Why Google Should Be Thanking Apple, Not Complaining About iOS Terms

Last Updated Jun 9, 2010 3:44 PM EDT

Apple (AAPL) has cleverly barred Google (GOOG) from advertising the way it wants on the iOS platform, and the founder of AdMob, Google's newly-acquired mobile ad division, says Apple's new rules create "artificial barriers to competition." But Apple's walled garden has actually benefited Google greatly -- and may continue to do so.

Google's purchase of AdMob was very nearly thwarted by regulators, who were concerned that it would give the search giant an advertising oligarchy. It was the potential of Apple's own ad platform, iAd, that convinced the FTC that Google-AdMob wouldn't become a monopoly. Though a Google-owned AdMob would have "a major advantage over smaller rivals," the FTC wrote in its decision, Apple was "poised to become a strong competitor in the mobile advertising market," providing a counterpoint. Even Google's own CEO Eric Schmidt called iAd "evidence of a highly competitive market."

AdMob's principals should be glad for the very existence of iAd and the iOS, regardless of Apple's fickle rule-making. Apple's walled garden made the AdMob acquisition possible -- and saved Google from paying out a $700 million kill fee in the event of FTC disapproval. Sure, Google has tons of cash and it can afford that fee. But better that Google lose iOS ads and win AdMob, which it believes it can turn into a billion-dollar business. If Google hadn't gotten AdMob, the future of its mobile ads would look far more bleak.

As my colleague Erik Sherman explains, AdMob is only disallowed from advertising the way it wants on the iOS because of its affiliation with Google. The language in Apple's new developer agreement:

... [S]eems to specifically target Google for exclusion because, after the acquisition, AdMob is now "an advertising service provider owned by or affiliated with a developer or distributor of mobile devices, mobile operating systems or development environments other than Apple would not qualify as independent." Sorry, Google: No data for you.
Let's say Google had lost AdMob. Apple would have likely still made its current rule changes, because it's to their competitive advantage to keep Google -- the Web's advertising powerhouse -- off the iOS. AdMob would have been able to advertise freely, and as it wished; it probably would have become a powerhouse. Google would have been stuck building its own mobile ad network from scratch, after blowing its $700 million and gaining nothing.

Google should also be happy that it gets to own Flash advertising all to itself. Back in January, when Steve Jobs first began publicly excoriating the Adobe (ADBE) video technology, Google came out in support of it by bundling it with Google's browsers and demonstrating working Flash on Android. At the time, that was seen as a loyalty move. "Integrating Flash into Chrome is more of a signaling and partnership thing than anything else," one analyst told Wired.

Because of iAd's hefty minimum pricetag, Apple is also pushing up the median price of mobile ad buyouts, at least according to smaller platforms like Greystripe. That rising tide will presumably affect AdMob in a positive way as well.

And yet, here is Google complaining about being left out of the iOS -- even as Android sales exceed iPhone's and Android marketshare is growing at least as fast as iOS's. If Google has the superior ad technology (Flash) and the up-and-coming mobile platform (Android), and if it owes both its entire AdMob acquisition and its growing buyout prices to Apple, then why is it so worried about being on Apple devices?

Perhaps it's because Flash ads can't benefit AdMob optimally for at least a couple of years, and Google wants in on some iPhone cash in the meantime. Until Adobe engineers can get Flash optimized for mobile browsers and apps, and can stave off some of its battery-sucking effects, static banners may still be the best way to go on mobile phones. Eventually, however, Google will have a head-start on video ads, which are much more valuable than static or text-based banners. If Android continues to grow -- and unless Apple magically figures out a way to get advertising platforms to flee the ubiquitous Adobe Creative Suite -- Google won't have much to complain about by 2012.

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