4 Reasons the FTC Won't Find Apple's iAd Anti-Competitive

Last Updated Jun 14, 2010 12:24 PM EDT

Here's why the FTC will probably conclude that Apple (AAPL) is not using iAd to create an advertising monopoly inside its iPhone and iPad devices.

Apple CEO Steve Jobs last week banned "third party analytics software" from iAd, the software that will deliver ads inside iPhone and iPad's apps. This means it's almost pointless for an advertiser to try to use an ad service like Google (GOOG)'s AdMob to serve ads on the iPhone -- even if it could, Apple won't give the advertiser any data on how many people saw the ad. It's the data that is the commodity that's valuable here.

This sure looks like Apple is trying to monopolize or restrain the trade of advertising within its mobile network, but is it illegal? Unless it comes up with a huge surprise, the FTC is likely to find Apple is not breaking the law, for four reasons:

  1. Apple doesn't dominate mobile advertising: Only 23 percent of mobile users have a smartphone. Inside that niche, its not clear that Apple is dominant. While Apple has 28 percent of all smartphones out there and Android has only 9 percent Apple's leadership came under threat in Q1 2010. According to NPD, Android took a 28 percent share of sales in that three months to Apple's 21 percent. However you look at it, competition is alive and fierce in this category.
  2. It's legal to create a monopoly if your dominance is based solely on the superiority of your product: Say what you like about Jobs' strange obsessions and his lust for dominance (he believes "PC folks feel like their world is slipping away. It is"), his products have risen on their own merits. He simply makes a great product and sells it for a premium, to both users and advertisers. Under U.S. law, that's completely legal.
  3. Apple's dominance is not based on a restrictive agreement with another company: Jobs hasn't struck agreements with multiple cellphone service providers or handset makers to undercut or prevent competition. Although Jobs' ban on ads served by companies linked to Google is restrictive, it's a one-sided ultimatum. He's refusing to trade in a way that, in theory, could hurt Apple because it makes it more difficult for clients who have good relationships with Google and Admob. The FTC needs to find a two-party agreement to restrict trade if it is to build a case against Apple.
  4. For consistency's sake, the FTC can't allow the Google-Admob deal and then nix the Apple-iAd developer agreement: The FTC recently approved Google's acquisition of AdMob in part to bolster competition to Apple's Quattro Wireless buyout and the introduction of the iAd system. Having set that competition framework it can't very well go about about trying to undo it.
And finally: My BNET colleague Erik Sherman makes a fascinating case for allowing Apple to gain leverage within mobile advertising: Its walled garden could give Apple some pricing power in an environment where media supply vastly outstrips demand. Because that pricing power is shared with Apple's advertisers, it may make mobile advertising more lucrative for everyone involved with it. Think of it as the digital version of the local newspaper: Yes it's a monopoly, yes it's a controlled environment, and yes it costs more than it should, but it supported an ecosystem of content providers (reporters) whose overall effect on society was benign.