Google to buy mobile ad firm

Google Inc. took another major step in its quest to ensure that wherever consumers go -- whether to their laptops to search sports scores or videos or to their phones to find a restaurant -- advertisers will be there too.

On Monday the search giant said it was buying AdMob Inc., a developer of technology that plops ads into thousands of mobile phone applications, for $750 million in Google stock.

It’s one of the largest acquisitions yet for the 11-year-old company and illustrates Google’s double-barreled strategy of attracting consumers with free tools to access billions of Web pages, books, maps and movies -- and then charging advertisers to pitch their wares to its huge audience.

“Despite the tremendous growth in mobile usage and the substantial investment by many businesses . . . the mobile web is still in its early stages,” Susan Wojcicki, Google’s vice president for product management, said in a blog post. “We believe that great mobile advertising products can encourage even more growth. That’s what has us excited about this deal.”


Google’s advertising business generates nearly all of the company’s $22 billion in annual revenue, but Google has been constantly adding to its smorgasbord of free services and applications to draw in the audiences that are valuable to advertisers.

Among search engines, Google has become a household name and receives nearly two-thirds of U.S. Web search queries. But the company has been expanding into dozens of other industries, enabling users to find books, send e-mail, make phone calls and watch video -- services that cost money before the rise of the Web.

But as Google’s free products have disrupted one industry after another, questions have mounted about whether its rapid expansion is catalyzing competition or crippling it.

In the last month, Google has burrowed deeper into several major markets.


In a surprise challenge to Apple Inc.'s dominant iTunes music service, Google unveiled a music search feature that enables users to find, play and buy millions of songs.

On the same day, Google sent tremors through the hand-held navigation industry by announcing that new Google-powered phones would come with turn-by-turn driving directions -- a service for which consumers have long had to pay.

Some industry observers are wondering whether there are any limits to the services and features Google could eventually offer.

“They define everything in the universe as information,” said Siva Vaidhyanathan, a media studies professor at the University of Virginia, “which means everything in the world is potentially in their domain.”


Because Google is fundamentally an advertising company, Vaidhyanathan said, its highest priority is to “harvest users’ attention” and sell that commodity to eager marketers.

But its method of capturing attention -- supplying free Web services -- deals heavy blows to competitors.

When Google announced that it would include free Global Positioning System navigation software in phones with the new version of its Android mobile operating system, investors dumped stock in manufacturers of for-pay GPS devices. Shares of Garmin Inc. and TomTom, two leading GPS device makers, have dropped 25% and 32% respectively.

Whether Google’s practice of offering free services in formerly paying markets is fair is a complicated question, said Layne Kruse, an antitrust attorney at Fulbright & Jaworski.


Offering a free service is not inherently harmful to competition, Kruse said. “In antitrust law we say you’re not out to protect competitors, you’re out to protect competition.”

“People go out of business all day,” Kruse said. “But as long as you have other businesses that can step in and compete, then the market still works.”

But regulators could take action if free Google services -- like its GPS software, its search engine or even YouTube -- become so widely adopted that newcomers would find it too difficult to compete.

Google, however, doesn’t appear worried. Speaking at a recent press event, Chief Executive Eric Schmidt defended the company’s pricing model.


“Obviously we like the price of free because the consumers like that as well,” Schmidt said, adding, “We can figure out ways to use advertising to pay for it.”