FTC cedes at least half of mobile ad market to Google

In not disapproving the Google-AdMob deal as the FTC staff recommended, the FTC effectively is ceding at least most of the mobile ad market to a Google monopoly.

• In a clearly tortured, conflicted and political statement, the FTC justified their approval despite the evidence and their merger guidelines by saying: "The Commission has reason to believe that Apple will quickly become a strong mobile advertising network competitor." 

I.  The FTC's political judgment to bet on Apple rapidly becoming a substantial competitor to Google in a years time (and to disregard the evidence and the FTC's new horizontal merger guidelines) -- has the real world effect of ceding at least most of the mobile ad market to Google. Why?  

First, by the FTC's own admission, Apple was not an advertising competitor at all before it bought #3 mobile ad provider Quattro. Thus, implicit in this FTC decision is a very big, going-forward assumption that the new synergies of Apple-Quattro in the next year will more than offset the loss to competition of AdMob, the clear #1 mobile ad competitor and first-mover with about half of the market.

• That is an heroic assumption, because Apple has no advertising expertise or core competency at all, and Quattro is a very small, human-sales driven ad platform that will have practical difficulties scaling as quickly as the FTC assumes/hopes.

Second, and importantly, Apple is a high-end platform targeting the high-end of the market. Moreover, Apple's iPhone has 16% share of the smartphone market. By the FTC putting most all of their eggs in the Apple-Quattro basket, the FTC has identified no other potential competitor by name that will substantially compete with Google in the 84% of the smartphone mobile market that Apple does not have. 

• Furthermore, both Apple and Quattro have a strategy of pursuing human-sales for mainly large advertising customers, not the automated, more self-service market and approach Google has targeted in the mid/long-tail market. 
• Thus, in effect the FTC has made a political judgment to cede Google a monopoly position in the mid/long-tail portions of the mobile ad market that have little political voice, because they assume that Apple potentially could be a strong duopoly competitor to Google in the higher-profile, high-end of the market.

Simply the FTC has made the path-of-least-resistance judgment to effectively cede Google at worst a duopoly position in the high-end of the mobile ad market and a de facto monopoly in the mid/long-tail end of of the mobile market, rather than risk not succeeding in court.           

II.  Why was this more a political decision than a law enforcement decision?

Given that the FTC staff reportedly recommended the merger be blocked on the merits, the Commission made a political judgment, first to choose to strongly believe in predictions of potential competition from Apple, second to choose to trust Google despite being misled in the Google-DoubleClick review, and third to choose to not risk adding to the FTC's lousy litigation record in court.

More specifically, it is clear that this was a political decision, if one cross-checks it with the antitrust checklist I blogged on last week.    

1. Are Google and Admob competitors? Yes.

2. Is the market highly concentrated? Yes.

3. Are there barriers to entry? Yes.

4. Does Google have market power? Yes.

5. Does the acquisition "substantially lessen competition" the antitrust standard here? Yes. (But not provable in court in this FTC's political judgment.)

6. Does the extraordinary price and "kill fee" Google agreed to pay AdMob suggest a threat to competition?  Yes. 

7. Have previous Google acquisitions of first-movers like AdMob added to Google's market power? Yes.

8.  Is there other evidence of a Google pattern to attempt to extend its monopoly into new markets? Yes.

9. Has Google misled the FTC before? Yes.

10.  Is the FTC serious about the Administration's policy of tougher antitrust enforcement? (It doesn't appear so from this decision.)

11.  Can the FTC win the Google-AdMob case? (Only if they tried.)

12.  Will the FTC keep its promise in approving Google-DoubleClick?  "We want to be clear, however, that we will closely watch these markets and, should Google engage in unlawful tying or other anticompetitive conduct, the Commission intends to act quickly.” (It doesn't look that way now...) 

In sum, this was a big win for Google.

• Just like getting the FTC to approve DoubleClick tipped Google to a search advertising monopoly by giving Google most of the advertisers and publishers Google did not have, the FTC approving AdMob will tip Google to monopoly in mobile advertising by giving Google most of the advertisers, publishers, and ad inventory, and the first-mover technology, that it did not have. 
• Unfortunately, it's game over long term for vibrant mobile ad competition.