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FOCUS-Google's app network quietly becomes huge growth engine

From Reuters - February 14, 2018

SAN FRANCISCO (Reuters) - Google makes ads show up in more smartphone apps than any other technology company. That is the core of a resurgent business for parent Alphabet Inc.

Googles ad network unit has posted three straight quarters of year-over-year double-digit sales increases. The business is nearing $20 billion in annual revenue, making it as important to Googles top-line as its hardware, cloud computing and app store groups combined.

For years, the star of the network was Googles AdSense, which delivers ads to websites in exchange for a cut of ad revenue. But as consumers migrate from desktop computing to mobile, momentum has shifted to AdMob, Googles mass-market tool for third-party apps, and DoubleClick for Publishers, its higher-end mobile software.

Google has lured app developers from competitors by lowering commissions and simplifying software. And it is increasingly satisfying advertisers with hot new formats such as video.

Advertisers are taking notice. Alex Hewson, managing partner at M&C Saatchi Mobile, said the London-based ad buying agency has used AdMob for years, but only recently has it become the top supplier.

Theyve engaged big developers and done that well, Hewson said.

But it has come at a cost. Google is growing by giving app and website creators a bigger chunk of ad sales. In last years final quarter, Googles portion fell by $33 million compared to the year-earlier period even though overall network revenue rose $559 million.

The company is feeling the heat. Alphabet shares dipped 5 percent after missing profit estimates this month.

They are chasing top-line growth and beating the competition by losing margins, said Brian Wieser, a senior analyst with Pivotal Research, a New York City firm that provides stock guidance.

(For a graphic on Google's network revenue, see tmsnrt.rs/2Ejk1e2)

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Still, Googles strategy is winning customers. Google gives developers about 70 cents of every $1 it collects from ad buyers, compared to 50 cents to 60 cents at some competitors.

The high payouts, coupled with Googles entrenched relationship with millions of advertisers, has turned Google into the main revenue source for many apps. Purchases of in-app ads nearly tripled last year compared to 2016 on Googles DoubleClick Bid Manager, used by advertisers with the biggest budgets.

Over 1.1 million Android apps include Googles ad software, double from a year ago, making it by far the fastest-growing and most widely used ad service, according to research firm MightySignal. Googles iPhone market share is only slightly behind.

The biggest choice for many app creators is between Googles AdMob and DoubleClick. It is not clear which is growing faster because Google does not provide that data.

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