Tuesday, November 10, 2009

More Google - AdMob Coverage

Google Inc. has signed a game-changing agreement to acquire mobile ad network AdMob for $750 million in stock in a move that validates mobile advertising as an effective marketing medium.

Worth Noting:

1. AdMob and Google share a common investor in Sequoia Capital, a well-known Silicon Valley eminence.
2. This is NOT a huge acquisition for Google
3. It was an All Stock deal
4. It's significant and it will impact the entire industry

Google is hoping that this acquisition will enhance its existing expertise and technology in mobile advertising, while also giving advertisers and publishers more choice in this fast-growing area. The deal will help Google in its efforts to develop more effective tools for creating, serving and analyzing emerging mobile ads formats and expand beyond its traditional focus on search advertising.

“We’ve been talking about the awesome opportunity that mobile marketing brings to the world,” said Mike Wehrs, president/CEO of the Mobile Marketing Association, New York. “Some people understand that, and this deal shows that the largest and best-known advertising company—Google—understands the awesomeness of the opportunity, and they understand where this is going.

“If anything, it’s absolutely proof-positive of the value of the mobile channel and it encourages brands to take a very hard look at their priorities,” he said. “If they’re not already increasing their mobile spend, this is a wake-up call.

“It sets to rest any questions as to whether mobile ad networks had a sustainable, profitable business model, and this will cause people to pay attention, wow, there is significant large-player interest, so it spells opportunity.”

AdMob, San Mateo, CA, is one of the leading mobile ad networks specializing in banner ads for brands such as adidas, MTV, Land Rover and Toshiba that run on publisher sites such as CBS, Comedy Central, AccuWeather, Cellufun, MovieTickets.com, Lonely Planet and Stitcher. These ads run across iPhone sites and applications, as well as those based on Google's Android platform. Founded in 2006, the 140-employee AdMob won $47 million in funding from investors such as venture capital firms Sequoia Capital and Accel Partners.


Google’s Rationale

Mobile advertising is a rapidly growing and competitive space, and Google and AdMob are currently specializing in different areas.

Though Google offers many forms of mobile advertising, its focus to date has been on mobile search ads, while AdMob's focus has been mobile display ads and in-application ads.

Google dubbed AdMob the quintessential Silicon Valley startup and claims that it is generating impressive year-on-year revenue growth.

Both companies have approved the transaction, which is subject to customary closing conditions.

As this ecosystem continues to grow, the company expects these new marketing media to offer significant benefits.

Google believes that advertisers will be better able to engage mobile users with AdMob's ad formats. The deal will bring new innovation and competition to mobile advertising and will lead to more effective tools for creating, serving and analyzing emerging mobile ad formats, per Google.

The company claims that, by improving the performance of mobile advertising, publishers and developers will be able to monetize their content more effectively, which will hopefully have benefits for the wider mobile ecosystem.

Google also claims that users will see more relevant ads and ultimately get access to more free or low-cost ad-supported content and applications, improving their mobile experience.

The mobile advertising space will remain highly competitive, with more than a dozen mobile ad networks.

The deal is similar to mobile advertising acquisitions that AOL, Microsoft and Yahoo have made in the past two years.


Analysts abuzz

Industry analysts are buzzing about the news of the acquisition, and many were eager to chime in with their thoughts about the potential impact of the deal.

“This definitely puts Google in a good position—it really helps them with display ads,” said Tole Hart, Philadelphia-based research director of consumer services at Gartner. “AdMob is definitely a large ad network, and this is taking a large competitor out of the market, but there are still enough ad networks out there to make it a fairly competitive market.

“There is less competition, but still some competition in the market, Yahoo in search, and other mobile ad networks such as Quattro Wireless, Millennial Media, Jumptap and a few others still in the market,” he said. “It’s still going to be competitive.”

Many analysts believe that mobile advertising has nowhere to go but up, so there will be plenty of room for multiple players in the space.

This definitely helps Google position itself well for strategic growth in the ecosystem.

“We think the mobile advertising market is going to grow a lot, and to me it seems like a pretty good deal,” Mr. Hart said. “If it’s going to help you in this market going forward, it’s money well spent—the current revenues aren’t going to add up, but if it gets you going and gives you some assurance that you’ll be a leader, it’s worth it.

“Five years from now, everyone will have a smartphone or a really good feature phone, so there will be a lot of eyeballs and a lot of revenue,” he said.

