Why Google's AdMob Buy is Smart

Google announced today that it bought AdMob, a mobile display advertising company, to extend its online advertising dominance into the next frontier of web browsing. While the buzz over Google rings loudest over its new smart phones and revolutionary operating systems and innovative forays into online media, it's easy to forget that from a revenue perspective, Google is in the advertising business.


Wired reports that 97 percent of Google's profits are still from online ads.

Ads on Google-owned sites such as Gmail and its search page produces 67 percent of its revenue, while 30 percent comes from ads on other publishers' sites. Revenue sources that contribute to the final 3 percent include paid enterprise-search services and premium versions of the company's online office applications that compete with Microsoft's Office products.

That's why this merger is important, and also why it's a no-brainer. Mobile ad spending is expected to grow 15 percent next year. But really, this investment is about the years after that. The smart phone war between iPhone, BlackBerry, Palm, Android, etc is still in its infancy stages, and competition will only drive up their capacity and utility and drive down their price. As eyeballs move to mobile devices, advertisements move to mobile devices, and Google needs to stay on the cutting edge of that shift if it wants to protect and continue to build within that precious 97 percent.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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