A decision by the FTC on whether to allow Google’s acquisition of AdMob to go forward is imminent and Tech Daily Dose today referenced a blog post by mobile app developer Wertago about its experience with the FTC staff investigating the deal. Its a very interesting little essay and I recommend it to anyone interested in how the antitrust agencies review mergers in the technology sectors. Wertago is a customer in this market, so they would be expected to be concerned if the proposed acquisition was anticompetitive.
One of the things the essay emphasizes is the importance of maintaining vigorous competition in the market to acquire innovative new start-ups:
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.
This is an extremely important consideration that I also emphasized in a recent Forbes.com oped. A policy that takes the biggest, most successful companies out of the acquisition market is not good for innovation. It’s not clear how, or even whether, the antitrust agencies incorporate this type of consideration into their analysis, but they need to.