Gartner projects that the worldwide revenue for mobile advertising will be $13.5 billion in 2013, up from around $500 million in 2008. This includes mobile banner ads, SMS, text links, search and maps, ads in applications and games, ads in videos and TV shown on a mobile phone.

Up until now, Google has focused mainly on search advertising, but this deal signals that it has its sights set on other areas as well.

“This one move underscores Google’s ongoing insistence that their strategy is to look at mobile and be a big player there, and this gives them one more piece of that puzzle, one more tool to pursue that strategy,” said Neil Strother, analyst at Forrester Research, Kirkland, WA. “They do OK with AdSense for mobile already, and this gives them a platform to go into display more and play in the smartphone space, because AdMob has leveraged that pretty well.

“Mobile advertising is still a fairly small chunk of the interactive marketing spend, it’s still relatively early, but now Google can get in and marshal their resources, and they will become a major player,” he said. “It probably solidifies them as the leader in the mobile marketing ecosystem.

“The potential is rather high to reach more mainstream users, because even mid-tier phones come with browsers and more people are signing up for data plans that come with Web browsing, so they can search and discover things that are entertaining and can have advertising in some way.”

Some analysts focused on the potential for integrating AdMob with AdSense to some degree, and the various synergies the AdMob acquisition could create for Google.

“First off, this is a big deal, both in deal size and what it could mean for Google,” said Michael Boland, San Francisco-based senior analyst and program director at BIA/Kelsey. “Google is clearly keen on replicating its online dominance to the mobile world as growing smartphone penetration drives the growth of the mobile Web.

“What it’s done so far has mostly been text advertising on Google searches and throughout its AdSense for mobile network mirroring its online strategy,” he said.

What AdMob brings is an extensive network of display ad inventory on 15,000 mobile Web sites and applications for iPhone and Android, according to Mr. Boland.

“It’s been the largest ad network for in-app ad inventory on the iPhone, which has important implications for demographic targeting and audience segmentation,” Mr. Boland said. “With AdMob, Google can now reach incremental mobile users and beef up its ability to serve mobile display advertising.

“This is a strong position if you combine it with the fact that Google has so many existing online advertisers,” he said. “It can transition many into mobile marketing with a one-stop-shop approach.

“This has implications for many more advertisers entering AdMob’s network—otherwise ad networks rely on a combination of direct sales and some self service, so in that respect, Google’s front door to advertisers gives AdMob an advantage over other ad networks.”

Self-service mobile advertising will grow in usage, which suggests Google’s approach will position it well, according to Mr. Boland.

“We could see more and more mobile distribution options integrate with its existing AdWords dashboard, again, a one-stop-shop approach,” Mr. Boland said. “If you think about it, this again mirrors Google’s online approach.

“Other mobile ad networks have meanwhile begun to ad self-service tools to reach more mid-market and SMB long-tail advertisers,” he said. “This will be a growing source of mobile ad revenue as mobile marketing reaches these segments of the market, just like they did online.”

Focusing on display, search and messaging-based advertising, eMarketer predicts that U.S. mobile advertising spending will grow from $320 million last year to $416 million this year to more than $1.5 billion by 2013.

“Google’s acquisition of AdMob obviously gives a lot of legitimacy to mobile marketing in general and mobile display advertising specifically,” said Noah Elkin, senior analyst at eMarketer, New York. “It signals, as on the desktop, that the combination of display and search are going to be what drives the advertising ecosystem, including mobile advertising.

“I’m sure that all of the mobile ad networks have been thinking about a combination like this, they’ve all received quite a bit of venture capital money over the past few years, and they’ve been contemplating something like this as a potential exit strategy,” he said. “This deal could help accelerate that timetable.

“Google putting a lot of money into the space speeds things up a bit.”

Mr. Elkin would not rule out the possibility that this deal could lead to an acquisition by Microsoft or another Google rival.

“Microsoft getting involved is certainly possible—AOL bought Third Screen Media and merged that into Platform-A,” Mr. Elkin said. “Microsoft has invested pretty heavily in voice search with the TellMe acquisition a couple of years ago, and I’m sure they’re looking pretty closely at mobile display as well.

“This is the beginning of a dance or musical chairs, with everyone looking for a partner,” he said. “It’s all leading mobile ad networks to cater to slightly different constituencies, there’s not a lot of overlapping reach, so they are viable acquisition targets—AdMob is very strong with iPhone users, while Quattro and Millennial have different user bases, so there are lots of ways into this market.

