Update: Google to buy mobile ad company AdMob

AdMob already serves ads for some apps running on Google's Android mobile OS

Google plans to buy mobile advertising provider AdMob for $750 million stock, the search giant said on Monday.

AdMob is a leader in mobile advertising and already serves ads for some applications running on Google's Android mobile operating system.

In a statement, Google said that AdMob has made "exceptional progress" so far in the mobile advertising market, which is thought to be in its early development stages.

The deal fills a hole for Google, which has mainly focused on mobile search ads, it said on Web pages that it put up to offer further details about the acquisition. AdMob has largely focused on display ads and in-application ads.

Google and its competitors including Yahoo and Microsoft have been competing to gain traction in the mobile market, which they see as having potential for significant revenue streams. Already there are more mobile-phone users in the world than computer users, so they believe that serving ads to mobile users can build a new source of revenue.

On the questions-and-answers page about the deal, Google said that it currently makes a very small amount from mobile ads relative to its overall revenue, "but the prospects for this space are excellent." Usage of its search engine by mobile users has grown five-fold over the past two years, Google said.

The acquisition indicates how serious Google is about mobile and about display advertising, said Greg Sterling of Sterling Market Intelligence.

It's also a large acquisition for Google. "This is one of those 'major' acquisitions that CEO Eric Schmidt said would occur only once a year," Sterling said.

The deal is likely to have an effect on the overall market for mobile advertising, he said. "It will raise the whole profile of mobile display ads because Google has now placed a big bet on that segment," Sterling said.

In addition, it may lead to consolidation in the market. With a major company like Google making a move in an emerging market, others typically follow. "We may see a bunch of people react and make their own buys," Sterling said. However, given the ailing economy, it's hard to predict if that will happen now, he said.

While no company has yet staked a clear lead in the mobile advertising market, this acquisition could tip the scales toward Google, he said. Google may "draw dollars from elsewhere," Sterling said, as some advertisers migrate toward Google's brand name.

While Google said that it doesn't see any regulatory concerns over the deal, it took pains on the Web pages to describe how much competition there is for mobile ads and why the deal is good for users. Mobile customers may end up with more free mobile applications because developers may be able to support their work through ads, Google argues.

It also points out that Google's competitors including Yahoo, AOL and Microsoft have also recently made acquisitions of mobile advertising companies.

In fact, this is a good time for Google to buy AdMob since the mobile advertising market is relatively small, said Tole Hart, an analyst at Gartner. That could help Google avoid antitrust concerns, he said.

Google also said that it will extend its privacy protections to its mobile advertising plans, perhaps in anticipation of privacy concerns around the deal. Earlier this year two privacy groups asked the U.S. Federal Trade Commission to regulate how mobile markers can use consumers' personal information. They cited AdMob among companies that they say collect information from mobile users without adequate notice.

AdMob competitors are trying to put a bright spin on the acquisition. "The announcement is causing tremendous excitement as it validates the enormous potential of mobile advertising," Paran Johar, chief marketing officer for Jumptap, a mobile advertising network provider, said in a statement. "The industry front runner will be determined by who can deliver the most advanced targeting capabilities for better ROI for advertisers and publishers."

Both Google and AdMob have approved the acquisition.

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