Why The FTC Should Allow The Google-AdMob Merger

The Federal Trade Commission is expected to make a decision as early as this week on whether to allow Google’s $750 million acquisition of AdMob, a source told mocoNews. And, according to All Things D, the two companies expect the FTC to block the acquisition because of antitrust concerns. The reasoning doesn’t seem to have anything to do with what will happen to the mobile ad-serving business as a result of the purchase — rather it’s a way for the government to show its concern for Google’s dominance in search on the web.

But there are plenty of reasons why the FTC should approve the deal. Mobile advertising is in its infancy, and was barely considered a vibrant market until Google (NSDQ: GOOG) agreed to buy AdMob. Apple’s subsequent acquisition of Quattro Wireless helped generate additional momentum. In other words, the merger is a chance to make mobile advertising exciting after years of the wait-and-see game.

It has been exactly four years since I wrote my first substantial story about the mobile-advertising industry. At the time, I was at The Seattle Times, and a mobile banner ad was almost unheard of. Early experiments were only starting to crop up. It was that same year that AdMob was founded.

In the following years, AdMob became the largest mobile ad network. While that sounds impressive, it has been estimated that at the time of its acquisition, AdMob was registering a mere $25 million in annual revenues on a global basis and was unprofitable. Surely, Quattro Wireless was nipping at its heals when Apple (NSDQ: AAPL) bought them, and yet another independent mobile ad network, Millennial Media, couldn’t be too far behind. So there’s no question of a competitive landscape.

Despite Google and Apple throwing millions of dollars at the market, this year eMarketer estimates that mobile advertising revenues in the U.S. will not even come close to breaking $1 billion. Try $593 million. For this market to finally take off, it needs leadership, and enough scale to spur confidence in the advertising and publishing industries.

Apple is assuming that role now. Left completely alone by regulators, it was able to buy a mobile ad network, integrate it, and launch a product before Google even knew the fate of its purchase. Apple is trying to establish minimum annual ad buys on its iAd network of $1 million. (And, as we wrote earlier today, marketers could wind up spending much more than $1 million a year with iAd when it’s all said and done.)

If Apple goes unchecked, mobile ad serving could easily turn into a one-sided story. If Apple and Google are able to go head-to-head, maybe the competition of the two will motivate others, like Microsoft (NSDQ: MSFT) or even the wireless carriers, to take action. (There’s still plenty of other scrappy start-ups ad networks available for purchase.)

AllThingsD’s Kara Swisher says they saw AdMob’s founder and CEO Omar Hamoui on a recent flight from Washington, D.C., where he was undoubtedly meeting with government officials. In her words, Hamoui was looking “a lot more haggard than usual.”

But even if the FTC shoots down the deal, you probably don’t need to shed any tears for Hamoui. BusinessWeek reported that Google CEO Eric Schmidt was so intent on buying AdMob he agreed to pay a “kill fee” of around $700 million if the deal failed to close for some reason, including antitrust concerns. That’s just $50 million shy of Google’s full offer.