Google to grow ad sales with AdMob

MOUNTAIN VIEW: Google Inc Chief Executive Officer Eric Schmidt said his company's $750 million purchase of AdMob Inc will expand sales of ads that appear in applications on smartphones such as the iPhone.

"AdMob is clearly the best of its ilk for applications monetization," Schmidt said in an interview at Google's headquarters in Mountain View, California. "We think that's as strategic as search monetization, which, of course, we're very good at."

Together, AdMob and Google will be the largest mobile advertising company, with about 30 percent to 40 percent of the market, according to Karsten Weide, an analyst with researcher IDC in San Mateo, California. The purchase will allow advertisers to get their brands in front of consumers who use games, personal finance tools and music programs on the iPhone and devices using Google's Android software, Schmidt said.

"One of the key success points for the iPhone was this enormous development of apps, and particularly free apps, which are advertising supported," said Schmidt, 54. "Now that we have our Android platform coming out, and really with some serious partners behind it, it will also be important to have that be true for Android as well as the others."

Google, owner of the world's most popular search engine, is using stock to buy AdMob. After the deal is completed, the company plans to use cash to buy back $750 million in Google shares, Schmidt said. That would prevent the transaction from diluting investors' holdings.

That would be the first time Google has done a stock repurchase, Ben Schachter, an analyst at San Francisco-based Broadpoint AmTech Inc, said in a research note.

The iPhone, which Apple Inc started selling in 2007, now has more than 100,000 applications. Google's Android, a smartphone operating system that was first offered on phones last year, has more than 12,000 programs. Verizon Wireless, the biggest US wireless carrier, released a new line of Android phones called Droid earlier this month.

AdMob ads appear within applications such as local business finder Yelp and music game Tap Tap. The ads typically are displayed as a banner at the top or bottom of the screen, and also appear on mobile Web sites. In June, Google started testing ads on applications, sharing revenue with the program's creator.

Application downloads in the US should grow from 975 million this year to more than 6 billion in 2013, according to the Yankee Group in Boston.

"The free apps have to be paid for somehow, and the model we've become very comfortable with is using advertising," Carl Howe, an analyst with Yankee Group, said. "I think it could be, actually, a big business."

Google also sells ads that appear when people search the Web on their phones for products like books, flat-screen televisions and vacations.

Sales of smartphones climbed 27 percent worldwide in the second quarter, even as total mobile-handset sales dropped 6.1 percent, according to researcher Gartner Inc in Stamford, Connecticut.

"Our mobile revenue is growing faster than our regular revenue," Schmidt said. "All of the signs indicate a great success in this space."

Google stock has climbed 85 percent this year.

AdMob is Google's biggest acquisition after YouTube, bought for $1.65 billion in 2006, and DoubleClick Inc, a $3.2 billion takeover announced last year. Schmidt said he doubts purchases the size of AdMob will become the norm, adding that Google will probably make an acquisition every month or so.

"There are relatively few companies that are worth that kind of money," Schmidt said. "We are actively talking to lots and lots of potential small companies to help complete our vision."

Google is hiring again after the company cut back during the recession, Schmidt said. The company had about 19,665 workers at the end of the third quarter, down from more than 20,000 last year.

"We are absolutely planning to increase our headcount and we're aggressively trying to find the best talent, as we did historically," Schmidt said. "We are back in business, hiring people."

Bloomberg News

(China Daily 11/16/2009 page11)