Apple in trouble as Google buys AdMob

Apple Inc may have a tougher time getting advertisers to pay a premium for smartphone ads now that Google Inc has won....

Apple Inc may have a tougher time getting advertisers to pay a premium for smartphone ads now that Google Inc has won regulators clearance to buy AdMob Inccreating the largest mobile-advertising company. While advertisers and analysts expect Apple to make inroads in the market,they say the company may need to price its rates more aggressively. The Federal Trade-Commission unanimously approved Googles 750 million acquisition on May 21,saying it wont hamper competition in the fledgling mobile-ad market.

Owning AdMob stands to make Google and its Android software more enticing to advertisers that seek a wide audience and developers eager for part of a market expected to surge more than eightfold to 1.78 billion in 2014. Androids growth will outpace other operating systems and nudge aside Apple in 2013 by number of shipments,according to researcher IDC.

You see Android increasing at a much faster rate, said Noah Elkin,a senior analyst with EMarketer Inc in New York. Apple has a very attractive audience. But they dont have scale.

With Google and AdMob joining forces,the pressure is on Apple chief executive officer Steve Jobs to prove he can apply the same formula to advertising that he uses in selling computers: charging more for products that boast slick design and a broader range of easy-to-use features. Apple declined to comment,said Steve Dowling,a spokesman for the Cupertino,California-based company. Rob Shilkin,a Google spokesman,declined to comment.

Apple rose 4.44 to 246.76 on Monday in Nasdaq Stock Market trading. The shares have gained 17 this year. Google,based in Mountain View,California,gained 5.11 to 477.16. The stock has declined 23 this year.

Last month,Apple introduced iAd,a service that places ads inside applications that run on the companys mobile devices,such as the Phone and the iPad tablet computer. AdMob also places more simplified ads in applications on Apple devices.

While Apple hasnt announced how much the new system will cost,its expected to charge about 10 per 1,000 times an ad is displayed and 2 each time its clicked on,according to Marc Ruxin,chief innovation officer of advertising agency McCann Worldgroup in San Francisco. Assuming typical click rates,that would work out to about 30 per 1,000 impressions. AdMob charges 10 to 15 on average,said Nicole Leverich,a spokeswoman for the company. Unlike Apple,AdMob charges for either the ad impressions or the clicksnot both.

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To justify the premium,Apple will provide technology that lets advertisers add movie trailers,online games and other features that distinguish them from traditional,static banner ads. The ads wont force the user to exit an application and open a browser.

Apple will have to demonstrate that its ads are more effective in spreading a marketing message than those placed by AdMob,Ruxin said. If Apple charges an overly high price,theyll lose, Ruxin said.

Shipments of Android-based smartphones may reach 68 million by 2013,making it the second-most popular operating system after Nokia Oyj-owned Symbian,according to Framingham,Massachusetts-based IDC.

If Apples pricier ads dont deliver better results for advertisers,some marketing managers may be more inclined to advertise with Android,said Michael Chang,CEO of mobile-ad network Greystripe Media in San Francisco. Are advertisers going to pick a proprietary network thats probably more expensive? he asked.

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For Apple,iAd is aimed partly at keeping developers who create programs for the iPhone happy. Apple plans to give developers 60 of ad sales generated by ads placed on their programs. Thats on par with the percentage AdMob shares,according to Toni Sacconaghi,an analyst at Sanford C Bernstein in New York. IAd could generate more than 800 million annually in sales for Apple and 825 million for developers who run ads in their applications,said Sacconaghi,who rates Apple shares outperform and doesnt own them.