Melbourne Herald Sun 14th November, 2009
There’s a formula to making millions in a hurry. It’s simple and quick, and there are many thousands doing it right now all around the world but particularly in the US.
We saw it this week with the headline: “Google buys AdMob for $800 million". Obviously you’ve heard of Google but probably not AdMob. So what do they do that makes them worth nearly a billion bucks?
In mythology get-rich-quick stories were like Jack climbing the beanstalk, geese laying golden eggs or Cinderella sparking the lust of a young prince. These days they tend to start at Stanford or Harvard or Oxford.
In this case it was the University of Pennsylvania where, less than four years ago, a young MBA student called Omar Hamoui had a bright idea.
Mobile phone applications were beginning to take off as the technology became increasingly sophisticated. So sites would emerge where you could go to select ring tones, get the weather, book movie tickets and the like.
These sites would make extra revenue through banner ads on the screen, like happens on the Internet. But the business was very haphazard and disorganised, there was no way to be able to measure the effects of your ads or create big enough targets to attract major brands.
Having started and run several companies on this mobile market, Hamoui understood the problems - and worked out how to fix them. In January 2006 he started AdMob as a media coordinator that brought together the providers, the advertisers, their agencies, and the audience.
So take the example of Land Rover. They could target a high-income male audience that browsed sites featuring sports utility vehicles. The viewer could then click through to pictures of the car range where the company would offer them test drives and put them in contact with the nearest dealers.
By bringing together thousands of such sites AdMob could assemble and manage a well-documented advertising package that would speak to corporations and advertising agencies in terms they could relate to.
Within a year they attracted the attention of one of Silicon Valley’s biggest venture capitalists, Accel. A list of Accel’s success stories says it all: Facebook, BitTorrent, Uunet, and many more. They find a good, successful idea, pour money and management into it, and make it huge.
The venture capitalists themselves are often funded by citizen investors. Mums and dads and retirees who don’t trust their whole nest-egg to the superannuation funds. Any week of the year you can find conferences and introductory nights by the likes of Australian Venture Capital Association, Business Angels, Venture Capital Marketplace and many more.
They have their get-rich-quick rulebook too. Make sure the business is successful and profitable, take a big slice of the equity (at which point the developer will usually go into a decision crisis - does he really want to invite this cuckoo into his nest?) and quickly fatten it for market, ideally within three years.
The good ones do it well. Accel invested $17 million and helped AdMob grow into the world’s biggest mobile advertising platform in two years, turning over more than $100 million a year. And so attractive that Google was willing to pay a fortune to take it into its fold, rather than have to compete with it. So far it looks like the company will be left intact with the same management in charge. So expect to see a few more Ferraris on the roads of northern California.
Another Accel money spinner, Playfish, sold this week for $303 million to Electronic Arts. This was from an investment of $1 million - in 2008. Who said that magic beans and golden eggs are fairy tales? Aladdin’s cave could be no further away than your mobile phone.
ray@ebeatty.com
