MoneyWatch Tech

The DOJ's Interest in Apple iTunes Is Bad News -- for iAd

By Erik Sherman

Updated on: May 26, 2010 / 5:59 PM EDT / MoneyWatch

The Department of Justice has taken interest in Apple's (AAPL) domination of online music, according to the NYT's Brad Stone. Takes range from declaring that Apple has thrown its weight around to the big music labels actually being the problem.

Now, forget iTunes for a moment, because the issue of Apple dominance has grown enormously in the public sphere and in Congress, and there are big implications for Steve Jobs' latest creation: iAd.

Apple is on the wrong end of a general trend these days. Government officials have become increasingly alarmed at the perception that power has concentrated in only a few tech industry hands:

Today, U.S. Representatives Henry Waxman, Ed Markey, and Joe Barton sent a letter to Google (GOOG) CEO Eric Schmidt about the company's gathering of private data from Wi-Fi networks.
Last December, the FTC brought charges against Intel (INTC).
There's a draft bill on the Hill that would mandate opt-in permission for online marketing.
Pressure on Facebook has been so strong that the company has announced new simpler privacy controls for its users.

With the clear and obvious danger of regulatory interest, Apple has forged ahead, as has become its want, locking down the iPhone operating system infrastructure so that everyone and everything connected becomes beholden to Apple.

Apple has practically sent a gilded request to the FTC and DOJ for oversight. Such scrutiny wasn't necessary. The company could have taken steps to effectively get its way while diffusing criticism. However, that kind of conciliatory response no longer seems to exist in Apple's make-up, and now iTunes will go under the microscope, given that it has a 70 percent market share.

It's bad news for Apple, but doesn't stop at iTunes. The company's new iAd ad service for the iPhone and iPad is a logical next subject for federal interest. Apple has already indicated that it will control all aspects of advertising:

An iAd can integrate with e-commerce -- when Apple owns the virtual store.
A ban on third-party analytics puts iAd on equal footing with a publication that refuses any sort of independent audit of audience, reach, and result statistics.
Apple currently controls ad creative work.
Advertisers -- and ad agencies -- must effectively agree that click-through is a full measure of ad effectiveness.

It's another case of Apple wanting to hold all the cards. In today's environment, and especially with the attention regulators have begun to pay the company, eventual focus by the government on iAd is bound to happen. That should put smiles on the faces of executives at Google.

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