a research firm.

Google hasn't had trouble selling text-based ads on mobile devices. But display ads on mobile devices have proved tougher.

In a statement on its Web site, the company said the deal will help it "develop more effective tools for creating, serving and analyzing emerging mobile ad formats."

Google has found a quick fix for a problem it likely would have solved over time, says Sterling.

"The quality of display ads on Google weren't that good and over time, they could have improved it, but what they get with these guys is a lot more sophistication in a very short time," he said.

Buzz up!