By Pamela Clark-Dickson

The mobile industry is buzzing about Internet giant Google’s proposed $750m, all-stock acquisition of mobile advertising network AdMob, which was announced November 9. It is a huge deal, and seemingly an acknowledgement by Google that it has not been able to sufficiently develop its own mobile advertising capabilities internally, even though it has been offering mobile display search advertisements for some time.

Given that rivals Microsoft, AOL and Yahoo all snapped up mobile advertising networks two years ago – Screen Tonic, Third Screen Media and Actionality respectively – it would seem that Google has come a little late to the party. And perhaps its lateness to the market has cost it dearly. The privately-owned, venture-capital-backed AdMob has gone from being a start-up in 2006, to become a leading provider of mobile web display and application display advertising, with an ad serving network that spans 160 countries. According to its latest Mobile Metrics report, AdMob served 10.2 billion advertisements in September 2009 across its footprint. In 64 countries, the company served more than 10 million ads, and in 14 countries, it served more than 100 million ads. That is pretty impressive.

There is no doubt that AdMob has a lot to offer Google: in addition to its extensive network of advertisers and publishers, the company is able to provide its customers with comprehensive data about their mobile advertising campaigns, which it then also anonymizes and aggregates in order to publish a monthly report on its web site. This is the kind of data that the industry desperately needs if mobile advertising is ever to go mainstream.

Still, I am staggered by the sum that Google was prepared to pay to acquire AdMob, especially since as recently as January 2009, AdMob was seeking venture capital investment. The January 2009 round totaled US$12.5 million and in all, AdMob had received $47.2m since inception – or at least, the company had publicly disclosed that it had received that amount of funding. Also, Google itself says, in its FAQ with respect to the deal and regulatory approval: “Currently we do not believe this purchase requires regulatory review outside the United States. AdMob’s business simply is too small.” It’s a somewhat arrogant statement by Google, which also seems to contradict the price that the Internet giant was willing to pay to secure AdMob.

Under the circumstances, it almost goes without saying that AdMob CEO Omar Hamoui is an astute businessman; clearly he is also a skilled negotiator who knows what his company is worth and is not prepared to accept anything less than top dollar, as it were. Google’s CEO Eric Schmidt has reportedly said that the company will buy back $750m in stock once the AdMob acquisition is completed, in order to avoid share dilution. This reportedly first-time share buy-back for Google comes less than a month after Schmidt’s statement in the company’s 3Q09 quarterly earnings call that the company would not ever consider a share buy-back.

AdMob’s investors Sequoia Capital, Accel, Draper Fisher Jurvetson and Northgate Capital must be kicking themselves at this point; they will have made back their meager-looking investments, but nothing else, unless they also agreed some kind of exit deal with AdMob that gave them a share of the profits (or stock in this case) from the sale of the company to Google.

“Yoo-hoo! Over here,” says Google

What is also interesting about Google’s acquisition of AdMob is that Google has highlighted the fact that it currently doesn’t have an offering with regards to SMS advertisements, on a web page detailing its competitors in the mobile advertising market. Just to push the point home about how important it regards SMS advertising from a revenue perspective, Google also publishes a pie chart illustrating that an estimated 55 per cent of mobile advertising budgets in 2009 will be spent on SMS advertising, compared to 25 per cent on applications and web site advertising, and 20 per cent on mobile search. In addition, Google has helpfully provided a list of five players it believes are major players in the SMS advertising market: 4INFO, Cellfire, HipCricket, iLoop Mobile and VeriSign Messaging. Google is already active in the mobile search display market, and has acquired AdMob to provide application and mobile web site advertising, which means that the above players could conceivably be regarded as acquisition targets for Google.

But given the nature of the companies that Google has listed under SMS advertising, it seems that the company’s definition of SMS advertising is broad, and includes all forms of marketing in which SMS is used, not just the relatively nascent market for the insertion of advertisements into the unused characters of a text message. Only one of the five companies that Google has highlighted as players in the SMS advertising market, 4INFO, is operating under this business model. Meanwhile HipCricket, iLoop Mobile and VeriSign Messaging could be regarded as full-service mobile marketing companies, while Cellfire specializes in mobile coupons. All of these companies would, however, use SMS as a delivery channel for mobile marketing campaigns that, for example, include a text-to-win component or an SMS coupon.

While I don’t doubt that Google has considered or is considering one or more of these five companies as an acquisition target, I believe that either 4INFO, iLoop Mobile or HipCricket are probably the best fits for the company, depending on whether Google is going to continue to focus purely on SMS advertising, or whether it enters the mobile marketing industry sector.

If Google continues to focus purely on mobile advertising, then 4INFO is probably the best suited, since it has a lengthy history in inserting advertisements in the unused characters of SMS messages. 4INFO has also secured venture capital from Draper Fisher Jurvetson, one of the companies that funded AdMob.

But if Google is also interested in the wider mobile marketing sector, then either iLoop Mobile or HipCricket is going to suit its needs better. iLoop Mobile has already essentially said “Pick me!” by publishing, almost immediately after the Google/AdMob deal was announced, a landing page on its own web site that highlighted that it sits squarely in the SMS advertising space that Google left vacant on its web page detailing the mobile advertising market. This landing page has since been removed.

I don’t think that either VeriSign Messaging’s Mobile Delivery Gateway mobile content business (the former M-Qube) or Cellfire are in with a chance. VeriSign’s MDG has been up for sale for some time, but had Google been interested I feel that it would have snapped this asset up already, since VeriSign is keen to sell and Google has the cash (or stock) to buy. Meanwhile Cellfire specializes in mobile coupons, and that’s a capability that HipCricket also provides as part of a wider portfolio of services. If Google is interested in mobile marketing, it’s probably going to want to be a full-service provider rather than a niche market player.

But will Google be prepared to pay as much as it did for AdMob for a company (or companies) that will enable it to access a market which, by its own calculations, is much more lucrative than the mobile search, web, and in-application display advertising markets put together? Only time will tell.