The US Federal Trade Commission’s decision to close its investigation into a high-profile merger between Google and AdMob underscores that even a combination of market leaders may be approved when the marketplace reflects actual entry by a strong competitor particularly when there is not a groundswell of opposition to the transaction. Although the US federal antitrust agencies are scrutinizing mergers closely, that scrutiny continues to take market dynamism into account.
On May 21, 2010, the Federal Trade Commission closed its six-month investigation into Google’s proposed $750 million acquisition of the mobile advertising company AdMob. According to the Commission’s statement, “Google and AdMob today are the leading competitors among mobile ad networks,” which sell advertising for applications and content for smartphones and other mobile devices. This advertising generates revenue that “fuel[s] the development of mobile applications and Internet content” and makes them accessible to the public for free or at a low cost. The Commission’s investigation “yielded evidence that 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.”
Because of the parties’ positions in the marketplace, some had viewed the deal as one that the Commission likely would block. As late as April 7, 2010, The Wall Street Journal reported that the FTC had assembled an internal litigation team to prepare to block the deal. The Commission’s May 21 statement acknowledged that the decision to approve the acquisition “was a difficult one because the parties currently are the two leading mobile advertising networks,” and there could be a “loss of head-to-head competition between them.” Yet the Commissioners voted 5 to 0 to approve the deal, concluding that the merger was “unlikely to harm competition in the emerging market for mobile advertising networks.”
The Commission’s decision appears to have been influenced by a recent entry in the online advertising market. In December 2009, Apple acquired the third largest mobile ad network, Quattro Wireless, an AdMob rival. Then last month, Apple announced its own mobile advertising network, iAd, that will allow large advertisers to run multimedia ads within applications running on the iPhone. The Commission believed that Apple would “quickly ... become a strong mobile advertising network competitor,” thereby “mitigat[ing] the anticompetitive effects of Google’s AdMob acquisition.”
Google’s acquisition of AdMob had also gained strong support from many in the industry. Several developers of mobile applications who were interviewed by the Commission publicly detailed those conversations on their own blogs and to the press, indicating they had told the Commission that the deal would not have anticompetitive effects on the marketplace. Competitors also voiced support for the deal. Because the marketplace is so fragmented and nascent, and the entry barriers so low, they indicated that it would be premature to conclude that the Google/AdMob combined entity would even emerge as a market leader, much less as a threat to competition.
There are several important points to be learned about the current state of merger enforcement by the FTC:
- Even a supposedly aggressive FTC will approve mergers and acquisitions when the parties can demonstrate that anticompetitive effects will be minimal.
- Traditional antitrust principles can be adapted to, and take account of, a changing and dynamic industry. For instance, as the Google acquisition demonstrates, new entry into a rapidly evolving marketplace can allay concerns that any particular combination of competitors will be able to exercise market power.
- Support from customers and competitors can be important in convincing the FTC that a deal is unlikely to result in competitive harm.
The Commission’s statement can be found here. The accompanying press release can be found here.
For more information about the matters raised in this Legal Update, please contact, Donald Falk at +1 650 331 2030, Scott Perlman at +1 202 263 3201, or John Roberti at +1 202 263 3428.
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