Mobile

Android dev steps up to defend Google-AdMob deal amid FTC scrutiny

One of the mobile developers questioned by the Federal Trade Commission about Google’s agreement to buy ad network AdMob has stepped up to defend the search giant’s deal.

Wertago, which built a nightlife app for both the iPhone and Android devices, said that the mobile advertising industry was evolving so rapidly that it would be hard to consider Google’s acquisition a monopolistic move. They added that the agency was ill-equipped to understand the impact of its decision on the market.

“There is no way the FTC knows enough to support a decision to block the deal. The staff members we spoke to were not particularly knowledgeable about the mobile ad space they are considering interfering in …,” the company said. “We think the investigation itself shows how presumptuous and biased toward action (and hubris?) regulators are, and how self-destructive it is for the technology sector to embrace the idea that government should have the power to approve or disapprove mergers, acquisitions, and other private economic transactions.”

The FTC reached out to Wertago as part of an effort to solicit thoughts from developers who earn an income from mobile advertising revenue. While the company won the Android Developer Challenge in 2008, it is independent from Google.

Google agreed to buy AdMob for $750 million last November, and the deal still hasn’t gone through. Meanwhile, Google’s competitor Apple scooped up Quattro Wireless two months later and has moved forward with an iAd mobile advertising service.

We’ve heard that Google’s mobile guru and vice president of engineering Vic Gundotra has given several hours’ worth of testimony before government regulators, while AllThingsD reported that action is likely to come next week through a preliminary injunction to stop the transaction due to antitrust concerns. AllThingsD noted that AdMob founder Omar Hamoui has been back and forth to the East Coast about a half-dozen times and has been trying to make a case for the acquisition before the FTC. The ongoing inquiry has hobbled the company’s ability to recruit talent, because it’s unclear how it should compensate employees.

Here’s a longer excerpt from Wertago’s team, which includes co-founders Kelvin Cheung and Robert Sarvis:

“The FTC staff members we talked to asked some good questions, but not as many as you would want them to, and none that really showed a deep level of understanding of how competition works or a nuanced view of the competitive landscape. We were taken aback at how the fate of this transaction might hinge upon the views of people who clearly know much less than they think they know, about an industry they think they can surgically regulate. The more competitive an industry is, the more perfect a regulator’s knowledge must be to justify preempting a deal as anti-competitive. Here, the regulator’s knowledge seems rather, to be blunt, shallow, while the industry as a whole and the market itself (at pretty much every level of granularity) is very competitive.

Indeed, the internet and mobile technology sectors right now are perhaps the most (or among the most) competitive and fast-moving industries EVER TO EXIST. The web and mobile spaces have remarkably low barriers to entry. That’s why there are so many people making a living, or supplementing their income, with small-business websites and now apps, and why a college student could create five short years ago what has become the most important social network in the world. And that’s why so many apps have been developed on the iPhone and Android platforms in just two to three years of their existence.

The advertising space is a part of that highly competitive, low-barriers-to-entry, fast-moving industry. Just because Google dominates does not mean the web and mobile ad space is not competitive. And just because Google buys up the competition doesn’t make the industry less competitive. Just imagine, as a thought experiment, what would happen if Google explicitly stated that it would buy up every start-up ad network that reached some minimum level of ad revenue. The FTC might think that’s presumptively anti-competitive, but we’re not sure that’s necessarily correct. The incentive might spur more entrants into the ad network business, just as the ADC prize money incentivized us to create the great nightlife app that is Wertago. As we pointed out to the FTC staff members we spoke to, many ad networks likely start out tacitly HOPING to one day be bought out by Google, just as app developers tacitly hope to be bought out by this or that category-dominant player. Blocking the AdMob deal could actually remove one (very lucrative) exit possibility and thereby effectively reduce the returns on the risky enterprise of starting a business. As a result, blocking the deal could actually REDUCE incentives to compete in the ad network space.

Without a crystal ball, the FTC is simply in no position to predict with any confidence what the acquisition will do to app developers, advertisers, and potential ad network market entrants.”

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