Apple Declares War on Google Over Mobile Ads

Apple declared war on Google's mobile advertising ambitions Thursday, introducing the iAds system, in the latest sign that the increasingly bitter rivalry between the two companies is intensifyingApple (AAPL) declared war on Google's (GOOG) mobile advertising ambitions Thursday in the latest sign that the increasingly bitter rivalry between the two companies is intensifying.

During an iPhone product update, Apple CEO Steve Jobs introduced the iAds system, designed to help developers sell ads against the applications they build for Apple products, like the iPhone and iPad.

Apple's new mobile advertising system represents the iconic gadget maker's first major foray into the advertising business. The company will sell the ads and give application developers 60% of the revenue.

"Search Is Not Where It's At"

The model is based on Jobs's belief that the future of mobile marketing lies in discrete applications, as opposed to the traditional search ads that have made Google billions.

"Search is not where it's at" on mobile devices, Jobs told reporters after the announcement, via Brad Stone. "People are not searching on a mobile device like they are on the desktop."

Apple's iAds system is aimed squarely at Google's AdMob platform, which the search giant snatched last fall for a cool $750 million. "We believe AdMob gives Google a strong foothold in the fast-growing market for placing display ads on mobile websites and applications," UBS Internet analyst Brian Pitz said at the time.

Just two days before Apple's iAd announcement, the Google-AdMob deal was reported to have drawn the interest of the the Federal Trade Commission, which has yet to sign off on the deal. And yesterday, Reuters reported that FTC lawyers are prepared to recommend the deal be blocked.

Jobs: Google "Snatched" AdMob From Us

Apple actually tried to buy AdMob, Jobs toldreporters Thursday, but Google "came in and snatched them from us" because "they didn't want us to have them." Apple was left with what's been referred to as the "consolation prize" of Quattro Wireless, which it purchased for $275 million in January.

Ironically, Apple's robust entry into the mobile ad space with iAds could help ameliorate regulatory concern over AdMob, a point made by Google. "While we're continuing to work with the FTC, there is overwhelming evidence that mobile advertising will remain competitive after this deal closes," Google said in a statement.

Indeed, the nascent mobile ad market doesn't appear to be in danger of domination by any one player any time soon, although AdMob was clearly a key prize.

"AdMob had $31 million gross revenue in 2009 and 11% market share, according to market research firm IDC," noted Thursday. "Added to Google's existing mobile ad business, which is primarily mobile search, the acquisition would make Google the mobile ad leader with 21% market share."

"By comparison," said, "Apple's Quattro had $20 million in gross revenue for 2009 and 7% market share, according to IDC."

It's easy to see why Jobs resents Google's AdMob purchase.

Schmidt: Mobile Ads Could Be Worth "Many Times" More

To date, Google has largely dominated the Internet ad market, generating billions of dollars in revenue each quarter from online ad sales. But revenue growth rates for online advertising have slowed as the market has matured.

With the increasing spread of Web-enabled smart phones, there is a general consensus among analysts that the next great battlefront in the Web ad war will take place in the palm of your hand.

Google CEO Eric Schmidt has said he believes that Google can earn "many times" in mobile advertising what it earns in conventional Web advertising. On Thursday, Steve Jobs put Schmidt on notice that he doesn't intend to let Google walk away with the mobile ad business like it did with search ads.
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