The real prize in Google's AdMob buy: iPhone user data

Boy, this mobile advertising scene is starting to get complicated. So Apple (AAPL) spoke to mobile online advertising company AdMob before the company's CEO Omar Hamoui inked its recent $750 million deal with Google (GOOG), Bloomberg and others have reported. This was unusual as Apple has typically steered well clear of advertising or of anything that required a serious sales force beyond its retail domain.

A mobile advertising network requires both a salesforce but also its own marketing efforts and other assorted business functions currently not native to Apple. The AdMob purchase was a comfortable fit for Google, in all probability, because AdMob's vice president of engineering and top technical officer Kevin Scott is a Google alum (he served as senior engineering manager).
But Apple is clearly thinking about new business models for its devices and the role of mobile advertising in the universe. The New York Times reported that Apple had snagged a patent for an application that would force mobile and handheld device users to view an advertising spot without interruption. Apple CEO Steve Jobs name was actually on the patent, a rarity.

Some Apple pundits jumped to the conclusion that the patent meant Apple was considering an ad-supported future where devices might be free. For its part, AdMob kept up the pressure by releasing on Nov. 17 the first interactive video advertising capability for iPhones. The feature could draw big bucks as more and more marketers cotton to online video as a means to reach a far more captive and engaged audience than blah banner ads. The real prize in all this, however, is data that Google will get from the acquisition.

Deal Helps Droid Battle iPhone

Sure, the AdMob buy gives Google another way for it to sell online advertising and rounds out its lineup. But the mobile ad market is tiny, with less than $200 million in total revenues in 2008 and very little adoption by large brand advertisers. For sure, Google is playing a long game, betting that mobile advertising will become a blockbuster play. That's probably not all that Google has in mind with the deal, of course.

As John Battelle points out in a blog post, owning one of the biggest mobile advertising networks will give Google lots of data. That data will help Google understand what works on iPhones and what people are willing to pay for in applications or in features. By extension, this will help Google better challenge Apple with Google's own Android operating system and, more literally, with its flagship Droid handset.

Advertising networks all have data collection capabilities, if for no other reason than payment is based either on cost-per-click (CPC) or cost-per-thousand-impressions (CPM). Part of Google's great appeal with its own AdWords product is that the system is designed to promote good advertising and punish bad advertising. It does this by moving high click-through spots up the page and low click-through spots off the page entirely.

Now, on the Internet, such data collection is taking place in neutral turf because the people who make the PCs are quite separate from the people who make and sell the advertising -- and the Web sites that power that advertising. (Microsoft (MSFT) is the exception here, but its online advertising network and efforts have remained a distant competitor to Google.)

Not so in the mobile world, where both Google and Apple are rapidly growing their mobile phone businesses and attempting to grab a greater chunk of the exploding market for smartphones, mobile applications delivery and other related businesses. Google and Apple both have a huge stake in the software that powers the handsets.

The iPhone operating system has emerged as the dominant force in mobile high-bandwidth Internet usage. Android is a clear pretender to this throne. So now Google has bought AdMob.

Keeping Tabs on Smartphone Users

The AdMob network is the perfect vehicle by which Google can spy on iPhone users and how they behave. This is not to say that Google will overtly place spyware on iPhones. But by definition, AdMob tracks user activity in mobile Web browsing and, more crucially, it tracks how they react to ads served up inside applications.

So AdMob will give Google detailed information on how to sell people ads on smartphones, what applications they are using on their iPhones, how much they use their iPhones, and other key details -- even down to fine-grained usage patterns such as startup configurations and other details that dictate broader use trends.

For Apple, AdMob has suddenly become a parasite that it cannot shed. Apple could theoretically try to enforce that only ad networks it controls or approves of could function on the iPhone. But that would likely cause problems, as ad buyers are interested in buying ads across multiple phone platforms and excluding others might hurt iPhone mobile ad sales. Further, such a ban might attract the attention of a Federal Communications Commission that is interested again in expanding its mandate.

Steadily over time, Google will gather more and more information on why the iPhone is so appealing to users. Translating that information into products which pique the interest of prickly technology connoisseurs is another matter. But Google seems to have done a pretty good job in this realm so far with its highly praised search interface.

The upshot? The AdMob deal may not help Google's bottom line for several years. But it could give the company critical insights into how to compete with Apple to entice Droid users to consume more Internet time and use more applications. And that's the real prize in the AdMob deal.

Alex Salkever is Senior Writer at AOL Daily Finance covering technology and greentech. Follow him on twitter @alexsalkever, read his articles, or email him at
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