Why Google Has No Choice But to Continue Baiting the FTC

(MoneyWatch)  The FTC is gearing up a probe of Google's $750 million acquisition of mobile advertising company AdMob, but behind that lies a more intriguing question: Given that every acquisition Google (GOOG) makes involves antitrust issues -- think DoubleClick or its deal with Yahoo! (YHOO) -- why does it bother?

Google is already dominant online with nearly $23 billion in revenue last year from advertising. It has the cash and the resources and talent to go it alone or develop new companies from scratch. So Google could just as easily drive its rivals out of business as buy them up.

One theory is that Google may believe it can see a ceiling on its ad revenues, which predominantly come from Google's own property. In this analysis by tech writer Daniel Cawrey, we can see that Google mostly generates revenues from its own stuff, which explains why it's so keen to generate new apps and devices -- the more of its own stuff is out there, the more platforms there are for Google's ads to sit on. But as Cawrey points out, diminishing returns may set in:

Ever increasingly, Google is relying on itself to make money through its own real estate -- places where it can position the ads that advertisers purchase. This is a concern for publishers that rely on Google for revenue through Adsense because there has to be a point at which this is no longer a profitable exercise for the company.

If it reaches that point, Google will essentially be subsidizing publishers. And it may not have a choice but to keep doing so. Because without fresh content creation, what is there for users to search for on the Internet that is of value?

He uses this chart from Silicon Alley Insider to show how feeble Google's success has been in generating revenue from non-Google partners:

Here's another chart, from Google's annual report. It shows that a few years ago, Google's revenue nearly doubled annually. Now its increases are slowing down. Sure, there's a recession in the 2009 numbers, but you get the nagging feeling that Google's revenues may be reaching their plateau, just like mature businesses such as Coca-Cola or McDonald's:

If that were the case, it would explain why Google is so masochistic when it comes to tempting the FTC with every acquisition: If it wants to continue growing, it has no choice.

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