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When the long-expected development of smartphones and handheld devices into primary computers reaches maturity, Google wants to make sure it occupies just as strong a position on the small screen as it does on the big one.

Google set the stage for that future Monday when it announced a $750 million all-stock deal to acquire AdMob, which is considered one of the strongest ad network providers for the mobile-computing world. It's a familiar strategy; just as Google bought DoubleClick in 2007 to blend search ad expertise with display ad expertise, so it plans to add AdMob's network of partners to its own mobile search ad efforts.

For all the work Google does in other areas--Google Apps, Android, Google Voice--advertising has always been, and will likely remain, its most important source of cash. It dominates the most lucrative segment of online advertising (search) and wants to expand its efforts in display advertising as well with a revamped DoubleClick Ad Exchange and increased efforts to court the major advertisers of the world.

But unlike the PC-based Internet, the mobile Internet-advertising business is still very small and very fragmented, with dozens of companies claiming to play a leading role. AdMob founder and CEO Omar Hamoui said he had no idea how much market share his company had in the business of providing mobile ads to Web site publishers, although AdMob is considered by outsiders to be one of the strongest companies in this area due to its work with ad units for iPhone applications.

Google's AdMob deal is about blending the respective advertising strengths of the two companies in a fast-growing market.

(Credit: Google)

Few doubt the staying power of mobile computing, however. Even with mobile advertising accounting for just a fraction of overall online advertising in 2009 ($416 million out of a total online spend of $24 billion according to eMarketer figures quoted by Google), AdMob has been cash-flow positive for about a year as advertisers show increasing interest in trying out mobile ads on smartphones like the iPhone and Android-based devices.

Google said it thought getting AdMob's 140-person team inside its company was "a pretty unique opportunity," said Vic Gundotra, vice president of engineering at Google, in an interview following the announcement of the deal. Gundotra and Hamoui both cited the cultural fits between the two companies as helping to streamline a deal; San Mateo, Calif.-based AdMob counts three Google veterans among the 10 executives listed on its management page.

It's not clear yet how Google will integrate AdMob into its existing structure. Google already operates DoubleClick Mobile, an ad delivery service that allows publishers to sell mobile ads directly to advertisers through a variety of ad networks, including AdMob's. What it doesn't have is its own display ad network with the reach and heft of AdMob's 15,000 and growing name-brand advertisers, which allows mobile publishers to essentially outsource their ad sales.

AdMob's success with iPhone ad sales has gotten it to this point.

(Credit: AdMob)

It's also not clear whether AdMob will now become "the" ad network for DoubleClick Mobile customers, but that might exclude a lot of business: Google lists its own AdSense, the MBrand and Decktrade networks from Millennial Media, and AdMob as just some of the ad networks if offers for DoubleClick Mobile customers.

In addition, Hamoui said AdMob would continue to sell ads across many different types of phones, rather than focusing on Google's Android. The whole reason AdMob has grown to the level it has was because it was able to separate its technology from specific phones like the iPhone or Android, which gives advertisers a much broader reach than if the ad network focused on any one phone, he said.

Google is now positioned to offer a one-stop shopping experience for companies interested in online advertising, combining search and display ad possibilities on both regular Web sites and mobile sites and applications. As has been the case for so many Google products and initiatives this year, that will likely raise an eyebrow among federal regulators.

As such, Google said while it doesn't expect to encounter significant regulatory issues with the AdMob purchase, "closer scrutiny has been one consequence of our success. On that basis, we wouldn't be surprised if there were some regulatory review before the deal closes." Google said it hoped to wrap up the deal "in the next several months."

Google took great pains Monday to point out how small a deal this was in the grand scheme of the advertising market. It created a Web site devoted to the deal where it quoted competitors in support of its point that mobile-ad budgets are tiny at the moment compared to the overall amount of money spent on online ads.

But Google's willingness to cough up $750 million in stock--making this its third-largest acquisition once it's finalized--shows just how important it thinks this market will become over the next decade.

When asked how quickly Google might see a return on this deal, Gundotra emphasized the future possibilities over short-term financial concerns.

