Apple Puts iTunes To Work for iAds -- So Much for Other Ad Networks

Last Updated Jul 7, 2010 5:20 PM EDT

Apple (AAPL) has put the behavioral marketing hammer down by analyzing iTune customers to better target its iAd advertising service. In doing so, Apple shows that talk of allowing other ad networks on iOS devices is just that -- talk.

Apple will effectively make itself the only iWhatever ad game in town by restricting the data others can collect even as it makes free use of what it compels customers to give up, should they want to keep downloading updates, media, and apps to their iPhones, iPads, and iPod touches. That again could hurt Apple in the long run as regulators start to critically examine how the company operates and competes.

As the Bloomberg Businessweek report notes, the control that Apple has over its entire ecosystem gives it an enormous advantage in targeting ads to iOS users:

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.
As I mentioned back in early June, it was clear that Apple would use customer information to keep a lead over other ad networks, even as Steve Jobs talked about the need for opt-in data collection. However, he clearly meant that other companies, not Apple, would need permission. Apple forced the issue on one front by requiring all customers to opt into location-based information services -- including marketing -- if they wanted to continue to have access to music, apps, and even handset firmware upgrades. Jobs has specifically stressed how a company must continuously ask permission to use customer information and tell the customers precisely what it plans to do with the data. Except, Apple doesn't bother with such details with its customers.

Don't get the wrong idea. I'm not suggesting that Apple is somehow bad for using customer data to improve iAd targeting. There is no single major high tech company or retailer that does not do exactly this, and in excruciating detail. If Apple wants to continue competing with Google in the mobile market, it will have to be able to undercut demand for ads, its competitor's revenue life blood.

Judgment calls aside, there's a particular danger for Apple: all the regulatory interest it has generated through its success and tactics in the mobile device market. The issue would not be that Apple captures information, but that it makes a show about the need to ask, and yet forces compliance (offering a way to opt-out underscores this), and that it effectively prevents competitors from doing the same. It's another way to wave the red flag in front of regulators.

Strategic issues aside, Apple apparently has made the claim that it does not expect to make a profit on the iAd business, largely due to the $275 million it spent on Quattro Wireless. I'll now officially scoff. Apple will take in 40 percent of all ad sales. Does the company seriously claim that it can't make money in what could easily become a multi-billion dollar annual business? But then, Apple has claimed that it makes virtually nothing on media and app sales, no matter how quickly they have scaled. Pardon me while I look for the salt shaker. Related:

Target image: user marmit, site standard license. Image editing: Erik Sherman.
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    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.