With Google’s recent acquisition of AdMob at a staggering price of $750m, Silicon Valley VCs are sure to be green with envy of Accel Partners who also saw their other portfolio company Playfish be acquired for $300m (potentially 400m) by EA. Buying a mobile ad network for Google certainly makes sense, but does the price make sense?
The value of mobile may be much more so in mobile as a response channel rather than a display channel. As such, the pure revenue generated by AdMob looks to be a very generous multiplier on the price paid for the company, and you may wonder why they did not acquire any of the other networks. Although private, AdMob claimed back in June to run 7,5bn impressions and kept on average 40% of the revenue. Most of AdMob’s impressions are CPC, and assuming a CTR of 0.5% which is close to what they claimed last year, and a CPC average of 0.2 which the article says, it would estimate their annual revenue run rate at $36m, which is a 20x multiplier on that run rate.
However, if you look a bit deeper you will see that Google is paying for a lot more – namely the knowledge built up in AdMob. AdMob has been in the forefront of providing insight into the development of mobile advertising by providing metrics. They also developed an ad exchange for iPhone ads, allowing developers to swap space, which is quite clever as it allows the to capture a lot of statistics without paying for it. They acquired Adwhirl, which provides insight into which networks are performing best. And lastly, AdMob works closely with agencies and mobile specialists in an advisory capacity, which is also a clever move. Any player in the mobile marketing space today needs to understand the full specter of what a mobile campaign is about. This means to have an understanding not only of display advertising, but also sms response, wap sites, CRM integration, augmented reality, applications and more.
AdMob has no doubt been clever in their strategy execution. Of course, it does not hurt to have the same VC as invested in Google among your backers.
The next wave that is coming is the blending of social media and mobile marketing, as the mobile phone is the ultimate social media device. Agencies and media companies will no doubt scramble to attain the knowledge required to deliver this, and it certainly looks to be a good time to be in social and mobile…
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