"Getting that group of talented people into our company is an unbelievable return," he said. "It's likely lead to products and innovations we haven't even thought of yet."

Updated at 9:53 a.m. PST with additional details. See subsequent story for more analysis on the buy.

Google's back on the acquisition front, spending $750 million in stock Monday to acquire mobile display ad company AdMob.

AdMob founder Omar Hamoui

(Credit: AdMob)

AdMob is perhaps best known for serving display ads on iPhones, but it also recently started a business unit focused on ads for Android phones. The start-up would appear to fit well into Google's advertising business model, giving Google a leg up in the still-small but fast-growing world of mobile advertising.

"I'm excited because I believe this will be an important moment for everyone involved in producing, consuming, or monetizing engaging products on mobile," wrote AdMob founder and CEO Omar Hamoui in a blog post Monday. "The truth is that the mobile industry has had no shortage of creative energy, amazing products, and talented entrepreneurs. But until now, it has always felt like those of us involved in this space played second fiddle to our online brethren. I believe that time is over."

AdMob was founded in 2006. The company runs its Mobile Advertising Network across thousands of Web sites, serving up ads from big names such as Ford and Coca-Cola. It also collects and publishes data on mobile trends gleaned from the traffic it manages.

"Despite the tremendous growth in mobile usage and the substantial investment by many businesses in the space, the mobile Web is still in its early stages," wrote Google's Susan Wojcicki, vice president of product management, and Vic Gundotra, vice president of engineering, in Google's own blog post. "We believe that great mobile advertising products can encourage even more growth in the mobile ecosystem. That's what has us excited about this deal."

Representatives from Google and AdMob are expected to talk about the deal in greater detail later on Monday. This is a friendly takeover, as both companies have already approved the deal, they said in a press release.

It should come as no surprise that Google is back in a buying mood, after several weeks of talk from CEO Eric Schmidt and other company executives about Google's renewed prospects now that the company believes the worst of the advertising recession is past. At $750 million, the acquisition would rank as one of Google's largest deals, trailing DoubleClick at $3.1 billion and YouTube at $1.6 billion but edging out Postini's $625 million selling price.

Google's stock was up 1.81 percent to $561 on news of the deal.

How will Google manage growing demand for support for its free products, as people rely more and more on its services?

(Credit: Screenshot by Tom Krazit/CNET)

If you rely on a compelling service that happens to be free, what level of customer support are you entitled to receive?

Google is trying to figure that out. Known for using brilliant engineers, complex algorithms and speedy servers to organize online information in a simple and accessible fashion, Google is learning how to add the human touch to its repertoire as customers look for answers that can't be found on an FAQ.

Not surprisingly, not everyone is happy with the results. Some advertisers have been complaining about Google's Web-page-first approach to customer service issues for years, with the most common gripe that they find it exceedingly difficult to reach a real live human being when they have a problem that isn't answered on a product Web page. More recently, Katie Braband, who reported problems with Google Checkout's handling of transactions at her company, Datto, was just as frustrated by Google's response to her issues as she was the issues themselves. "The only e-mails we've received response to are pre-generated, it's very clear there's no person writing the e-mail," she said in September.

Google is aware that customer service will play a large role in its growth as it offers more paid services, and seems committed to improving services for those kinds of customers over time. "The first thing a CIO is going to say is, 'where is that person and how do I wring their neck?'" said Google CEO Eric Schmidt in an interview earlier this year. Schmidt knows a thing or two about traditional enterprise customer service: he ran corporate software maker Novell before joining Google. And before Novell, he was an executive at Sun Microsystems.

For many users of Google's free services, support is limited to a series of Web pages, FAQs, and user forums. That's not that surprising, since Google can't realistically offer phone support to every Gmail user who can't figure out the conversation-based design.

But as Google continues to push forward with free advertising-supported services that people and small businesses increasingly rely on in their personal and professional lives, the company appears to be banking on its ability to train those users to expect a healthy dose of relatively low-cost support. Web pages with hints, troubleshooting tips, and discussion forums are the first level of support across virtually all of Google's products and are pretty much the end of the line for those who do not pay to use products or services. That's not unusual in technology; even businesses that charge customers for their products have moved in that direction in a bid to cut support costs.

