What the duel between Google and Apple’s operating systems means for brands

Posted By, - Joan Voight, June 27, 2010

No question, placing ads or branded apps on mobile phones promises to be the Next Big Thing. The problem? People have been saying that for the last three years. Or, has it been five.

For mobile marketers, the hurdles are still everywhere. First, there’s market penetration. Even though it might look like everybody and his uncle has a smartphone, the truth is that less than a third of Americans (30.6 percent) are mobile Web users, according to eMarketer. So while brands like the idea of wireless marketing — nearly 65 percent said they plan to invest in mobile apps this year, also per eMarketer — they have reasons to be wary, too.

According to eMarketer, U.S. mobile ad spending is forecast to be a relatively skimpy $593 million through the year (up from $416 million in 2009). And a study by Worthington, Ohio-based BIGresearch released late last year revealed that 52 percent of Americans consider mobile advertising to be an invasion of privacy — and that number is growing.

There are also technical issues. For instance, when Dockers decided last year to reach fashion fans via their smartphones, it had to create two different mobile initiatives: one for the iPhone and one for the BlackBerry. (The iPhone had an interactive, motion-sensitive ad that ran on game apps; the BlackBerry, which sponsored the launch of the Pandora Radio app, offered users a link on the app to a coupon on its Web site.)

But new technologies and devices are paving the way for marketers to be both more efficient and more effective in the mobile space. As a result, mobile marketing seems to be getting closer to the promises made in 2002, when the first BlackBerry hit the market, for a powerful new revenue stream that could change the way most companies market their brands. Today, researchers at Borrell Associates in Williamsburg, Va., predict that mobile could well account for up to 60 percent of online advertising in the next five years.

It seems the Golden Age of Mobile Marketing is approaching fast. But its entrance is being accompanied by a dustup at the gates: the rivalry between Google and Apple over advertising on the former’s open-source Android (the upstart Google purchased in 2005) and Apple’s proprietary iPhone-based operating systems. But the question of which will be bigger and better is perhaps less important to marketers than a clear sense of which operating system will be the best platform for their brands. While some say Apple, with the introduction of iAd, which allows video/interactive ads to be placed inside apps, will lead companies to the promised land, others claim they can see the future — and apps are not in it.

To understand what this all really means, however, we first need to scan the smartphone landscape.

In Q1 2010, the number of smartphones sold worldwide jumped 49 percent from a year earlier to 54.3 million units, per technology research firm Gartner. Sales of Android-based phones increased a staggering 707 percent in North America (more than a dozen vendors use the Android OS on more than 30 different devices), with more Android smartphones shipping in this country during the first quarter than iPhones. NPD Group found that Android phones took a 28 percent share of the U.S. market for units shipped in Q1, ahead of Apple at 21 percent. (A version of the iPhone operating system is also used on the iPad, which was not counted.) Globally, however, the iPhone operating system was still ahead of Android by more than 3 million units during the first quarter.

Race for penetration aside, Apple is ahead in the swagger department, and not just because its iPhone and iPad tablet have added sizzle to the industry while also being highly user-friendly. Now, Apple is using its iAd mobile-advertising platform to sell interactive ads embedded in the iPhone’s apps.

“With cool new stuff … Apple is driving clients to allot money for mobile, and making them eager for a mobile marketing strategy,” notes Alexandre Mars, head of mobile at Publicis Groupe and CEO of  mobile marketing agency Phonevalley.

But Apple’s iAd platform isn’t cheap. It computes its prices both on CPMs (cost per 1,000 views) and click throughs. A campaign with a 1 percent click-through rate, for example, has a CPM of about $30. Other mobile ad networks usually charge one or the other.

Insiders say that four of iAd’s inaugural clients will spend up to $10 million each — more than some clients’ entire digital budgets. (Earlier this month, Apple reported that it sold iAds to brands including Nissan, Citi, Unilever, AT&T, GE, Target and Best Buy.)

Google, on the other hand, offers inexpensive search, banner and expandable video ads and analytics tools for various phones. For instance, AdMob (which Google not only uses, but recently acquired) charges, on average, a $10 to $15 CPM and doesn’t add costs per click.

Higher costs aside, however, some say Apple’s strategy could juice up the entire mobile industry — raising both ad rates and quality simultaneously. According to Tom Bedecarre, CEO of agency AKQA, Apple is reaching out to leading ad agencies (including his own) in hopes of securing about a dozen inaugural advertisers willing to spend over $1 million each.

“Apple has a clever strategy to feature iconic brands like Target, Nike and Gap to generate solid case studies supporting mobile marketing spending,” says Bedecarre. To date, there have been few such notable case studies. “The creative messages in these inaugural ads will be tweaked and optimized by Apple to ensure quality, to remove any bugs and to give iPhone owners a quality experience with brands they admire,” he says.

Bedecarre adds that if Apple’s plans work out with category-leading brands, it could have a trickle-down effect. Because the experimental nature of mobile advertising still causes many companies to look warily on spending money in the space, successful case studies “will help legitimize mobile ads for the whole category,” he says.

