Admob buys mobile ad aggregrator AdWhirl — takes out major threat

updated with comments from Quattro and Mobclix

Admob, a leading mobile advertising service, is acquiring AdWhirl, a service that aggregates ads from mobile ad networks.

In an interview confirming the deal, Admob chief executive Omar Hamoui told VentureBeat the move was made to create an open and transparent mobile ad exchange. We’re also hearing that this is an asset sale for an amount that is barely more than AdWhirl has cash on hand — apparently because of questionable practices by AdWhirl, in which it failed to sign appropriate licensing deals with its ad partners. More below.

The move comes after considerable friction between the two Silicon Valley players. Admob, of San Mateo, Calif., serves the most mobile ads of any network, but has done so from its own platform. AdWhirl, a younger company based in Menlo Park, Calif., is one of a series of companies that challenged Admob by offering a way for mobile publishers to get ads from various networks through a single platform — theoretically letting a publisher switch on the fly to get the best ads at any given time.

By buying AdWhirl, Admob effectively takes out one of its biggest emerging threats: A middleman that might have become more powerful than itself. Admob won’t be shutting down the AdWhirl exchange, however: It will turn AdWhirl into an open source tool and let publishers continue to buy ads from various networks without bias, Admob said.

We wrote about the friction two months ago, when Admob took the drastic decision to pull its ads out of Adwhirl’s platform. However, over the last 30 days, Admob saw its traffic growth decline dramatically, because AdWhirl steered more traffic to other networks. Much of the threat may not have been from AdWhirl itself, but from another player, Quattro, that funneled ads to it. Quattro is a fierce competitor to Admob, and had thrown its support behind mediators like AdWhirl, perhaps seeing in them a way to level the playing field with the leader, Admob.

Admob’s Jason Spero said the company pulled out of the AdWhirl exchange because of concern about AdWhirl’s lack of transparency. Spero said that AdWhirl, along with other mobile ad exchange players such as Moclix and Tipjoy, are like black boxes, and that there was often very dubious activity happening — including one case where ads that were being pulled from one advertiser to run on one publisher’s site were also being placed on porn sites. “We got egg on our face for pulling out of AdWhirl,” Spero said, “What we didn’t reveal at the time was that there was a lack of transparency at any of the mediation players — not only at AdWhirl, but at all of the players.”

He added that he is disclosing the reasons for the pullout from AdWhirl only because other sources had started talking negatively about Admob. Indeed, the acquisition plans were disclosed today only after VentureBeat and another publication contacted Admob following a critical anonymous tip we got from a reader that informed us of the acquisition. The tipster said he was upset about what he said was “collusion” between Admob and AdWhirl, and claimed Admob was planning to secretly get inside data from the AdWhirl network in order to rig it.

However, Spero said nothing could be further than the truth. He said Admob would honor all publisher commitments on the AdWhirl network for the next few weeks until it is able to release an open source tool (planned for the coming weeks) that is completely independent from any player, including Admob. After the release of the tool, publishers can use the code base any way they want and decide to take however many ads they want from Admob and other players.

He said it is important that exchanges be transparent. Still, there are no exchanges on the market that are able to provide things like real-time pricing of ads provided by various networks. Such players are likely to emerge to provide various optimization solutions, Spero said. For now, however, the best thing any exchange player provides is analysis of ad prices after the ads run. AdWhirl won’t provide real-time pricing, but its overall transparency will be positive for the market, Spero said. Admob won’t have access to the data of AdWhirl’s open source tool, he said. AdWhirl has until now used ad data from about four applications as benchmarks for its pricing information to customers.

The two companies signed a termsheet last Friday, and AdWhirl executives have been working in Admob’s offices so that due diligence can be completed before a final contract is signed. The acquisition concerns assets, not a company acquisition.

The main mobile ad networks are familiar iPhone players — AdMob, Jumptap, Quattro Wireless and Videoegg — and most recently Google AdSense.

AdWhirl had previously run on angel funding but in June announced a million-dollar round of investment led by Foundation Capital, which was filled out by “several angel investors.” AdWhirl recently claimed its top members were making $400 to $5,000 per day off their iPhone apps. One developer told FierceWireless that a free app he built was collecting more than $1,500 a day in ad revenue.

Clearly, though, AdWhirl may have some cleaning up to do. Admob’s Spero declined to comment on the following, and none of this is confirmed, but according our tipster, AdWhirl wasn’t licensing properly:

AdWhirl built their solution without permission from their partners including AdMob, Quattro, Millennial, Mobclix, and VideoEgg. Yep, that’s right – they don’t have a single license agreement. As a result, some developers are not getting paid. For example, Quattro has caught wind of this as have other ad networks and Quattro is refusing to pay some developers using AdWhirl because of the IP infringement on Quattro’s library and developers are getting screwed!!! For example, Shotgun Free is owed $10,000 by Quattro and is not getting paid because of this issue.

We’ve contacted Quattro, and are awaiting comment.

[Updated: Quattro responds: “While we cannot comment on any specific client agreements, we can state unequivocally that Quattro Wireless has not refused to pay any developers using AdWhirl due to an alleged IP infringement issue.”

Mobclix, meanwhile, tells us it has been pulling its library out of Adwhirl for a while now. As for Admob’s plans to create an open ad exchange, Mobclix co-founder Krishna Subramanian says it will be hard for networks to trust an exchange run by a competing network: “I’m not really sure how that will play out.”

And on the subject of Quattro, Mobclix’s founders emphasized that they’ve never known the network to refuse to pay developers.]