When it comes to Google's main profit engine--the AdWords search keyword ads--there are two basic kinds of customer service, said Deanna Yick, a Google representative. High-roller customers enjoy access to a personal sales team they can reach out and call, but almost everyone else relies on Web-based resources like the AdWords Help Center.

For a while, Google also offered phone support to a proportion of those advertisers without sales team connections. However, it recently reduced the amount of phone support it provides for those not supported by the sales team, leaving e-mail as the sole contact method for a larger segment (Google won't say exactly how many) of its most important customers.

"AdWords is an effective, self-service online advertising platform for advertisers of all sizes worldwide," Google said in a statement regarding the reduction in phone support. "Some clients work with our sales teams, while others prefer to manage their accounts independently. We also provide email and phone support to some advertisers, and have worked hard to build out a robust set of online resources (such as the AdWords Help Center, AdWords Learning Center and user forums) to help advertisers find the answers to their questions around the clock wherever they might be located."

Is this an issue? Google argues that in many cases e-mail and Web support can be faster than sitting on hold waiting for the next customer service representative to answer your call in the order in which it was received. The company can track the most common queries and therefore answer the most commonly asked questions on the Web much more quickly than a telephone-based system would allow, while also developing fixes for commonly reported problems as to cut down on the need for support in the first place.

But on the Google Apps side of the world, the company knows it doesn't have the luxury of pulling back on phone support with its most important customers, said Matthew Glotzbach, director of product management for Google Enterprise.

Here, as well, Google tries to encourage its users to solve their issues through forums and troubleshooting pages. It turns to the solution Google employs for just about everything--an algorithm--to get the most relevant information regarding support issues on those pages and before the people who need detailed answers, and fast.

But Google Apps Premium users--who pay $50 a year per user--can also talk to live Google support personnel anytime day or night when they encounter issues. Years of phone-based IT support has trained system administrators and IT executives to expect the human touch when it comes to advanced support, Glotzbach said, echoing Schmidt's comments last month.

Glotzbach--like any true Googler--believes there are efficiencies just waiting to be discovered that could be greatly improve the customer support experience for both Google and its customers.

"I think this is a fascinating technology and innovation challenge that's properly underappreciated as such," Glotzbach said. "When people think of support, they think of large call centers. But underneath that there is a massive opportunity to innovate." Left unmentioned were the cost savings that accompany automated support.

With innovation comes friction, however, as new ways of thinking about old problems grate on the status quo.

Google is pushing into a whole host of businesses in which it is a newcomer, such as Google Apps, Google Voice, and now Google Maps Navigation. In many cases, those products are free, which reduces expectations for premium support (usually). But those products compete against paid products and services that do provide some level of support.

As more and more people rely on these free services--and Google crowds out competitors who can't compete with free--support issues will grow. Even products that "just work" fail from time to time, and those failures present opportunities for companies to build loyalty if they handle the support encounter the right way, and resentment if they don't.

Can Google train those customers to expect a passive Web-based support experience? Or will Google's free strategy evolve into two groups, those willing to tolerate passive support for free, and those willing to pay a little extra for more service?

Either way, managing the customer experience has been a relatively easy task for Google up until now; basic search requires little customer support. It's about to get a lot more difficult.

Web site publishers using Google Friend Connect can now allow users to connect through profiles, and serve them targeted ads based on those profiles.

(Credit: Google)

Google Friend Connect is adding a few features that make it easier for Web site publishers to build their own social networks.

Visitors to Web sites that use Google Friend Connect will soon have the option of filling out a profile on that site that can connect them to like-minded individuals who frequent those sites. They can then search for other profiles on that site with matching tags, introduce themselves to those users through the site without having to post an e-mail address, and see content on the site tailored to their interests, said Mussie Shore, product manager for Google Friend Connect.

The whole idea behind the Google Friend Connect tool "is to make it easy for site owners to add social features to their site without having coding capabilities," Shore said. Google offers several services for Web publishers like this one, such as Google Web Elements.