Another potential game changer: the quality of the iAds themselves. When a user clicks on a banner ad within an app, he or she will see the screen fill out with a variety of interactive options. Essentially, says Richard Ting, ecd of the mobile and emerging platforms group at R/GA, brands can create mini branded apps. Clients can provide richer, more emotional experiences, giving them and their agencies a simpler alternative to building out a mobile app or mobile site platform, says Ting.

“Up to now, advertisers have not been able to have an Apple-like user experience in an online ad unit,” explains Keith Johnston, head of digital at Butler, Shine, Stern & Partners. “The iAd offering provides more interactivity and more engagement than what has been out there — an advantage for lifestyle brands.” The agency plans to use the platform for sports apparel client Columbia Sportswear later this year.

Some mobile marketing experts note that the iAd platform is a good option for upscale, cult brands, as well as for advertisers that have a reputation for innovation. Rachel Pasqua, director of mobile at search marketing agency iCrossing, says iAd is well suited for “brands with household names that are similar to Apple in spirit and brand allegiance — for instance, a Whole Foods type of brand that targets suburban moms who use smartphones.” Such an advertiser, Pasqua notes, might want an in-app ad that would make it easy to find stores, learn of events and check local inventory. “If you want to reach the kind of person who reads the The New York Times on the go, your ad on the NYT app has to be on iAd because Android  doesn’t have it,” she says.

But what happens when the novelty wears off and the iAd platform is no longer the shiny new toy of the digital marketing world? Some say it might find itself limited to high-end niche brands. Amelia Milo, director, media strategy and integration at Ansible, Interpublic Group’s mobile marketing agency, says, “The Apple OS has high barriers to entry for the average brand. [The cost is] incredibly high and metrics aren’t even close to being normalized this early on—certainly not enough to qualify for a brand seeking a specific demo beyond ‘early adopter.’”

Also, there’s the question of how much longer consumers will be enamored with mobile apps in general.

Some experts, such as AKQA’s Bedecarre and BSSP’s Johnston, anticipate that consumers love affair with apps will continue. “Applications create the opportunity for innovation,” Johnston says. “They largely free people from carrier or network limitations. They are unique experiences … tailored for specific consumers and their needs. Why would they go away?”

But, Ansible’s Milo says, “we study the target audience’s mobile persona, such as the devices and carriers they use and the content they access, and then we present a solution — whether or not that includes an app.”

And Publicis Groupe’s Mars (shown) says apps seem less relevant when it comes to the marketing plans of traditional, multinational brands. These corporations, he says, are asking his agency “to build mobile Web sites so they don’t lose the relationship with their end user when that user is mobile. With the mobile Web the reach is there; with apps, the reach is not there.”

Meanwhile, when it comes to Web-based mobile ads, Google’s open-source Android can benefit advertisers. They get Google’s distribution at an inexpensive price, along with the growing potential of mobile search, including voice-, image- and location-based searches. And many brands, such as teen retailer Abercrombie & Fitch, are learning that most of their users are on Android phones, according to iCrossing’s Pasqua.

But if Apple’s Achilles heel is its dependence on novelty and control, then Google’s weakness is its complexity. Android has multiple versions (1.1, 1.5, 1.6, 2.0, 2.0.1 and 2.1), which makes it difficult for developers to create pristine experiences across all devices, notes Milo. Because of the hardware differences and desire to create apps with quality experiences across all versions, developers say they don’t have the quality control that they’d like and are becoming overwhelmed. Also, Android phones don’t prompt users to update their software or apps as iPhones do, exacerbating the quality issue.

But more importantly, when Google can compete with its own in-app ads on the Android platform, the rivalry with Apple could shift dramatically. And Google’s acquisition of AdMob does clear the path for it to release an in-app advertising option similar to iAd, say agency experts. Those ads, however, would still face the complex technical issues. Also, a controversy is brewing over whether Apple intends to exclude AdMob from the iPhone OS.

Mobile search certainly has huge marketing potential for Google, but it’s still in its infancy, with most people searching the Web on desktops and laptop computers.

For now, cult, lifestyle and innovation brands aimed at people who use iPhones and iPads might be the best fit for the iAd platform. Android might be a better deal for everyone else, say some experts. In time, marketers will likely see Google offering in-app ads with comparable interaction and immersiveness as those on the iAd platform, and the iAd will likely be dabbling in mobile ads beyond apps.

In the meantime, mobile marketers and their agencies will have to deal with a battery of companies investing in smartphones and mobile operating systems — including Nokia, Microsoft, RIM BlackBerry and HP, the new owner of Palm.

From a consumer point of view, iPhone users will continue to see ads from Google and other networks when they use mobile search or cruise the Web, and iAd ads popping up on their apps. Android phone users will see Google Web ads also, as well as inexpensive in-app ads from sources other than Apple.

And who will emerge as “victor” in the Android versus iPhone OS war? Most agency insiders seem to be betting on Google, with its girth and advertising know-how. But they have been wrong before.

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