What would you do if you had $10 billion to play with? If you're Google (GOOG), you drop $750 million on AdMob, a leader in mobile display advertising.
The search giant announced a deal to do just that on Monday, in a clear indication of where it sees the future of its business. Company CEO Eric Schmidt has been explicit in his belief that Google can earn "many times" in mobile advertising what it earns in conventional Web advertising. This move looks like a major bet on that conviction.
The $750 million deal, a stock transaction, is one of the search giant's largest ever, and is further evidence of renewed vigor in the technology and Internet markets. For Google, which has a $175 billion market cap, it's just a drop in the bucket.
The deal is also a sign of how important the top technology and media players view the mobile ad space, which has exploded in recent years. The sector is white-hot right now, with the rapid proliferation of smartphones, in addition to the iPhone, the smartphone king. For two years, Google has been developing Android, its mobile open source operating system.
The acquisition of AdMob is a key component of Google's mobile strategy -- and should serve as an warning sign to the search juggernaut's competitors, including Microsoft, Yahoo and AOL, which publishes DailyFinance.
"We believe AdMob gives Google a strong foothold in the fast-growing market for placing display ads on mobile websites and applications," Brian Pitz, a UBS Internet analyst, wrote to clients. "Over time, we expect Google to integrate AdMob's technology, clients, and publishers into its AdSense network."
Google shares closed up over 2% on Monday.
Betting on Mobile, Eating a Company
"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," Susan Wojcicki, Google's vice president of product management, said in the statement.
Ben Schachter, a Google analyst at Broadpoint AMTech, said the deal "signifies the strategic importance of mobile for the company."
As in the past, Google is showing its twin-barreled strategy of developing products and services organically from within, as well as reaching outside the company for assets to complement its core efforts.
But Schachter expressed surprise that Google hadn't decided to develop an AdMob-like service internally. "We are surprised that GOOG opted to buy and not build here given the relative immaturity of the mobile ad market, (AdMob was only founded in 2006)," Chachter wrote. "In addition, we would have preferred a cash (as opposed to a stock) deal given GOOG's $69 per share cash balance and the negligible return it is earning."
Google has already been using AdMob, founded in 2006 by a Wharton student named Omar Hamoui, to serve mobile advertising. Today, the tech titan just up and ate the company. AdMob's clients include Coca-Cola and Procter & Gamble, and its funders include prominent venture-capital firms Accel and Sequoia Capital.
From Dorm Room to Dollars
"AdMob is a great Silicon Valley story -- founded in 2006 by Omar Hamoui when he couldn't find good ways to generate traffic for his mobile site," Wojcicki wrote on Google's Website. "Over the past few years, Omar and his talented team have built a thriving company with great mobile advertising products, and we are looking forward to having them join the Google team and work with us on the future of mobile advertising."
"Despite the tremendous growth in mobile usage and the substantial investment by many businesses in the space, the mobile web is still in its early stages," Wojcicki added. "We believe that great mobile advertising products can encourage even more growth in the mobile ecosystem."
Hamoui said that "people underestimate how important ads have been to funding the development of innovative content on the Internet."
"Our goal all along at AdMob has been to make it possible for developers and publishers to bring their products and ideas to mobile with the same business model," Hamoui said. "We're proud of the progress we've made towards accomplishing this goal, and joining Google will only accelerate this process, ultimately leading to very real benefits for end users around the world. As publishers and developers generate more revenue from their mobile products, they will invest more, and their mobile offerings will become richer, more creative and more robust."
The mobile wars are heating up -- and Google just threw down a major chunk of change to gear up for battle.
What are stocks? Learn how to start investing.View Course »