Google's Bid to Rule Mobile Ads

On Tuesday, I spotlighted Apple's (Nasdaq: AAPL  ) newly unveiled iAds program, which brings interactive advertisements to apps for the iPhone, iPad, and iPod touch. But investors shouldn't assume that current Internet ad king Google (Nasdaq: GOOG  ) will take that challenge lying down.

In part of his keynote address for the company's I/O conference on May 20, Google VP Vic Gundotra outlined his company's multiple strategies for mobile ads. Apps for Google's Android mobile OS can now display:

  • Google's traditional contextual text ads.
  • Graphical banners.
  • Ads that expand or contract while remaining within an app, displaying images or videos.
  • Location-aware ads that let users call advertisers directly for special deals in their area.
  • Full-window ads with multimedia and interactive features.

Like iAds, users stay in control of Google's ads at all times. Gundotra -- looking uncannily like some mad scientist's successful attempt to fuse Bill Gates' and Steve Jobs' DNA -- also touted the service's openness. Advertisers can choose companies other than Google to serve ads through Android apps.

Furthermore, while iAds will launch with a select roster of big-name companies, anyone can buy Google mobile ads right off the bat. "We're not working with a handful of partners and charging them a million dollars each to be part of our program," Gundotra said in the keynote. (Oooh, burn!)

Apple initially controlled all advertising on the iPhone, but recently expanded that agreement to allow independent companies to serve ads through iOS apps. The catch? Apple's ad guidelines specifically ban AdMob, the mobile ad network Google outbid Apple to buy a few months back. (Oooh, double burn!)

Still, it looks like Apple and Google won't have to wage all-out war to profit from mobile ads. If anything, Apple seems to be pursuing the same strategy with ads that it did with computers: Let Google capture a much larger, lower-margin share of the market, while Apple targets high-end clients and audiences for prime profits.

Demographics for iPhone and Android users seem to change month by month, but the latest data from Nielsen suggests that iPhone users might have higher average incomes than folks using Android phones. Among iPhone devotees, 40% make $100,000 or more a year, and 78% make $50,000 or more. For Android, those figures are 28% and 64%, respectively. And while Android's quickly growing its market share, Nielsen's figures say it still represents just 9% of the U.S. smartphone market, compared to the iPhone's 28%. (Don't forget that these figures exclude iPad and iPod touch owners, who run the same apps and will presumably see the same ads.)

In short, there are a lot of iPhone users, and they make a lot of money. Apple should have no trouble persuading huge companies to pony up $1 million a pop for a chance to reach that tasty market. It can then funnel a juicy cut of those tall dollars back to its army of app developers to help ensure their continued devotion.

But even if the iEmpire skims off some of the cream from the mobile ad market, Google won't suffer. Plenty of small and medium-sized advertisers will flock to its wide-open network, and large corporations most likely won't ignore its broad reach, either. Meanwhile, the fierce and escalating competition between the two new rivals should give customers more useful, more relevant, less obtrusive mobile ads, which will thus be more valuable to advertisers of every stripe.

In short: Apple and Google fight. Everyone wins.

Fool contributor Nathan Alderman loves non-zero-sum games, and thanks his Android-lovin' computer-whiz brother for urging him to give Google equal time. Nathan holds no financial position in Apple or Google. Apple is a Motley Fool Stock Advisor pick. Google is a Motley Fool Rule Breakers recommendation. The Fool's disclosure policy doesn't need flashy ads to make an impression.


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