Google CEO Schmidt: Why We Bought AdMob

Google (s GOOG) earlier this week said it was buying AdMob, a mobile advertising network, for $750 million in stock — clearly an attempt to get a running start in the mobile advertising business. Together, according to some estimates, the two companies control 30-40 percent of the mobile ad market.

What wasn’t said was that without AdMob, it would take a long time for Google to get thousands of apps to use its ad service as that would involve re-tweaking thousands of iPhone apps that were using AdMob’s network. Google didn’t have time for that, as CEO Eric Schmidt explained in an interview with Bloomberg:

“AdMob is clearly the best of its ilk for applications monetization…We think that’s as strategic as search monetization, which, of course, we’re very good at…One the key success points for the iPhone was this enormous development of apps, and particularly free apps, which are advertising supported…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.”

Ian Schafer, CEO of Deep Focus, a marketing agency, puts it all in context:

With the acquisition of AdMob, Google now has access to usage data of many of the most popular mobile apps–especially the apps in the iTunes App Store. For iPhones. If Google is taking on Apple for mobile OS market share, they just scored a huge competitive advantage. Google will know more details than ever about how people are using iPhone apps, how they are engaging with advertising within those apps, and users’ loyalty to those apps. Dashboards like the above only provide a window into the beginning of the mining that Google is likely about to do on their mobile handset competition.

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Google has been worried sick about the rise of the app economy because it undermines its ad-based search paradigm. As Andy Abramson explained:

If your business is built on things like web based technology (search), cloud based technology (Apps) and advertising from traffic that goes to and through your search engine or when people are looking at their content in the apps, the concept of many app stores has to be very, very scary for a few reasons.

Well nothing like a bit of fear to loosen the purse strings. AdMob is Google’s second-largest advertising-related acquisition to date, behind DoubleClick, for which it paid $3.2 billion. The company also paid $1.6 billion for YouTube. Notably, Schmidt said he doesn’t view AdMob-sized deals as the norm for future deals.

Photo courtesy of Charles Haynes via Flickr.