|Deals of the Year|
By all accounts, in April 2010 the FTC was set to block Google's purchase of the largest provider in the budding market for applications that enable advertising in mobile devices. Already dominant in Internet advertising, Google was also shaping up to be the most likely competitor to AdMob, which it had agreed to buy in November 2009. The FTC's merger review team was convinced that letting the companies combine would create yet another instance in which a technology market could be locked up by a dominant provider -- like Windows in operating systems or Facebook in social networking.
"Google was best positioned to challenge AdMob in mobile advertising, and AdMob was best positioned to counter Google's growth in the market," says an antitrust lawyer.
Waging the fight for Google was an antitrust team from Cleary Gottlieb Steen & Hamilton LLP, led by David Gelfand and including Leah Brannon, George Cary and Dan Culley. Google's longtime antitrust lawyers at Wilson Sonsini Good-rich & Rosati PC had a conflict that prevented them from working on the deal. AdMob was represented by Michele Harrington and Logan Breed of Hogan Lovells US LLP.
A court battle held big risks for both the companies and the FTC. Google was still reeling from the regulatory pressure that forced it to abandon a 2008 takeover of Yahoo! Inc. And acquisitions like AdMob are as important to Google's expansion into new Internet applications as internal development is. Moreover, a court ruling backing antitrust regulators' novel -- and untested -- theory that competition in nascent technology markets must be protected from firms that might establish unassailable positions of dominance could harm Google more than most tech companies.
For the FTC, a legal fight would finally submit its "innovation markets" theory to a court test. A rejection of that theory by even a single appeals court would greatly diminish the regulator's ability to draw concessions from merging parties by holding the threat of an innovation markets case over their heads. And the AdMob deal would be particularly difficult to challenge.
For one thing, its market was developing rapidly, and a number of new players were entering. Although AdMob was the leader in early 2010, there was no guarantee the market would look the same by the time the FTC's case came before a judge. Moreover, the lines between mobile and other forms of Internet advertising are amorphous, which would make it difficult for the FTC to establish convincing market share arguments. Nor could the FTC use conventional economic models for predicting the merger's impact on market pricing. The models require established market participants, and there was nothing of the sort in the mobile ad sector.
The equation changed dramatically on April 8, when Apple unveiled its new iAd application for iPhones. Adapted from the platform Apple acquired from Quattro Wireless in early 2010, the technology would bring a new competitor into the market. No longer could the FTC claim that Google was the only foreseeable threat to AdMob.
Gelfand says that since Apple had acquired Quattro, it was hardly a surprise that it would make a major foray into advertising applications. "The FTC was giving serious consideration to a challenge, and Apple's actions made it very easy for them to clear the deal," he says. However, "I wouldn't say it was that one thing," he adds. "There was a whole body of evidence about potential competition. What Apple did was exactly what we predicted would happen. Apple's announcement didn't come out of nowhere; it confirmed we were right all along."
Gelfand complied with all the FTC's information requests, a move that allowed Google to invoke its right to start the clock on a decision. But rather than force the agency to quickly decide whether to bring a case, he gave the agency more time to mull it over. FTC Chairman Jon Leibowitz and Commissioner Tom Rosch came to agree that a legal victory against the deal was now a long shot.
On May 21, the FTC announced it had approved the deal by a 5-0 vote. "As a result of Apple's entry [into the market], AdMob's success to date on the iPhone platform is unlikely to be an accurate predictor of AdMob's competitive significance going forward, whether AdMob is owned by Google or not," the commission said in a written statement.
Antitrust experts say the approval did not indicate a change in regulators' willingness to challenge tech mergers they think will leave the combined company in a dominant position. In fact, Google is facing that issue again with its planned purchase of ITA Software Inc., this time at the Department of Justice. A settlement is expected soon.