Apple 2.0

Covering the business that Steve Jobs built

Feds eye Apple-Google ad war

June 10, 2010: 7:07 AM ET

A dispute that broke out Monday has already caught the eye of antitrust regulators

Steve Jobs at WWDC

That didn't take long.

On Monday, Apple (AAPL) changed the rules that govern its new iAd mobile advertising platform to exclude competitors like Google (GOOG) and Microsoft (MSFT).

On Wednesday, Google took the matter public, blasting Apple for setting "artificial barriers to competition [that] hurt users and developers and, in the long run, stall technological progress."

On Thursday, the Financial Times, citing two unnamed sources "close to the situation," reported that U.S. antitrust regulators plan to investigate whether Apple is unfairly restricting its smartphone rivals from syphoning off some of what is expected to be a torrent of revenue from ads that run on iPhones, iPads and iPod touches.

The dispute, which stems from a change in an obscure clause in Apple's developers agreement, has split the high tech community.

Some see it as classic Apple high-handedness, "a re-run," as Federated Media's John Batelle put it, "of the Us vs. The World mentality that forced the Mac into a corner back in the late 1980s."

Others see it as fair play, given that Google started the fight when it began competing in smartphones with Android and snatched up an ad network -- AdMob -- that Apple was about to buy. "If Google hadn't declared war against the iPhone, AdMob could still see in-app ads on iOS," wrote Daring Fireball's John Gruber, referring to what used to be called the iPhone OS. "They made their bed, now they have to sleep in it."

Source: Silicon Alley Insider

In a Silicon Alley Insider poll that asked "Is Apple wrong to basically ban AdMob from advertising in iPhone ads?" 38.8% as of Thursday morning had clicked "Yes. It is wrong" and 61.2% "No. It is not wrong."

It's not hard to imagine who might have brought the matter to the attention of the Feds -- and leaked the fact that they "have taken an interest" to a reporter at the Financial Times.

But a "plan to investigate" -- either at the Federal Trade Commission or the Department of Justice -- has lost some of its sting these days. Many of these reported plans have gone nowhere. And even if the government does start a formal investigation -- as it did last year after Google announced its plans to buy AdMob -- that doesn't mean the case will ever come to court.

In fact, the government gave Google the green light to buy AdMob last month, although the $750 million Google paid for the ad network won't be worth much if AdMob can't advertise on Apple's mobile devices.

The stakes are high. J.P.Morgan estimates that $250 million will be spent on mobile ads in 2010 alone, and that figure is expected skyrocket. It's unlikely, however, that it will ever grow anywhere near as big as the search ad market that provides 99% of Google's revenue.

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[Follow Philip Elmer-DeWitt on Twitter @philiped]

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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