The new features expand on ones unveiled last year. Site owners using the service will also be able to create and target newsletters based on the new profile information, and gather data about their interests as to make decisions about site content.

And, of course, it all comes back to the ads. Google Friend Connect publishers can now serve extremely targeted AdSense ads to individual visitors based on the preferences they declare on their profile page.

Google updated AdSense this week, adding desktop-style ad support for high-end smartphones like the iPhone 3GS. The change led to Google's insertion of advertisements, alongside search results, into the iPhone Maps application.

Local iPhone map searches now display sponsored listings in the view and list modes of the Maps app.

We discovered examples of these ads on Monday, while searching for a Verizon Wireless store. We should also note that this is the first time ads have appeared within one of the iPhone's default apps, rather than in something we've downloaded for free or purchased from the App Store. Our search for "Verizon" resulted in the following list view:

Maps app search--"Verizon"

Tapping the white arrow in the top blue circle brought us to the "Sponsored Link" screen, which contained some additional information about the business under its name emphasized in italics, such as phone number, Web address, and physical address. In addition, there are options to get directions to or from the business, add it to one's contacts, share it with others, or bookmark it.

Sponsored Link results page.

A mobile AdSense ad appears at the bottom of the Boy Genius Report's mobile site.

(Credit: Google)

The march of the ads from the PC to the smartphone took another step Monday with the launch of Google AdSense for high-end phones.

Web publishers can now design AdSense ads--groups of Google AdWords text ads displayed by third-party publishers on their Web sites--with the HTML browsers used by smartphones in mind, Google announced Monday in a blog post. Advertisers had been able to run smaller mobile ads that older mobile phone browsers could handle, but they'll now have an option of showing a more sophisticated ad on a more sophisticated browser like those used by the iPhone, the Palm Pre, and Android phones.

One of the more interesting stories for Google over the next several years will be whether it can replicate its dominant position in PC-based search and search advertising onto the mobile device. Any way you slice it, smart mobile devices are expected to grow at dizzying rates over the next several years and have already evolved to the point where they pack substantial computing power.

As people spend more and more time online with those smaller screens, there will be an opportunity for advertisers and Google to make some money. Google also offers its advertising partners the chance to display AdWords ads on mobile search or AdSense ads in mobile applications for the iPhone and Android devices.

With a new display ad exchange developed by its DoubleClick subsidiary, Google is hoping to give its one-trick pony another act.

Google has turned into one of the Internet's largest and most influential companies on the popularity of its search engine and the profitable text ads it sells alongside those search results. This business generates the vast majority of its revenue and profits and gives Google the resources to tackle a variety of other projects from Google Apps to Chrome OS to Google Books.

But like just about anything, that business can only grow so fast. Google will need another profitable, growing business to maintain its spot atop the Internet world, hence the motivation for its $3.1 billion purchase of DoubleClick a year ago and the launch of the DoubleClick Ad Exchange Friday.

The DoubleClick Ad Exchange is sort of like a stock exchange, where buyers and sellers meet to haggle over prices for display ads, such as banner ads or video ads. Companies that sign up to participate in the exchange can search for open spaces in which to place their ads and bid on that space just like Google's text-ad auction system for search keywords. It will also plug into Google's existing infrastructure for AdWords--ads sold on Google search results pages--as well as AdSense--ads hosted by Google but displayed on third-party Web sites, giving those customers another option for their marketing campaigns.

The DoubleClick Ad Exchange is based on the marriage of DoubleClick's ad exchange and Google's text-ad auction process.

(Credit: Screenshot by Tom Krazit/CNET)

Internet display advertising--banner ads, video ads, and the like--has a been a bit frustrating for advertisers and publishers to date. Advertisers spent $10.5 billion on search ads last year, up 20 percent from 2007, according to the Interactive Advertising Bureau. They spent $7.6 billion on display ads in 2008, up just 8 percent from the previous year.

Unlike simple text ads, display ads are more complex and time-consuming to develop, and haven't yet produced the same level of returns for advertisers that text ads have garnered. At the same time, the amount of advertising inventory on the Internet has exploded with the growth of news and entertainment on the Web, leaving tons of space for advertisers to flock their wares and the requisite supply and demand issues for publishers.

