What Would AdMob Do With a $700 Million Kill-Fee From Google?

While Google awaits a verdict from the Federal Trade Commission on whether or not it intends to approve its proposed $750 million acquisition of AdMob, rumors have surfaced suggesting the search giant agreed to pay the mobile ad network a “kill fee” of up to $700 million if the deal doesn’t close.

Bloomberg reported the figure citing a source “with knowledge of the deal,” but when asked about the fee at a shareholder meeting last week, Google CEO Eric Schmidt reportedly avoided the question, stating, “We don’t expect to pay any kill fee because we expect these things to get approved.”

Although industry executives agree that an AdMob with $700 million in its pocket could evolve into a powerful player in the mobile space, some suggest it would benefit far more from having Google in the equation.

“AdMob plus $700 million is certainly formidable, but not even close to as formidable as AdMob plus Google, and certainly not in as good a competitive position against Apple’s iAd product,” commented Jason Klein, co-president of digital agency LBi’s U.S. headquarters.”There are intangible and tangible benefits of being aligned with Google that you just can’t buy – not even for $700 million,” he added.

Thought it’s impossible to predict what AdMob might choose to do with a possible kill fee payday, it seems likely acquisitions would be in the cards, perhaps of rival networks in the space such as Millennial Media or Jumptap. “I would expect that capital would be earmarked for acquisitions,” said Klein, adding, “There may be some interesting targets out there, but none will compare to the ‘could’ve been’ of Google plus AdMob.”

Julie Ask, VP and principal analyst at Forrester Research described AdMob’s staff as a “talented group,” and suggested the company could “do a lot with $700 million.” She added, however, that a kill fee may instead be divvied up among investors and staff, and that it might therefore be difficult to keep the current teams in place.

Ask also alluded to ad networks’ continued reliance on data from platform owners such as Google and Apple. “If Apple, Facebook, or Google were to decide to stop allowing developers to send through data to the ad networks, it would be hard for them to compete with the offerings of Google, Apple, and Facebook directly – they are the ones that have all of this user data,” she said.

In a recent update to its application developers’ agreement, it appears Apple is contemplating doing exactly that. The firm amended its language to state, “The use of third party software in Your Application to collect and send Device Data to a third party for processing or analysis is expressly prohibited.” This potentially bans ad networks from serving ads into applications, and clears the way for Apple’s own iAd network.

The FTC is currently scrutinizing the AdMob purchase on grounds of antitrust, suggesting it will gift Google too much control over the mobile advertising space, particularly in light of its continued global dominance of the search industry. Indeed, some suggest Apple’s acquisition of Quattro Wireless in November should also have been subject to similar scrutiny, given that Apple plays such a prominent role in the mobile hardware space with the iPhone, and now its iPad product.

According to Ask, “Apple’s acquisition of Quattro and their entry into the ad market given their installed base of handsets, iPods and iTunes subscriptions makes them a formidable player in mobile.” Klein agreed, suggesting “the deal should go through because of the precedent set by Apple’s acquisition of Quattro.”

In an interview with Reuters earlier this week, Google CEO Eric Schmidt said waiting for the FTC’s verdict has already translated to a “significant disadvantage” for AdMob in competing against Apple and other rivals, adding, “It would be better if the AdMob acquisition can be approved to see if Google can get a more competitive market on the iPhone platform.”

As Ask pointed out however, the FTC scrutiny has likely more to do with Google’s existing dominance of the digital advertising space, rather than concerns about the mobile space specifically.

The FTC is expected to announce its intentions regarding the merger in the next couple of weeks.

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