Monday, February 7, 2011
Posted by D. Daniel Sokol
Randy Stutz, AAI and Richard Brunell, AAI provide an Analysis of the FTC's Decision Not to Block Google’s Acquisition of AdMob.
ABSTRACT: On May 21, 2010, after months of investigation, the Federal Trade Commission (FTC) announced that it would not challenge Google’s $750 million acquisition of AdMob, a mobile advertising network and mobile ad solutions and services provider. In this white paper, we present AAI’s analysis of the FTC’s decision.
The FTC found that, but for recent developments concerning Apple, the acquisition “appeared likely to lead to a substantial lessening of competition in violation of Section 7 of the Clayton Act.” According to the FTC, Google and AdMob “currently are the two leading mobile advertising networks, and the Commission was concerned about the loss of head-to-head competition between them.” The companies “generate the most revenue among mobile advertising networks, and both companies are particularly strong in ... performance ad networks,” i.e. those networks that sell advertising by auction on a “per click” or other direct response basis. Without necessarily defining a relevant market, the Commission apparently saw a likelihood of unilateral anticompetitive effects, as it found “each of the merging parties viewed the other as its primary competitor, and that each firm made business decisions in direct response to this perceived competitive threat.”
Yet, Apple’s acquisition of the third largest mobile ad network, Quattro Wireless, in December 2009, and its introduction of its own mobile advertising network, iAd, as part of its iPhone applications package, convinced the FTC that the anticompetitive effects of the acquisition “should [be] mitigate[d].” The Commission “ha[d] reason to believe that Apple quickly will become a strong mobile advertising network competitor” because of its relationships with applications developers and users, and ability to offer targeted ads “by leveraging proprietary user data gleaned from users of Apple mobile devices.” Indeed, the FTC concluded that “Apple’s ownership of the iPhone software development tools, and its control over the developers’ license agreement, gives Apple the unique ability to define how competition among ad networks on the iPhone will occur and evolve.” As result, AdMob’s current market share, which is derived largely from the iPhone platform, was “unlikely to be an accurate predictor of [its] competitive significance going forward.”
The FTC’s decision not to challenge Google’s acquisition of AdMob is understandable given the nascent and changing nature of the mobile advertising market and Apple’s emergence as a likely formidable competitor in this market. The FTC’s conclusion is well taken that, particularly as a result of Apple’s recent actions, current market shares are unlikely to be an accurate predictor of future market shares or whether the Google/AdMob combination will be able to exercise market power.
However, it is not clear that Apple’s emergence will mitigate competitive concerns with respect to advertising on mobile web sites, as opposed to advertising on mobile applications, which is iAd’s exclusive focus. Moreover, a market dominated by two mobile advertising networks – Google and Apple – is unlikely to provide adequate competition to protect application developers and advertisers, particularly insofar as those networks hold mutually exclusive “inventory.” The Commission apparently believes that other advertising networks may emerge, including self-supplied networks created by other mobile platform providers. We hope the Commission is correct, but there are reasons to be skeptical. Certainly, smaller mobile advertising networks do exist, some of which are controlled by well-established companies. But, if application inventory on the iPhone platform cannot be sold using non-Apple ad networks, then other ad networks may be deterred from entering the market or expanding.
It is not clear how deeply the FTC investigated the possibility that Apple’s license agreements with developers may unreasonably foreclose rival ad networks. Presumably, Apple will be a formidable competitor with or without such restrictions. But Apple should not be permitted to dominate advertising on the iPhone through exclusionary means, and nothing in the FTC’s Google/AdMob decision precludes a review by the FTC (or DOJ) of Apple’s conduct.