Page last updated at 14:41 GMT, Friday, 9 April 2010 15:41 UK

How Apple plans to take on Google in mobile advertising

By Laurence Knight
Business reporter, BBC News

Apple CEO Steve Jobs with an iPad
The iAd move could create many new apps for its new iPad

Apple chief executive Steve Jobs has placed himself head-to-head with rival Google in the budding mobile advertising market, by announcing a new iAd advertising platform to be rolled out this summer.

The announcement follows Apple's purchase in January of mobile advertising network Quattro Wireless for $300m (£196m), demonstrating that Mr Jobs is happy to put his money where his mouth is.

Yet the mobile advertising market remains tiny, and the acquisition price paid for Quattro is small change for a company currently valued at over $217bn.

However, analysts say that the potential for mobile advertising is huge and it could transform mobile commerce. Investment firm Piper Jaffrey is predicting a total in-application market for advertising of $700m by 2013, of which iAd could capture $380m.

Nascent industry

"Mobile advertising currently is at a very nascent stage, and the sector's revenues are totally eclipsed by other forms of advertising," says Ben Wood, analyst at technology consultants CCS Insight.

"However, there is no doubt that these companies view advertising as the business model of the 21st century."

Google and Apple (right) logos
Apple has placed itself head-to-head with Google

Mr Jobs's thinking is that mobile advertising can be tailored to the individual users needs and interests, in much the same way that Google has been able to use data from users of its search engine and gmail accounts to target advertising.

"The mobile is a very personal device," adds Mr Wood. "You can almost say that it gives you a market segment of one."

Apple could use the mobile phone user's physical location as a hook for advertisers - for example Mr Jobs cited a Nike advert incorporating a nearest store locator. But information about a user's interests can also be gleaned from the applications they choose to purchase.

The Apple head says that he wants to help developers make money with higher quality advertising so that they can keep their free applications free. "What some of them [developers] are starting to do is put mobile ads in their apps…" says Mr Jobs. "And most of this advertising sucks."

Opportunistic timing

Steve Jobs's announcement comes at a time when rival Google's own mobile advertising initiative has become hamstrung by the US anti-trust authorities.

In November, Google outbid Apple to purchase leading mobile advertising company AdMob for $750m.

"Google came in and snatched them because they didn't want us to have them," said the Apple head. Admob already operates on Apple's handsets.

Most of this advertising sucks
Steve Jobs, Apple CEO

However, Google's plans immediately ran into trouble as the Federal Trade Commission chose to review the deal. Months later, a decision is still pending.

"This gives Apple a first mover advantage," says Mr Wood. "Although Apple has a fraction of the experience in advertising that Google has today, Google knows they are a formidable competitor."

Flood of new apps

The iAd initiative also seems designed to provide a fillip to the growth of new applications for Apple's handsets.

The Apple chief executive said that 60% of the advertising revenues raised will be passed onto the application developers, creating a major new financial incentive for programmers to generate new functionality for the iPhone, iPad and iPod touch.

"The revenue sharing opens the floodgates for a lot more free applications," says Mr Wood. "This is an extremely astute move by Apple. I would expect both the number and the quality of applications to grow much more rapidly because of this."

The rivalry between Apple and Google will partly be decided by the direction that mobile phone technology takes in the future.

Apple stakes its future on the continuing development of applications as the main forum for mobile software, whereas Google expects applications to be supplanted by a web browser that gives users access to the entire internet.

Which technology wins out may depend on whether Apple's control of its content proves to be a plus, because it ensures the quality of its applications, or a minus, because new software is more easily available on the web.



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