25 Jun 10

Who is going to win the war between Apple and Google on mobile advertising?

by Jonathan Sepulchre, Digital Planner/Buyer

I must confess something, I was wrong when I heralded the great partnership between Apple and Google in my last article on mobile advertising in January 2010. Since the announcement of Apple iAd in May 2010, the two American giants have been fighting to become the number one player in mobile advertising.

Apple entered the mobile advertising market because they realised their business model - selling well marketed smartphones at a premium price, is compromised by the rise of Android. Mobile network operators love to lead the way and can use Google to moderate the power of Apple in the smartphone market. In order to find a new growth opportunity, Apple has chosen to move into the mobile advertising market. The fact IDC forecasted that the U.S. mobile advertising market would grow from an estimated $266 million in 2008 to an estimated $2.3 billion in 2012 clearly shows the mobile advertising market to be a promising one…but that is not to say there will not be competition for those who chose to enter into this potentially lucrative market.

I am not convinced that Apple will dominate the mobile advertising market despite the fact they are currently dominating the smartphone market. It is likely that they will end up like Microsoft on the display advertising market: being an important player but behind Google. The main weakness for Apple is that they are working as a closed eco-system. You need to buy Apple products in order to be part of the Apple advertising network. A closed eco-system is great if you want to generate a high margin but it is also more difficult to achieve the large market penetration that advertisers love (and depend on).

The fact that Android is free and open enables mobile network operators to regain a margin of power from Apple and mobile manufacturers (HTC, Motorola, SonyEricsson etc...) are able to be more competitive because they can focus on the hardware capabilities of their phones instead of wasting time unsuccessfully trying to develop an operating system as good as the iPhone operating system.

As I mentioned earlier in the article, I was wrong about the partnership between Apple and Google. However, I was right regarding the genius nature of Google’s strategy to achieve a high market penetration of Google products on mobile. The latest comScore report on internet mobile usage confirm that Android is gaining market share very rapidly in Europe. The growth rate of Android’s market share since 2009 has been quite frankly ridiculous (2,429%) but the most important fact is that Android has now gained over 1.8 million Smartphone users across Europe. Whilst this is still 10 times less than the market penetration of the Iphone (10 million users and a growth rate of 161% since 2009), Android is perfectly playing its role as the Trojan horse for Google and as such, the competition with Apple looks likely to heat up in the coming months. According to NPD, more Android phones have been sold during Q1 2010 in the United States than the iPhone. Nielsen also announced figures showing Android market penetration at 9% of the US smartphone market (compared to 0% in October 2008).

This strong growth of Android combined with the Google offensive on the display mobile advertising market (with the acquisition of AdMob) is clearly threatening the strategy of Apple in mobile advertising.

Moreover, despite the fact that Apple is dreaming of a perfectly closed eco-system, advertisers can already target Iphone users when they are surfing the web…. Please feel free to call us if you want to know more!