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FTC Probes Google's AdMob Deal: Is This an Ad Monopoly in Waiting?

The FTC opened a third investigation into Google (GOOG), this time probing its proposed $750 million acquisition of AdMob, the mobile phone advertising delivery company. The company noted the news on a blog after lunchtime on the day before Christmas Eve -- quite a good time to release bad news if you don't want anyone to read it.

Does the move signal that the government is not buying Google's notion that everything it does is good for everybody? Perhaps. But some of the evidence suggests that Google is laying groundwork that could create monopoly status in at least two, and possibly three, forms of advertising media: Search, mobile and online video.

Google group product manager Paul Feng described the latest FTC action on Google's Public Policy blog:

This week we received what's called a "second request," which means that the FTC is asking for more information so that they can continue to review the deal.
While this means we won't be closing right away, we're confident that the FTC will conclude that the rapidly growing mobile advertising space will remain highly competitive after this deal closes. And we'll be working closely and cooperatively with them as they continue their review.
The request came after Jonathan Rosenberg, Google's svp/product management, posted this manifesto on openness:
At Google we believe that open systems win. They lead to more innovation, value, and freedom of choice for consumers, and a vibrant, profitable, and competitive ecosystem for businesses.
... This is counter-intuitive to the traditionally trained MBA who is taught to generate a sustainable competitive advantage by creating a closed system, making it popular, then milking it through the product life cycle.*
The essay was scoffed at by some Google watchers, who don't believe that the company is any way "open" about anything important. TechCrunch's Erick Schonfeld said:
Its advertising system is a black box. You also never hear any talk coming out of Google about opening up the search algorithms that drive all of those advertising revenues. In contrast, Google has no problem championing open standards in industries that it is hoping to disrupt (by commoditizing existing business models with open standards, and making money with advertising instead).
(My colleague Erik Sherman broadly agrees.)

In terms of advertising, here's how "open" Google is on the single most important factor for web site owners who use Google's AdSense program -- revenues:

Although we do not disclose the revenue share for Google AdSense, our goal is to enable you to make as much as or more than you could with other advertising networks.
That's right: Google expects people to sign an AdSense contract that doesn't say how Google and the web host will split the money. It's up to Google. The company can keep or give whatever it wants.

This is important because AdSense (for web site owners) and AdWords (for advertisers) are probably the dominant ad media on the web. They're certainly the most widely used. The IAB reported half way through the year that 47 percent of web ad dollars were spent on search. Google dominates searches. (Remember the last time you used Bing or Yahoo? Me neither.) Thus Google controls the lion's share of search and web advertising -- and yet declines to tell any of its business partners how it pays them.

Put that nascent dominance together with Google's new Google Phone and the Android operating system and you can easily see how the company could leverage itself into the dominant provider of ads on web sites, search engines, and mobile phones. Its fourth area of strength is serving ads alongside web video via YouTube, the dominant provider of video media on the web.

The WSJ notes that the AdMob probe is the third FTC inquiry into Google's activities.

The Justice Department is [also] reviewing a class-action settlement Google struck in 2008 with authors and publishers to resolve a copyright dispute over its book-scanning project.
Earlier this year, Google Chief Executive Eric Schmidt resigned from Apple Inc.'s board amid an FTC investigation into whether it was anticompetitive for him to serve on the boards of Google and Apple, which are growing rivals.
Here's a thought experiment: How big would Google have to become before, as a matter of law, it should be broken into separate companies by the FTC and the Department of Justice?

*Note to MBA competitive advantage geeks: Rosenberg is comparing apples and oranges here. Openness might indeed be better for consumers, as he says. However, the purpose of locking in consumers through technical barriers to switching and entry is to generate excess profits, not to make consumers happy.

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