Apple Edges Into Selling of App Ads

Apple Edges Into Selling of App Ads
By BRAD STONE
Copyright by Reuters
Published: April 8, 2010
http://www.nytimes.com/2010/04/09/technology/09apple.html?th&emc=th


CUPERTINO, Calif. — Apple, the maker of popular gadgets, is getting into the business of selling advertising, ratcheting up its rivalry with Google.

On Thursday the company gave a preview of a new version of the basic software for its mobile devices, including the iPhone. The software has a built-in advertising system, meant to be used by the developers who have created the more than 185,000 applications in Apple’s App Store.

Speaking to reporters and developers on Apple’s campus here, Steven P. Jobs, Apple’s chief executive, said the new system, called iAds, would offer ways to build complex interactive ads into apps for the iPhone, iPod Touch and iPad.

Apple said it would sell and serve up the ads and give developers 60 percent of the revenue from ads that run in their programs.

Mr. Jobs sharply contrasted the market for ads on mobile phones with the way its ally-turned-rival, Google, had profited on PCs: by running ads alongside search results. “Search is not where it’s at” on phones, he said. “People are not searching on a mobile device like they are on the desktop.”

Instead, he says, smartphone owners are getting all of their information through apps, so search ads are not as effective.

Google is increasingly finding itself at odds with Apple in markets like mobile phones, Web browsers and operating systems. Carolyn Penner, a Google spokeswoman, responded to Mr. Jobs’s comments by saying that Google’s mobile search service was five times bigger than it was two years ago, and that people were searching 30 to 50 times more often on smartphones than on more basic phones.

Mr. Jobs said the iAd platform was primarily meant to give developers another way to keep prices for their apps low, or to make them available free. “This is not a get-rich-quick scheme for Apple,” Mr. Jobs said. “This is us helping our developers make money so they can survive and keep the prices of their apps reasonable.”

Michael Gartenberg, a partner with the consulting firm Altimeter Group, said creating new ways for developers to make money from their programs would ensure a continuing supply of those programs for Apple’s growing portfolio of mobile devices.

“It shows that Apple is really committed to building out a rich apps ecosystem, which has always been their main differentiator from competitors,” Mr. Gartenberg said.

Mr. Jobs stressed that the ads would not distract people from what they were doing on the phone, and that the ads would be entertaining. Demonstrating the service, he clicked on an ad for the Disney film “Toy Story 3” in an iPhone application, and was transported to a screen with video clips, games and offers for theater tickets. When he closed the ad, the screen switched back to the application.

The ads will be seen only on Apple’s products, and it is not clear whether Apple has ambitions to sell ads on other mobile phones, like those based on software from Google, Microsoft and Research In Motion. Mr. Jobs said that Apple’s longtime advertising agency, TBWA, had been instrumental in helping it navigate an unfamiliar business.

Kais Makhlouf, vice president for strategic partnerships at the online ad agency Nurun, said larger app makers would not want to sacrifice ad revenue to Apple and would most likely sell their own mobile ads. But for “a new developer who wants to test the market and start putting ads on his app, this opportunity will be amazing,” he said.

Mr. Makhlouf and other industry executives say Apple is likely to add a location component to its mobile ads so, for example, coupons from local stores could show up on a person’s phone. For now, Apple does not permit developers to show such location-based ads on the iPhone.

Bart Decrem, the chief executive of Tapulous, which has created popular music games for the iPhone and iPod Touch, said his company would wait and see how the iAd system worked before deciding whether to use it.

“There are a lot of important questions we don’t know the answers to yet,” Mr. Decrem said. For example, he said, how much ad inventory will be available? And will a developer have to choose between Apple’s ads and those from other mobile ad networks?

Tapulous and many other app makers now incorporate ads from the mobile advertising company AdMob. At Tapulous those ads bring in about 20 percent of overall revenue.

Mr. Jobs confirmed one bit of Silicon Valley drama by conceding in a question-and-answer session that Apple had tried to buy AdMob, but that Google “came in and snatched them from us.” He added: “They didn’t want us to have them.”

Instead Apple bought a smaller company, Quattro Wireless. But Mr. Jobs said Apple’s executives were still “babes in the woods” when it came to advertising.

Google’s proposed $750 million acquisition of AdMob is awaiting regulatory review from the Federal Trade Commission. Google also sells its own mobile ads, and the market research firm IDC estimates that together the companies would have a 24 percent share of the mobile ad market.

The iAd system will be part of version 4.0 of the iPhone OS, the software at the core of the iPhone, iPod Touch and iPad. That software will also include one much-anticipated feature, the ability to run multiple non-Apple applications at the same time.

Other new features include the ability to give apps as gifts, a new gaming center that will allow owners of Apple devices to play video games against others, and tools for companies to manage their employees’ iPhones and directly send custom applications to those phones.

The new software will be available for owners of recent iPhone and iPod Touch models this summer, and for the iPad later in the year. Elements of the operating system will not run on the older iPhone 3G, which apparently does not have the hardware capability to support the new multitasking functions.

Mr. Jobs opened the event by saying the company had sold 450,000 iPads since the device’s debut last weekend, and that people had downloaded 600,000 electronic books from its new iBookstore.

Jenna Wortham and Stephanie Clifford contributed reporting from New York.