Technology Internet News Blog

By Adam Satariano

July 6 (Bloomberg) — Apple Inc., with a storehouse of billions of music, movie and software downloads, is studying the buying habits of many of its 150 million iTunes users to show more appealing mobile ads and fuel competition with Google Inc.

Through the iAd program that began last week, Apple started placing ads in iPhone applications for the first time. Early iAd clients include Nissan Motor Co., Unilever NV, JC Penney Co., Best Buy Co. and AT&T Inc.

At stake is leadership in mobile ads, forecast by EMarketer Inc. to almost triple to $1.56 billion in 2013. Google, which gained the biggest share of online advertising by placing ads based on PC-Web surfing habits, may use that tack to widen a lead on handheld devices. Examining consumers’ entertainment and software purchases may give Apple an advantage, says Rachel Pasqua, director of mobile at marketing firm ICrossing.

“Apple knows what you’ve downloaded, how much time you spend interacting with applications and knows even what you’ve downloaded, don’t like and deleted,” said Pasqua, whose clients include Toyota Motor Corp. and Mazda Motor Corp. She isn’t currently working with Apple on iAd campaigns.

Relying on the music, videos and apps that customers are downloading from its iTunes, App Store and iBooks helps Apple sketch a behavioral profile that can be paired with appropriate promotional messages. On its website, Apple says its “standard targeting options” include demographics, application preferences, music passions, movie genre interests, television genre interests and location.

Apple, based in Cupertino, California, slipped $1.54 to $246.94 in Nasdaq Stock Market trading on July 2. It has gained 17 percent this year.

‘Surgical’ Targeting

Unilever, which began working with Apple in May on a campaign for its Dove Men+Care soap, is using iAd to zero in on married men who are in their late 30s and have children.

“Apple then overlays that with the iTunes information and targets quite well and quite surgically,” said Rob Candelino, marketing director at Unilever, based in London and Rotterdam.

Apple doesn’t share information on individuals, Candelino said. Instead, Unilever can choose to advertise in certain “buckets” of applications, such as those on news or entertainment, based on characteristics of its users.

“The leading global brands we’re working with are developing iAds timed with their seasonal marketing campaigns, such as back to school and the holiday shopping season,” said Apple spokeswoman Trudy Miller. “We’re just taking our first few steps. We’ll work our way up to walking and running as this year progresses.” IAd was announced in April.

5 Billion Downloads

U.S. mobile advertising spending will grow 43 percent this year to $593 million, according to EMarketer. The business will grow almost threefold more by 2013, reaching $1.56 billion, the New York-based research firm said.

The ads are being integrated into some of the 225,000 applications created for Apple’s online App Store. Users have downloaded more than 5 billion of them, according to Apple. The iAd system will be rolled out later this year to the iPad, which sold more than 3 million units in its first 80 days.

Apple Chief Executive Officer Steve Jobs said at a conference last month that the company had sold more than $60 million in advertising since the iAd platform was introduced in April. That’s about half the mobile display-ad market, according to JPMorgan Chase & Co.

Google, which this year bought mobile-ad network AdMob, doesn’t report what portion of sales comes from mobile. Google and AdMob may generate more than $100 million in U.S. mobile-ad sales in 2010, says IDC in Framingham, Massachusetts.

Google’s Strengths

From early on, Google has honed an ability to make ads relevant to users. As it rolls out mobile-ad strategies, the company could tap a wealth of information on how people use Web search, e-mail and software available via the Android mobile operating system, said Michael Collins, chief executive officer of mobile-ad agency Joule Inc.

“The question that many of us in the industry are very curious about is how much of that data will Google be making available to target,” said Collins, whose agency is a part of WPP Plc. “The more available data, the better the targeting.”

Apple appeals to a “premium” audience because of the cost of its products, while Google can reach a broader market because its Android operating system is on more devices, said Noah Elkin, an analyst at EMarketer.

“It boils down to the exclusivity of Apple and the customer you can target that way, versus the breadth that you have with Google,” he said.

‘Hype and Buzz’

Some marketers are skeptical that Apple’s success in selling gadgets will translate to advertising. Apple hasn’t proven that its platform will result in more effective ads that are worth the investment, said Thom Kennon, vice president of strategy at Wunderman, whose clients include Campbell Soup Co.

“Right now it’s hype and buzz more than reality,” he said. “There are just not that many people with iPhones in their pockets or iPads in their hands to consume this advertising.”

Companies that opt for iAd, though, say they’re drawn to the marketing prowess that has helped Apple sell about 100 million iPhones, iPod Touches and iPads in three years. Working with Apple was “unequivocally” a reason for choosing iAd, said Chad Jacoby, senior manager of Nissan’s marketing team.

To keep companies paying, Apple will need people to click on the ads and respond with their wallets, said ICrossing’s Pasqua. The better Apple can target ads, the more effective iAd will be, she said.

Privacy, Antitrust

Apple will also need to keep from running afoul of government officials concerned about anticompetitive practices and the way tech companies handle information gathered on users.

Federal Trade Commission officials are preparing to review allegations that Apple is trying to trammel rivalry in mobile advertising, people familiar with the matter said in June. They’re examining app-developer instructions, issued in June, that AdMob says might bar programmers from using Google and AdMob advertising software on the iPhone.

Regulators in the U.S. and Europe are also paying heed to privacy practices. The German Justice Minister last month raised questions about Apple’s practice of compiling data on users of its iPhone. The U.S. Federal Bureau of Investigation also began an inquiry into a security breach that exposed the e-mail addresses of as many as 114,000 users of the iPad.

Apple lets customers opt out of receiving ads based on iTunes download history or location. “With iOS 4, Apple has gone further to protect users’ privacy, particularly with respect to location, than anyone else has to date,” Apple said in a statement, referring to its mobile operating system.

–With assistance from Peter Burrows in San Francisco. Editors: Nick Turner, Lisa Wolfson.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net.

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net