In a very interesting development in the mobile advertising space, Google’s AdMob said today that it’s getting rid of minimum bids and targeting fees as it changes toward a more traditional auction-based model.

That makes it the second big app marketing player in recent weeks to drastically cut or get rid of minimum bids. Tapjoy cut its minimum bids to 10 cents late last month when it said it came out of beta.

Starting next week, AdMob is going to be run more like AdWords, where advertisers compete on bids and quality of ads to win placement. The company says the prices it charges will never exceed the advertiser’s bid.

This will “allow AdMob CPC advertisers to compete for inventory under the natural forces of supply and demand,” wrote Chrix Finne, a product manager for AdMob. He adds, “Advertisers will benefit from more efficient pricing and could receive cheaper clicks depending on the inventory on which they bid. High quality ads will be rewarded with an improved chance at winning the auction.”

There are a couple ways to read this. As AdMob’s business has matured and become more saturated with advertisers, perhaps it’s no longer necessary to have a minimum bid.

However, another way to read it is that this is a move that will give the network a competitive advantage over rivals that have higher minimum bids. Getting rid of minimum bids may make it cheaper for more advertisers to participate, but it could also cannibalize revenue from marketers who would have paid more for campaigns. We’ve heard that Apple’s iAd now has a minimum buy of around $25,000. That’s far from the initial $1 million minimum buy the network started with when it was trying to position itself as a premium player.