Google toying with in-game ad company buy?

Google is buying in-game advertising company AdScape Media for $23m, according to a source familiar with the deal who asked to remain anonymous.

Representatives at AdScape and Google declined to comment on "speculation and rumour".

Buying AdScape gives Google technology that will allow it to serve ads to yet another market, the fast-growing video and internet game industry. In-game ad revenue is expected to reach $200m this year and as much as $700m by 2010, according to Parks Associates and Yankee Group Research, respectively.

Google's biggest hurdle will be Microsoft, which last year acquired Massive, one of the largest in-game ad providers. In this area Microsoft has a rare advertising advantage over Google, thanks to thriving sales of its Xbox 360 gaming console and a long list of gaming titles, according to analysts.

Other rivals, such as IGA Worldwide and Double Fusion, are bigger and have more venture capital backing and, thus, would have been more expensive to buy, analysts said.

AdScape "has a technology but not much of a market presence, so the price will be significantly lower" than it would have been for one of the other companies, said Michael Goodman, a program manager at Yankee Group.

The company has one patent issued and 15 patents pending, according to Eva Woo, vice president of marketing at AdScape. It was started in Ontario by Dan Willis, a former engineer at Nortel. Chairman Bernie Stolar was formerly president of Sega America and Sega Entertainment.

Google has been rapidly moving into new ad markets such as print and radio over the last 18 months. Its automated online ad-serving system performed so well that fourth-quarter profit nearly tripled.

The Google-AdScape deal has been rumoured to be in the works since last month when The Wall Street Journal reported it. Red Herring reported last week that the deal was being finalised.

Elinor Mills writes for CNET News.com