When Google CEO Eric Schmidt mentioned a few weeks ago that the M&A spigot is now back on at the search giant, he wasn’t talking about a trickle. Today’s announced deal to by mobile ad startup AdMob for $750 million is Google’s largest acquisition since its $3.1 billion purchase of DoubleClick in March, 2008, and its third-largest ever after the $1.65 billion YouTube acquisition in 2006.
Why such a big bet? Because Google is gunning hard to dominate mobile Web advertising and AdMob has an early foothold in the display side. By focusing on the needs of mobile app developers, AdMob has “built what is approaching a $100 million business in three years,” says Jim Goetz, the partner at Sequoia Capital who sits on AdMob’s board, referring to the annualized revenue run-rate of the company. Since AdMob splits its revenues 60/40 with publishers, that implies AdMob is on course to see $40 million of that $100 million gross. The company is also cash-flow positive, with 140 employees.
But it is more the growth potential of mobile advertising from here on out which attracted Google. “The rise of open mobile is something on everybody’s mind. I think it is the next battlefield,” ” says Richard Wong of Accel Partners, which is the other big investor behind AdMob. (The deal, combined with today’s sale of Playfish to Electronic Arts, gave Accel a $1 billion day in exits). Google is pushing for broader adoption of open mobile phones with Android, and is seeing a big jump in mobile searches across all Web phones. Even though search is expected to make up the majority of mobile ad revenues, Google needs to compete in mobile display ads as well.
In fact, this deal is so important to Google that both Larry Page and Sergey Brin personally got involved to sweet talk AdMob founder Omar Hamoui, as you’d hope they would for such a large deal. “The personal entrepreneur-to-entrepreneur dynamic was critical,” says Goetz.
AdMob already shares a lot in common with the Google culture. It splits network ad revenues with developers in a model similar to AdSense, and it focuses on the needs of mobile app developers to help put money in their pockets. The rise of the iPhone, and now Android, is creating more mobile apps and more mobile Web browsing, which in turn is creating more mobile ad inventory for AdMob to fill. In September, AdMob served up 10.2 billion ad requests across 15,000 mobile Web sites and apps. About 28 percent of those were from iPhones and iPod Touches, with Android growing fast, making up another 7 percent. And if you look at only smartphones, Apple devices accounted for 48 percent of ad requests, with Android coming in second at 17 percent.
Now, just at the point that those mobile ads are taking off, Google is getting into the game. With AdMob, it is not buying gee-whiz technology or a popular consumer destination. It is very clearly buying a future source of revenues. And Google is in a unique position to accelerate AdMob’s revenue growth by plugging it into its existing AdWords and DoubleClick systems and exposing it to the hundreds of thousands of advertisers who already use Google and might like to add mobile display ads to their campaigns.
AdMob’s current revenue run rate of $100 million is impressive, but Google’s purchase price tells us it thinks the opportunity for mobile display ads is in the billions of dollars, at the very least.
Being an iPhone Developer myself, admob has been a life saver for me. It’s brought in lots of money for me, much more than actual apps in the appstore (like for 99 cents). I hope that AdMob doesen’t fall apart because of this. Admob has said that they are only changing the backend to google but the site, and ads and everything will continue on admob.com
LOL, iPhone…fail…
LOL. What?
with so much money on the table this battle will be over real quick. whomever creates the best wardrobe (language) for businesses and consumers to get dressed up in will win the game. Google and ADmob are definitely not fancy enough (personalized). the king mobile context has yet to be throwned.
I think this deal could benefit both sides. Admob clearly has a step ahead in mobile ad technology and Google has its resources and funding that will be available to Admob. Plus the Admob people will get some good $$$ out of this…
Google is taking over the world… I have this really cool used car… would Google want to buy it off me for a couple million too….? Yes….?
RIGHT NOW is definitely the time to get on mobile bandwagon (this goes out to all you nay sayers out there) Wait a little more and competition will be hard to beat. Google just made one of their best purchases of all time.
This is even more exciting for developers cause fill rates and eCPM will improve. Hopefully they do 70/30 revenue split.
2nd sentence. “by” should be “buy”.
One of the largest and highest performing mobile categories is in-call mobile advertising. The largest player in this category is HumorHotlines.com with over 100 million calls annually. Nice job AdMob!
Http://www.humorhotlines.com
Dave Williams
Great deal for both sides! It was a good buy to help expand the Good Empire and a perfect sell by AdMob.
Still, I hope Google is smart enough to change the payout rate to 70/30 (and I think they will).
*Google Empire* damn iPhone
I like “Good Empire”, given it is commonly viewed as Microsoft’s enemy, which is oft called the “Evil Empire”…..
“Good Empire” cant miss the cynical tone in it…
I am not sure if I really see the billion dollar potential there especially from what I hear from people that advertise with Ad Mob. I guess as mobile gets larger and larger I could see it but a lot of smart phones now are becoming flash, javascript, and just about everything else compatible which eliminates a lot of Ad Mobs market share.
I think there will always be mobile-specific ad delivery even as smart phones become more prevalent, it’s still in an advertiser’s interest to serve mobile specific ads.
Woot google inventory means higher ecpm! Does this mean google is conceding that there is space for native apps and ads?
All adds that ever get clicked on my iPhone are accidentally clicked by my 3 year old when playing a free game. Wonder who actually clicked on ads on purpose while playing catch the penguin?
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nice articles aniway
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Google gain to much power…
They gain power because they are run by very smart guys.
Larry and Sergey already know where they need to take Google over the next five years – and if they become even more powerful in the process than they deserve to be admired for what they are developing.
Webmoblink is a start-up all do-it-yourself web and mobile advertising from the same platform. It is coming very strong . Advanced targeting technology really streamlines the process of running ad campaigns.
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Interesting choice for Google. From what I understand, AdMob doesn’t have the ability to target ads by demos (yet). That said, they’ve established a beachhead on the iPhone, which is probably more important than any technology advantage at this stage.
100 million a year sustained revenue for mobile ads sounds like a complete bs.
Nice game plan for Sequoia (investor and member of the board at Google)…
Step1: invest in startup
Step2: monetize with Goolge acquisition
Step3: repeat
Source of money: Joe Public share holders of Google.