Why Google Might Want To Acquire InMobi

  • Google is reportedly in talks to acquire InMobi.
  • InMobi is one of the largest mobile ad networks by reach.
  • InMobi could potentially aid in-app advertising and boost eCPM rates on Android.

Google's slowing ad revenue growth has been the subject of debate of late, and undoubtedly, the search giant will be looking to make up for it, one way or another. As per reports, Google (NASDAQ:GOOG) may be in the process of acquiring Indian mobile ad network InMobi for $2 billion. Going by recent developments, this could be part of Google’s two pronged approach to leverage Android’s dominant smartphone OS market share to monetize its app store and take on Facebook and Apple.

InMobi is one the prime competitors for AdMob, the mobile advertising network which Google acquired in 2009 for $750 million. Interestingly, InMobi and Google have a few investors in common like Kleiner Perkins Caufield & Byers, and Mr. Ram Shriram of Sherpalo Ventures, who was a founding board member and an early investor in Google.

The Problem For Google: Facebook And Apple

In recent times, Facebook has gained on Google in the digital advertising space. Estimates indicate that Facebook’s share of global digital ad spends has grown even as Google’s share has declined marginally. The case is similar on mobile devices as well. Google accounts for over 50% of digital mobile ad spends globally. However, Google’s share of net mobile ad revenue is estimated to have dropped marginally, while Facebook’s share has expanded by 4.5% to touch 22.3%.

As for Apple (NASDAQ:AAPL), there’s quite a disparity in Click Though Rates (CTR) and eCPM rates (average cost per thousand ad impressions) on Android versus iOS. This in spite of the fact that Google’s Android is installed on four times the number of phones as Apple’s iOS.

According to a recent eMarketer report on mobile advertising, the average CTR for in-app ads served on the iOS was about 21% higher when compared with ads served on devices running on Android. Subsequently, as one would expect, the average eCPM is over 50% higher on iOS devices when compared to eCPMs on devices that run on Android.

Why Google Might Want To Acquire InMobi

Whether or not Google’s acquisition of InMobi will fix these problems remains to be seen. However, if the deal does come through, what Google stands to gain is InMobi’s reach on mobile devices, which is by far the largest. According to Inc42, InMobi, with its reach of one billion unique mobile devices is the only mobile focused advertising platform to have touched the one billion mark.

Consider these facts from the same eMarketer report on mobile advertising.

  • In app ads accounted for 80% of total impressions served
  • In app ads saw 2.8 times the Click Through Rates (CTR) compared to ads on the mobile web
  • In app ads saw 2.5X the average eCPM when compared to ads on the mobile web
  • On smartphones, users spent 88% of their time within apps (as of June 2014)
  • On tablets, apps account for 82% of time spent

Do note that the eMarketer report from December 2014 happens to be based on data from InMobi. This could probably be because InMobi is one of the bigger players in its space and trends on the platform could be indicative of broader trends.

What InMobi Brings To The Table

In December last year, InMobi added the ability to target mobile app users through a programmatic ad buying platform. This facility has been rolled out to advertisers who want to place in app ads, in 36 countries.

Going by the stats on in-app advertising, ad Dollars are bound to chase this space. It doesn’t surprise you that Google might consider acquiring its closest competitor to get a bigger piece of the pie. Google’s strong network of advertisers and InMobi’s additional reach would make for a good combination.

More recently, in March 2015, InMobi launched “Appographic Targeting” which targets users based on their interests. According to the recent update on InMobi’s site:

“It leverages audience insights that go beyond app ownership and app category, and has potentially delivered up to 72% higher install rates, 26% lower Cost-per-Install (CPI) and 30% higher consumer Lifetime Value (LTV) on app promotion campaigns.”

These services could potentially add value to Google’s offering to advertisers and aid eCPMs and CTRs on Android. What’s more, Google would definitely like to do what it can to either sustain or extend its lead over Facebook, and close in on Apple.

InMobi Will Bring In Some Revenue As Well

In December 2014, when InMobi raised $5 million in its second round of funding from SoftBank (following the $200 million funding in two tranches), the company’s finance and legal division head, Manish Dugar was quoted as saying:

"We are currently at a run rate of $1.5 million a day and we aspire to reach $2 million by the time we reach December,"

That translates to a run rate of $547.5 to $730 million per annum for 2015. Assuming that InMobi gets to keep 30% of this amount after paying publishers/app developers, the company could rake in about $165 million to 219 million over the year in progress. Not much by Google’s standard, but what InMobi adds to Google in terms of reach is probably more valuable than its actual monetary contribution to the search giant.

In its other endeavor to shore up its revenue growth, Google is testing search ads within its app store. Google will allow developers of apps to pay to promote their apps, a move which could have great potential. More about this in our next post on Google, later this week. You can also see our Google stock analysis for insights into Google’s key financials post its Q4 earnings.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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