Google feels that it is ready, willing and able to take on yet another unknown area of technology based advertising revenue and has laid out $750 million on the purchase of mobile advertising market leader AdMob. It’s almost as if the company has finally finished eating its other large acquisition YouTube, having spent years bringing it back from the brink of being just another piracy enabler.
But Like YouTube, AdMob may be a while before it ever makes money, but Google is constantly looking for a second leg to its massive search engine money machine. In our view Google HAD to make a move into mobile, partly because it is likely to soon have a growing Android customer base and given that Android is Open Source, it needs a way of monetizing this semi-dominance, but also because if it failed to move soon, Nokia has been building a comprehensive bundle of advertising services, and the opportunity would be like an open invite for Apple to join in the advertising rivalry, given the amount of free applications there are on the iPhone and how these may shortly look to be monetized by advertising.
Funnily enough advertising driven applications has never been a big thing on the web, and although tried by many it has been successful for very few. So it remains to be seen if free AppStore applications open the door to mobile advertising in the same way. If it does Google can now attach to both the iPhone installed base, almost as dry run for the growing Android Marketplace.
Google said last month it sees mobile as its fastest growing platform and will be looking for ways to enhance its position in the value chain and CEO Eric Schmidt said he wanted to move more firmly into mobile advertising as the smartphone looked set to be the primary search vehicle within a couple of years, and Android is expanding. According to research from Zenith Optimedia, paid search advertising will account for 15.1% of all marketing spend by 2011, up from 10.5% in 2008.
To tap into such trends, Google is buying AdMob from its private owners Sequoia Capital, Accel, DFJ Growth fund and Northgate. “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,” commented Susan Wojcicki, VP of product management at Google, in a statement.
It is also possible that Google pipped Apple to the post in snapping up AdMob – the start-up was rumored last week to have received a far lower offer, around $400 million, from the maker of the iPhone, whose impact on mobile advertising and search uptake it has regularly tracked.
Google is strengthening its hand against other advertising platform providers that are going mobile, like Amobee. Other mobile players are also seeking their place in the advertising chain – for instance, Alcatel-Lucent, which has partnered with advertising specialists to provide carriers with ad delivery platforms in a ‘Telco 2.0′ environment, and Qualcomm, which offers operators its Xiam recommendation engine to pick the right adverts to show to mobile customers (and which partners with Amobee). Naturally Microsoft AdCenter will want to take the same direction as Google.
However, the market is not all plain sailing, and earlier this year, Nokia – temporarily at least – pulled back its own efforts. Mobile ads are a sector in which everyone wants to succeed, but where there is no convincing model as yet. For instance, a study of iPhone applications usage, by mobile advertising firm Pinch Media, found that most users who download an App Store product use it for only a few minutes, while only 20% return to the software the day after downloading. Such patterns of usage present a major challenge for advertisers, and it will be tough to make money from ad-supported free software when the App Store is so crowded and users’ attention span so short. Pinch reckons only 5% of apps in the Store are sufficiently sticky to justify advertising, and there is no reason to think Android will be different.
Just a year after establishing a division dedicated to mobile advertising networks, Nokia slashed half the UK-based unit’s workforce, with the loss of about 30 jobs, in February. The Nokia Media Network aims to allow advertisers to target consumers on the pages of premium mobile web sites associated with publishers, operator partners and Nokia’s own Ovi internet services. Nokia also acquired US-based mobile ad specialist Enpocket last year.