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Apple Inc. CEO Steve Jobs speaks about the iAd mobile advertising platform at a special event at Apple headquarters in Cupertino, California April 8, 2010. (ROBERT GALBRAITH/REUTERS)
Apple Inc. CEO Steve Jobs speaks about the iAd mobile advertising platform at a special event at Apple headquarters in Cupertino, California April 8, 2010. (ROBERT GALBRAITH/REUTERS)

Apple, Google face off over ads Add to ...

In just eight weeks, Apple's infant mobile advertising effort has emerged as a serious contender to challenge Google Inc for the crown in the fast-growing new ad market.

The two tech titans are increasingly clashing in areas such as smartphones and PC operating systems. The details Jobs provided about Apple's mobile ad service at the company's developers' conference Monday hinted at a growing threat to one of Google's key business opportunities, analysts said.

"You've got a company that executes, that knows how to deliver value and is now firmly in the space," said BGC Financial analyst Colin Gillis said Tuesday.

In its first eight weeks of selling iAds, Apple garnered $60-million worth of commitments for mobile ads to run in 2010's second half, from 17 blue-chip brands including Unilever , General Electric and Citigroup .

That's chump change compared with Google's roughly $23.7-billion in annual revenue, almost all from online ads. But Apple's success out of the gate in selling iAds to household names is telling, analysts said.

At stake is a market that some say could eventually account for the lion's share of Internet advertising. Gillis said he believes mobile ads represent an important new revenue stream for Apple, which could potentially account for close to 10 per cent of the company's revenue by 2012. The company reported revenue of $36.54-billion in 2009.

Google does not disclose the size of its mobile advertising business, although analysts believe annual revenue is well under $500-million and primarily generated from mobile search ads.

For Google, which has dominated Internet ads for years via its ubiquitous search engine and the lucrative search ads it displays alongside search results, adapting its business to the new breed of mobile, Web-connected gadgets is critical.

As consumers increasingly turn away from their PCs and use smartphones to access the Internet, Google has developed a smartphone operating system, Android, that is now offered on devices made by 21 different hardware vendors.

"They need to make sure that when people are looking for information, no matter what device it is, that they use Google," Broadpoint Amtech analyst Benjamin Schachter said.

FACE-OFF

Android was the fourth-ranked smartphone operating system worldwide in the first quarter, with a 9.6 per cent market share according to industry research firm Gartner, while Apple's iPhone was No.3 with 15.4 per cent. Nokia's Symbian and BlackBerry-makers Research in Motion were No. 1 and No. 2, respectively.

Youssef Squali, an analyst with Jefferies & Co, said whoever controls the operating system, rules the market.

It determines "who is ultimately going to be able to have the direct relationship with advertisers," he said.

While Google is gaining ground with Android, the company's ability to sell mobile search ads is still partly reliant on Apple, which could decide to lock Google's search engine out of its popular iPhone anytime.

The market for mobile advertising is still "very much up for grabs," Squali said. "But I would say the company with the best assets right now is undoubtedly Apple."

Broadpoint Amtech's Schachter disagreed, pointing to Google's established ties with more than a million advertisers.

To Google's disadvantage, browsing the Web and conducting searches for Web sites may not turn out to be the most common way of accessing the Internet on mobile devices. Many consumers favoring applications that can be downloaded onto smartphones and tablet PCs like the iPad - Apple's forte.

To play in the apps market, Google has developed a product called AdSense for Mobile. And last month, the company closed its third-largest acquisition ever, shelling out $750-million for AdMob, an advertising firm that specializes in serving ads within smartphone applications.

Apple's own mobile advertising plans are - naturally - based entirely around in-app ads for the iPhone.

During Monday's presentation, Jobs showcased a prototype in-app ad by auto maker Nissan for its new Leaf electric car. The ad provided greater interactivity and richer visual graphics compared with some of today's in-app ads, which often resemble the banner ads familiar on Web pages.

BCG's Gillis noted Google and Apple have fundamentally different approaches, each suited toward different types of advertisers.

For Apple, "the notion is that brand advertising needs to have a component of art in it, for that emotional reach," Gillis said. "Google's mentality is not to put art into the ad. Google's mentality is to use the algorithm to deliver the ad."

 

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