Google to Buy AdMob

In a clear sign that mobile advertising has arrived and become a major revenue opportunity, Google today announced that it is buying AdMob, the upstart mobile advertising company based in Mountain View, Calif., for $750 million in stock. On AdMob’s blog, Google’s Susan Wojcicki, VP of product management, and Vic Gundotra, VP of engineering, write:

For publishers of mobile websites and applications, this deal will mean better products and tools and more effective monetization of their content — allowing them to focus more on their users and less on how to generate revenue. For advertisers who want to reach users when they are engaged with mobile content, this deal will bring better, more relevant ads and greater reach. It will also mean more interesting, engaging ad formats.

AdMob has long been the dominant pure-play ad company in mobile, gaining traction as a kind of automated ad clearinghouse for inventory on the mobile web. The company has also expanded into mobile app advertising, which has exploded thanks to uptake of superphones such as the iPhone and Android handsets. Google, meanwhile, has primarily focused its mobile ad business on search.

As Google pointed out, the deal follows a handful of similar acquisitions by traditional online companies looking to move into mobile: AOL bought Third Screen Media more than two years ago, Yahoo picked up Actionality several months later and Microsoft bought its way onto the field with the pickup of ScreenTonic. But Google’s move raises the stakes for all the players in the game, and fires a warning shot across the bow of smaller mobile startups. Expect Google to move quickly to integrate AdMob’s business with its own mobile ad division as the company’s Android platform picks up steam.

While Google certainly paid a premium for not buying in earlier — or for establishing a thriving mobile ad placement business of its own — the tie-up appears to be a good fit. UBS analyst Brian J. Pitz speculated that Google is likely to integrate AdMob’s technology, clients and publishers into its AdSense network, which launched a mobile component two years ago. And J.P. Morgan said the acquisition “makes perfect strategic sense,” allowing Google to leverage AdMob’s technology to serve and analyze emerging ad formats:

“In our opinion, Google has invested heavily in growing the mobile Internet business through its development of Android and inclusion of mobile ads on AdWords,” the firm wrote in a research note. “The acquisition of AdMob should allow Google to monetize its support of the development and use of mobile Internet content further.”

AdMob doesn’t disclose revenues, but J.P. Morgan estimates the company generates between $45 million and $60 million in revenue on an annual basis. The company has raised $47.2 million in venture capital from Accel Partners, Draper Fisher Jurvetson and Sequoia Partners, and it has seen its number of monthly ad requests increase sixfold over the last two years, reaching 10.2 billion in September.