Apple fights Google with iAd platform

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Manufacturer secures app business by increasing control over content and ad revenue

Apple’s proprietary iAd advertising platform, which runs in conjunction with the iOS 4 (formerly iPhone OS) operating system on iPhone 4 devices, represents an aggressive move by the California firm to protect its commercial stake and influence in the applications market, argued market analysts last week.

Apple came in for praise and criticism on the announcement of its fourth-generation iPhone this month.

Some critics suggested Apple had taken monopolistic control of the mobile ecosystem to new levels with certain detail in the iPhone 4 announcement, particularly with its developing hardline on third-party advertising aggregators.

Apple chief Steve Jobs said at the unveiling of the iPhone 4: “If you want to make developers more money, you’ve got to get the ads into apps.”

But Apple will disallow applications on its App Store that run with advertising platforms by rival firms – Google, Microsoft and Nokia, included.

Section 3.3.9 of its developer agreement states it will prohibit content optimised by any “developer or distributor of mobile devices, mobile operating systems or development environments”.

Instead, Apple has introduced its own advertising platform for mobile applications, iAd, which allows ‘in-app’ adverts that display full-screen video and interactive marketing content, and allows users to return to the application content at any point.

The US Federal Trade Commission (FTC) is to investigate Apple’s decision to block third parties from its App Store that are linked to rival devices or platforms, after Google filed a complaint with it over Apple’s action.

Google might have been put out also by the fact Apple supremo Steve Jobs invited Microsoft, Apple’s longtime nemesis in the computing world, on stage at the launch of iPhone 4 to make clear it is now supporting Microsoft’s Bing search engine, a threat of sorts to Google’s staple search business.

And IHS Global Insight senior research analyst Seth Wallis-Jones reflected, indeed, the move will create a closed web ecosystem, or a “walled garden”.

“Apple is skating on thin ice by building a popular platform and then excluding specific groups from working with it,” he said.

At the same time, analysts agreed that monetising the wider application market, and its giant share of it in particular, is the motivation behind its protectionist stance with its iAd platform.

Ovum principal analyst Adam Leach said: “Apple has had success with the number of applications downloaded from its App Store, most of which are free. It is now trying to monetise the free application market and take revenue from it.”

Apple will take 40 per cent of revenue generated from advertising on its iAd network, reckoned Informa Telecoms and Media principal analyst Malik Kamal-Saadi.

It currently makes money from only 20 per cent of application downloads. The new platform will enable it to now make money on the other 80 per cent, which are free to download.

CCS Insight director Ben Wood remarked: “Apple works on high margins from its hardware, but is now nurturing other revenue streams. And people buy the hardware now because of the App Store.”

Those other streams are already significant. Apple said in January it had generated $1 billion for developers already from App Store sales, which number well over one million so far.
Clearly, developers and advertisers will benefit from in-app marketing also, regardless of restrictions put in place by Apple on rival providers.

Wood said: “The ‘Freds in sheds’, who were developing apps for free just for the glory of it, will now start to receive revenue cheques from Apple. And advertisers now get into the hands of over-25s with expendable cash. And Apple has a robust built-in payment mechanism that makes it easy to spend money. Two clicks and you’ve spent money.”

Full article in Mobile News issue 466 (June 21, 2010).

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