“We’ve pointed to display and search as the two main components driving the market, increasing smartphone adoption and the increase in mobile Web surfing and applications usage is driving that.”


Open letter from Omar Hamoui, founder/CEO of AdMob, San Mateo, CA, to publishers, advertisers and visitors to AdMob.com

This morning we announced that AdMob has signed a definitive agreement to be acquired by Google. I'm obviously excited, and not only for our customers, partners, and employees. I'm excited because I believe this will be an important moment for everyone involved in producing, consuming, or monetizing engaging products on mobile. The truth is that the mobile industry has had no shortage of creative energy, amazing products, and talented entrepreneurs. But until now, it has always felt like those of us involved in this space played second fiddle to our online brethren. I believe that time is over.

I've been working in mobile for over 7 years now. Before AdMob, I founded two separate mobile startups that never got significant traction. It was so frustrating to build what I knew was an incredible service only to find myself unable to distribute or monetize the product without a carrier or handset deal. Turns out, I wasn't the only one. Talk to any veteran in mobile and they will tell you just how hard it was to get things done only a few years ago. I remember we used to have a cynical saying that summarized both the promise that mobile possessed and the monumental barriers we could not cross: "Mobile is the future, and always will be."

That frustration is what led me to found AdMob a few years ago while I was in grad school. Over the years I've been fortunate enough to gather a tremendously talented group of employees. Together we've been a part of helping to create a healthy and vibrant environment where developers and publishers, small and large, can both promote their services as well as benefit from the attention and usage their products attract. In our early days we were focused primarily on the mobile web, and gained immense satisfaction from each new business that our service made possible within the mobile browser.

Then came the iPhone. Suddenly, Apple solved so many problems that had plagued mobile for so long. They showed all of us the way forward and their efforts have led to a landslide of rapid improvements in our space. We were so excited by the promise the iPhone represented that we shifted a significant portion of our attention to that device in its very early days. We launched the first iPhone ad units focused on the web and quickly added the capability to run ads in applications. Now with the addition of excellent devices from Palm, Nokia, RIM, and plethora of Android powered smartphones, we have all the preconditions necessary for what will be a tidal wave of mobile browsing and app usage. But let there be no mistake. Our business, and the mobile industry in general, owes Apple a debt of gratitude.

We now operate in an environment that is much more advanced than the one we entered into a few years ago. There are literally hundreds of competitors, small and large, with different areas of focus and expertise. Lately, it seems that almost every week we hear about a new idea or company in the mobile advertising space. This has led to rapid innovation, and we're excited about the positive attention this deal will bring to mobile advertising. We have no doubt this will bring even more players into the space and accelerate all the innovation that is already taking place.

There are so many people to thank for getting us to this point. We've benefited from the advice and support of the best investors and advisers in the world. We've had tremendous publishers, advertisers, and partners. We're very excited by all the very real benefits this will bring for them. Our ads will become more relevant, our products more robust, and our monetization capabilities more significant. Most importantly, I've had the honor of working with a team of people that were all, top to bottom, completely committed to our mission. I've never in my career seen such dedication, excellence, and passion. This is a group that is smart, fun, and very focused on building and launching amazing products. We've been able to keep the bar so high that I often tell people that I'm very lucky to have founded the company in the first place, as I am fairly certain I wouldn't have made it through the interviews. So let me be plain: None of this would have this happened without the team at AdMob, and I will be forever in their debt.

The best part of all this is what's next. We are not going away. After our deal with Google closes, we will work together to accelerate the pace of innovation in this area. Our product and engineering teams will keep building great products for all of our customers. Our business development team will keep working to maximize ad revenue for the more than 15,000 mobile Web sites and applications that make up AdMob's publisher network. Our sales teams will keep working with our thousands advertisers to deliver successful campaigns and our marketing group will keep pushing to get the word out about mobile. It's just that now we will be able to do an even better job for all of our customers.

I have one important thank you left and it is for Google. We've been blown away by their entrepreneurial attitude, their speed, and their insight. My management team and I have been lucky enough to spend time with some key people at Google, and we've always walked away excited about our shared values and similar cultures. In all of our interactions we've felt their passion for innovation and new ideas. Obviously this transaction represents only a part of their overall interest in mobile but all of us at AdMob are looking forward to working with them to make sure that the future of mobile is no longer so far away.