Yet even in the depths of a horrific advertising recession, few companies are willing to give up on Internet display ads altogether. They offer the chance to present a much more sophisticated brand image than a "Cool shoes found here!" text ad on Google or other search engines, and when not obnoxious can be creative and even entertaining.

Google is hoping that its auction-based format can entice more ad buyers into the display market by matching them more appropriately with publishers looking to offload their ad inventory. "We believe that a better system built on better technology can help grow the display advertising pie and benefit everyone," Google said in a blog post announcing the DoubleClick Ad Exchange.

As has been the case for years, Yahoo is squarely in Google's sights with this launch. Yahoo owns the display ad market at the moment following its purchase of Right Media in 2007, and with its decision to exit the search business plans to rely increasingly on display ads to fund its Web site in the coming years.

"While Right Media is the largest ad exchange and platform solution, we fully expect the display market to be fragmented and for there to be other exchanges. We welcome these exchanges, and look forward to working with them and integrating with them for our partners," Yahoo's Frank Weishaupt, vice president of North American marketplaces, said in a statement on Google's launch.

Google's edge could be the marriage of the AdWords and AdSense networks with the Display Ad Exchange. Under its deal with Microsoft Yahoo retains the right to sell search ads on search result pages powered by Bing, meaning it can also offer advertisers a combination of outlets for their messages. But advertisers looking for a search ad partner tend to think Google first, and that's not going to change unless Bing makes serious market share gains against Google over the coming year.

Some are skeptical that Google is going to make a large dent in this market right away. BernsteinResearch's Jeff Lindsey put out a research note spotted by Paid Content predicting that the exchange doubles DoubleClick's revenue to around $500 million next year, but that's still a pittance compared to Google's $21.8 billion in 2008 annual revenue.

But it's a chance for Google to see if the auction model developed for text ads will work in the more complicated display ad market, and could provide a foundation for future growth.

Digg's new advertising system, the one that changes how much advertisers have to pay based on how popular their ads are, is going live in the next few days. A new company blog post says that the new system will be very limited in its scale, both in how many advertisers are a part of the pilot program, and how many ads are being placed around the site. So much so that "many (users) will not see them."

If all goes according to plan, these new ads could one day take the place of Digg's existing and traditional advertising, which uses ads that are sold at a fixed price. The newer system relies on user interaction to adjust the price according to how many up or down votes an ad has. The more people like the ad, the less the advertiser has to pay, with the lame ones having a limited run and a higher cost.

When I first heard about this system I was skeptical, since the ads looked and acted so much like existing on-page Digg content. But at the same time, it means that advertisers are going to have to work much, much harder to get user attention in a way that's tailored to the audience. For Digg users this means they get control not only of the stories that are hitting the front page, but also the ads that appear on it.

Here's what it will look like:

The new Digg ads can be dugg or buried by users, and affect how much the advertisers have to pay.

(Credit: Digg / CNET)

Android and iPhone developers looking for an extra source of revenue will soon have an advertising option, sponsored by Google.

Google's AdSense program--in which it sells and distributes ads to third-party publishers--is coming to mobile devices as a beta program, the company announced Wednesday. A small group of developers have been testing this program but now anyone can apply, said Susan Wojcicki, vice president of product management, in a blog post.

Mobile apps are one of the hottest topics in software development these days, as Apple's App Store continues to grow and other developers roll out their own app stores in response. Plenty of money is being made simply on the sales of the applications themselves, but additional revenue streams are starting to emerge, such as Apple's addition of in-app purchases with the release of iPhone OS 3.0.

Google, naturally, would like to get in on the action. There are other companies offering this kind of service, such as AdMob's strong presence in iPhone apps, but Google is an advertising freight train.

Still, AdSense growth has slowed this year amid a plunge in advertising spending around the world, and moving into mobile provides additional room for the company to grow. Last year Google offered AdSense for games, another step outside its usual comfort zone.

There are a few catches if you want to participate in the beta. Your application must generate 100,000 page views a day, and it must be free. Google is taking applications here.