Close Encounters of the Regulatory Kind: Google-AdMob Brace for the Worst

While executives at both AdMob and Google are pulling out all the stops to convince federal government regulators otherwise, multiple sources close to the situation said that the pair now expect the Federal Trade Commission to try to block the acquisition of the small mobile advertising start-up by the search giant.

While the situation could change, of course, sources said that the lack of any kind of indication of clear direction of the inquiry this late in the game by FTC staff–which recommends action to its five commissioners–is a bad sign.

“The federal government is looking for a way to discipline Google in some way, because of larger concerns about its search power on the Web,” said one source. “And this is where it looks like it will try to show that concern.”

Action could come as early as this week, but is more likely next week, in the form of a request for a preliminary injunction to stop the transaction due to antitrust concerns.

As luck would have it, late last week on a Virgin America redeye to Dulles Airport near Washington, D.C., BoomTown ran smack into AdMob Founder and CEO Omar Hamoui, who was on the same flight.

Unfortunately for Silicon Valley’s luckiest entrepreneur of 2009–he sold the San Mateo, Calif. start-up to Google (GOOG) for $750 million last November–it was yet another of a half-dozen trips back east so far that have taken on a less than pleasant tone.

Hamoui, who usually has a fresh-faced demeanor, was clearly looking a lot more haggard than usual.

He declined to comment in detail about the situation, only noting that, “I have been trying to explain our business, which is still nascent, to the FTC.”

That’s a big problem, of course, since Hamoui’s real job is to keep his start-up cooking with gas until it is officially bought by Google.

Along with keeping up with competitors–such as Quattro Wireless, which was bought by Apple in January–Hamoui is now hampered in hiring new staff for AdMob, as it waits in limbo.

That’s because AdMob has no currency now to offer engineers,

In addition, first pointed out by MediaMemo’s Peter Kafka, since Apple (AAPL) lost out on its attempt to buy AdMob to Google, he’s also facing a less-than-cooperative company whose iPhone has been one of AdMob’s key devices to place ads on.

And Apple recently issued some new rules–thus far, unenforced–that could hurt AdMob’s ability to take advantage of the powerful iPhone smartphone platform.

Such growing rivalry is the main argument that Google and AdMob have been pushing, noting that the mobile ad business is still small and also pointing to a recent survey that shows the combined entity has only 21 percent of the market.

But that point does not seem to have moved the FTC, which has been asking for reaction of the deal from a range of sources, such as advertisers, even as Google has been soliciting official support from a number of tech sources.

In addition, lawmakers have also been agitating the FTC to act, along with intense lobbying by Microsoft (MSFT) and also public interest groups.

“The FTC really wants to do this and is in search of a legal theory that it can win with,” said a close observer of the situation.

Bloomberg also reported Friday that the FTC was urging the filing of an antitrust suit to challenge the deal.

In other words, big regulatory trouble for Google, and–more to the point–questions over the fate of AdMob.

“It feels like AdMob is going to suffer collateral damage for a bigger fight going on about reining in Google,” said one source.

And, until the verdict is in, here’s a video of an interview I did with Hamoui in late 2008, when life was a lot simpler and bureaucrat-free for him:

Please see this disclosure related to me and Google.