FTC May Put Kibosh on Google's AdMob Deal

Google's (Nasdaq: GOOG) proposed US$750 million acquisition of the mobile ad network AdMob may be subjected to a protracted period of regulatory scrutiny.

The Federal Trade Commission is seeking sworn declarations from at least two of Google's competitors, according to a Bloomberg news report.

Google announced its intent to buy AdMob in November 2009, in a stock deal that would make it the company's third-largest acquisition. Google acknowledged at the time that it might draw some regulatory scrutiny, but it now appears the oversight process could be more in-depth than it originally expected.

The mobile ad space is still very small and quite fragmented -- although Apple's (Nasdaq: AAPL) pending acquisition of Quattro could alter the playing field.

Fragmented Market

Currently, Google makes a "very small amount" from mobile ads relative to its overall revenue -- but the prospects for this space are excellent, it says in its FAQ on the acquisition.

"Advertisers and analysts do not view mobile advertising -- which will account for only 0.4 percent of all ad spending in 2009 -- as a distinct piece of ad spending," notes Google. "Instead, mobile advertising is seen by industry leaders as competing for dollars against other forms of advertising. Even within mobile advertising, however, the experts at mobiThinking have said that 'no one really knows what ad network is biggest' and 'any figures you read about market share or revenue are estimates, if not pure guesswork.'"

Google got an inkling that the FTC might want to give the deal a second look shortly after it was announced.

At the end of December, the company received a "second request" for additional information from the agency, Paul Feng, group product manager, wrote in Google's Public Policy blog.

Shortly thereafter, two consumer groups -- Consumer Watchdog and the Center for Digital Democracy -- asked the Federal Trade Commission to block the deal, arguing that it would lessen competition and harm consumers, advertisers and application developers, among others.

There is no shortage of people who support Google's view that the market is too small and fragmented to be worthy of antitrust scrutiny.

"This is a classic case of a market that is incredibly dynamic being viewed by regulators inappropriately," Ryan Radia with the Competitive Enterprise Institute told the E-Commerce Times.

"Even though Google is a sizable force, search is the only area where it has any market leverage," he said.

Google Is Too Big

At the other end of the spectrum is the opinion that no matter what market Google enters, its sheer size makes it a dominant market force.

"The underlying issue with an AdMob/Google deal is the prospect of creating a monopoly or creating an impossible barrier to entry for potential competitors," said Bruce Braun, senior vice president of sales and marketing at GoldSpot Media.

"Google will be evaluated not on the basis of how big they are in search, but how much dominance they would exert should they be allowed to buy the largest mobile ad network," Braun told the E-Commerce Times. "I would hope that the evaluation criteria would consider what Google has done in search, and in total online ad revenue and how they are using that clout."

Factoring in the adoption of the Android OS across multiple carriers and Google being the default search engine on many handsets, acquiring AdMob means Google will dominate what is currently a small industry by consolidation before any large scale is achieved, said Braun.

What About Quattro?

There are other things the FTC should take into consideration -- such as the impact that Apple's acquisition of Quattro may have, observed Boris Fridman, CEO of Crisp Wireless.

"Today the space is diverse, and there is no one dominant player," he told the E-Commerce Times, "but these two acquisitions are setting a big battlefield for only two very large players."

If both deals go through, it will be "an epic battle," predicted Fridman.

It may be that the FTC is just taking the time to make the right decision, suggested Scott Jones, chairman and CEO of ChaCha.

"The stakes are high, which is why the FTC is scrutinizing [this] closely," he told the E-Commerce Times.

"Mobile advertising is currently only a sliver of what is spent on advertising today, but the third screen will absolutely dominate in the coming years," said Jones. "Because Google dominates so pervasively with online advertising, the FTC must necessarily be cautious about giving Google a massive head start, even though it is early in the game."