Apple Inc. (AAPL) has attracted an antitrust scrutiny from U.S. regulators by restricting its largest competitors — Google Inc. (GOOG), Nokia Corp. (NOK) and Microsoft Corp. (MSFT) from advertising on AAPL’s mobile devices, including the iPhone, iPad and iPod, according to a report in the Financial Times.
Apple released its own mobile advertising network, called the iAd which brings interactive advertisement to apps on the iPhone and iPod touch devices running on the iOS 4 software platform. iAd will go live on July 1 and will include mobile ad campaigns from AT&T (T), Best Buy (BBY), DirecTV (DTV), Unilever Plc (UL) and The Walt Disney Studios (DIS), among others.
iAd will enable developers to earn revenue by serving ads in applications on the iPhone and other mobile devices. AAPL plans to generate over $60 million in revenue from iAd for 2010, representing 50% of the total estimated U.S. mobile ad spending for the second half of 2010.
Apple’s new developer rules restrict third party apps such as an independent ad service provider with the main business of serving mobile ads, to collect ad analytics (how ads perform on the iPhone and iPad) from the iPhone, iPad and iPod.
If imposed, the proposed terms would prohibit users and developers from using Google’s AdMob service or advertising products on the iPhone and iPad, thereby reducing competition in the ad mobile space. Google acquired AdMob for $750 million in late May (Apple had also planned to acquire AdMob).
Google’s representative said that the artificial barriers to competition set by Apple will come in the way of technological progress and affect users and developers in the long run. Moreover, Apple’s developers’ agreement would lower Google’s advertising revenue generated over the iPhone.
According to the Financial Times report, U.S. regulators will scrutinize Apple’s actions versus third parties such as Google and Microsoft to see if it is barring them from advertising on the iPhone and iPad.
We believe this action will greatly alleviate competition and generate higher sales and profits for AAPL. This move should give AAPL a toehold in the emerging mobile search market, which is so far dominated by Google, Microsoft and Yahoo (YHOO).
AAPL has reportedly adopted new policies to restrict third parties from using its exclusive software. Last month, Apple announced a new policy requiring iPad and iPhone software developers to use only Apple programming tools, according to sources. This had also attracted the attention of antitrust regulators.
Currently, it remains unclear whether the Federal Trade Commission or Department of Justice (DoJ) will move forward with an investigation against AAPL. AAPL’s products carry strong brand equity among consumers, giving it a dominant position in the electronic market.
We maintain our Outperform rating on AAPL.
Read the full analyst report on “AAPL”
Read the full analyst report on “GOOG”
Read the full analyst report on “NOK”
Read the full analyst report on “MSFT”
Read the full analyst report on “T”
Read the full analyst report on “BBY”
Read the full analyst report on “DTV”
Read the full analyst report on “UL”
Read the full analyst report on “DIS”
Zacks Investment Research
