Apple Takes Share from Google in Mobile Ads

In July the first advertisements placed through Apple's (AAPL) new iAd mobile network began to appear. Marketers use iAd to place interactive banner ads in iPhone, iPod Touch, and iPad applications, including some popular games and the music service Pandora. Apple takes a 40 percent cut while the rest goes to the application's developer.

Over the summer, the consumer goods company Unilever used iAd to promote Dove soap and was "extremely happy" with the campaign, says Rob Master, the company's North American media director. When touched, Unilever's banner ad opened onto a library of videos and other content promoting Dove. More than 20 percent of people who opened the ad returned to it a second time, says Master.

Marketers such as Unilever, which is now using iAd to promote Skippy peanut butter, Ragu pasta sauce, and other brands, have helped give Apple Chief Executive Steve Jobs' first foray into advertising a good start. By the end of this year, iAd will pull even with Google (GOOG) and account for 21 percent of the U.S. mobile advertising market, according to a forecast by IDC. The market research firm says that Google, the current market leader, will see its share drop from 27 percent to 21 percent. Yahoo! (YHOO) and Microsoft (MSFT) will sink into the single digits, according to IDC's projections. None of the mobile ad networks report sales figures. Google says IDC undercounts its share and that its mobile ad sales are rising quickly. "If we are losing share, this market is growing faster than any one we've seen," says Jason Spero, director of mobile for Google.

That could well be the case: IDC expects the U.S. mobile ad market to grow by 126 percent this year, to $500 million. By comparison, the online ad market is much larger at $25 billion, but growing at a rate of 11 percent in 2001, according to eMarketer. In recognition of this shift, Google paid $750 million last November to acquire AdMob, then the market leader in mobile advertising. Apple, which had also wooed AdMob, paid $275 million in January for a competitor, Quattro Wireless.

At the iAd launch event in June, Apple said it already had $60 million in commitments from 17 marketers including Best Buy (BBY), DirecTV (DTV), and Unilever. The number of brands using iAd has doubled since then, says Natalie Kerris, an Apple spokeswoman. At the network's launch, Jobs predicted iAd would grab half of all mobile-ad spending in the second half of 2010.

One of iAd's strengths is that Apple is able to target ads based on the buying habits of its more than 160 million iTunes users. The iAd network also has some drawbacks that could dampen its future growth. Apple demands a degree of control over the design of the campaigns that some advertisers are hesitant to give, says Noah Elkin, a senior analyst with eMarketer. The iAd network also doesn't allow marketers to target specific devices, such as iPads only. That limitation led Philippe Browning, director of mobile strategy and business development at CBS (CBS), to opt for AdMob instead of Apple's advertising network.

To stay in the lead, Apple and Google will have to fend off competition from smaller rivals like Jumptap and Millennial Media, which are also gaining market share. On Sep. 27, Research In Motion (RIMM) announced plans to start a competing network that will run on its BlackBerrys and forthcoming tablet. "The race by no means is over," says Karsten Weide, a vice-president at IDC.

The bottom line: In just a few months, Apple's iAd has captured a large chunk of the rapidly growing mobile ad market.

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