Daniel Eran Dilger
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Apple targets Google’s mobile ads market with Quattro acquisition

Prince McLean, AppleInsider

Apple has signaled a clear intent to muscle its way into the mobile ad market using its recent acquisition of Quattro, a direct challenge to Google’s Android-related ventures.

Apple targets Google’s mobile ads market with Quattro acquisition
Google’s Android has been viewed as a direct competitor to Apple’s iPhone, even before the company officially released the details of its mobile strategy. Many originally even expected Google to launch its own hardware, rather than just partnering with other manufacturers as a software licensor and reseller. But few have recognized the potential for Apple to take on Google’s virtual monopoly in online advertising and leverage its position with the iPhone and iTunes to rival Google as an ad broker.

To many observers, Google was simply destined to play the role of Microsoft in the 1990s, swooping in to remove Apple’s unique product and replace it with a commodity device running a broadly licensed operating system. Since the release of the first Android phone in October 2008 however, Android hasn’t come anywhere close to taking on Apple’s hardware business or assembling a similar ecosystem of third party development. Instead, it has largely gobbled up Microsoft’s stagnant Windows Mobile market share.

Google’s Android strategy

Google’s Android project developed years before Apple released the iPhone; it was originally aimed directly at Windows Mobile, not to sell hardware but to keep Google a viable contender in the mobile advertising space. Google had no reason to compete directly with Apple even after the iPhone’s launch, because Apple’s smartphone already used Google for its web search, maps, and other online services.

With Apple playing no role in online advertising, Google remained focused on creating an open source smartphone monoculture that would allow it to track and target mobile users with advertising. Google hoped its new operating system would largely be developed and managed by the community, and that third party hardware developers would take over the details of building handsets.

This strategy was expected to enable Google to simply expand its advertising monopoly into mobile devices and become the next Microsoft of smartphones, except that it would be collecting revenues for ads and paid search results rather than licensing software as Microsoft had.

Apple signals an intent to join the ad market

Shortly after Google acquired AdMob for $750 million to expand its mobile ads expertise last fall, it was discovered that Apple had also bid on the company.

Earlier this month, Apple acquired Quattro Wireless for a reported $275 million. While that acquisition is smaller, Apple also has a rich repository of information on its 500 million iTunes users that Google can’t access.

Apple also has a tight relationship with its iPhone developers, who can only publish their apps through iTunes. By offering its developers integrated advertising services, Apple can get started in the mobile ad business and quickly catch up with Google’s own fledgeling mobile efforts.

When asked about the company’s recent acquisitions of Quattro and Lala after yesterday’s earnings report, Apple’s chief financial officer Peter Openheimer answered, “In terms of Quattro and Lala we acquired Quattro because we wanted to offer a seamless way for developers to make more money on their apps, especially free apps. We acquire companies from time to time for their technology and talent, that’s why we do it.”

Apple has never run an ad business before, but it has also never really had a captive platform to sell any advertising before either. The company briefly flirted with adding banner ads to its Sherlock search app a decade ago before abandoning the idea. Since then, it has focused on selling its own applications and its iTunes media partners’ content as ad-free rather than chasing the idea of ad-supported media models as Google, Hulu, and Microsoft have been experimenting with recently.

Paid vs. free (with ads)

Microsoft in particular has worked to develop ad-supported, online versions of its Office suite to compete against Google’s comparable offerings, as well as mobile games for its Zune HD device which are intended to be subsidized by ads.

However, even with iPhone apps, Apple has worked to encourage its developers to charge very little and profit in volume rather than give their apps away and try to monetize them with ads. By leveraging its Quattro acquisition, Apple appears ready to augment its favored, paid iPhone app model with options for developers that allow them to earn revenues on free apps.

Apple may also leverage its new mobile ad savvy to subsidize new video and multimedia content for its upcoming tablet product, although it’s also likely that the company will continue to push its micropayment model that has proven to be wildly successful on the iPhone and iPod touch and throughout iTunes in general.

  • stefn

    My take aways:
    * The two most successful CE companies this next decade will both aim at vertical control over their products and services, to enhance users experience and profits both.
    * Micropayments’ time has arrived. Let’s get on with it.

  • lmasanti

    “…we acquired Quattro because we wanted to offer a seamless way for developers to make more money on their apps, especially free apps…”

    As I see it, Apple is looking for more revenue earning models.
    I do not know what was the spected relation between paid/free apps that they suppose at the beginning, but with an actual relation of ~75 free/ ~25 paid, the 30% take on price seems to me to be pretty low to mantain all the store. I think that credit card processing amounts for like 7-8%, leaving just 23% to cover costs.
    So, Apple introduced the in-app purchasing, first for paid apps and then for the free ones… this was the first time that a free app could produce money to Apple.
    With the intent to buy AdMob and then the buy of Quattro they, IMO, are widening the “money input oportunities:” you give away a free app (just cost for Apple to approval and delivering) and you get money from the ads. New model: you get money from the ads and Apple gets money from you receiving money from the ads (this last part proves profitable to Google).

    Although this is what you essencially says in the article, my difference is that Apple is looking to be in the “iPhone/iTablet’s apps mobile ad business,” not in the mobile ad business per se. In other words, Apple won’t be looking –at least, in the beginning– to sell mobile ads to apps in Android or Nokia.
    (Of course, if the dev is in iPhone and Android, Apple could serve ads to the two.)

  • jon1

    Re: “In terms of Quattro and Lala we acquired Quattro because we wanted to offer a seamless way for developers to make more money on their apps, especially free apps. ”

    I suggest a different interpretation, I think they will share a greater portion of ad rev with developers in free and paid apps. They don’t want to be in the ad biz, they want to keep developers loyal and stay ahead of Google in mobile apps. Giving ad rev to devs is going to drive Apple loyalty like crazy. – ” A seamless way for developers to make more money”

  • ChuckO

    It’s a genius idea and they had to figure out a way to make the iTunes universe a serious cash flow generator. This is one way and we’ll probably see some more tomorrow (27th)! Go Apple!

    I have an idea for them for serving ads to people Apple can have. I elect what ads I’ll watch and get iTunes credits for TV shows for watching them. Not annoying stuff like dishwasher detergent but things specific to my interests. Cars I’m interested in, home electronics, etc. And not necessarily typical ads but some slightly longer detail oriented stuff.

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