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Quattro purchase, 500M+ iTunes accounts could give Apple ad advantage

A new report alleges Apple hopes to shake up the mobile advertising business, as competition grows between it and search giant Google. One analyst believes the rift could even potentially lead the Cupertino, Calif., company to embrace its rival, Microsoft, for Bing search.

Profiling the similarities and differences between Google and Apple, BusinessWeek spoke with analysts and anonymous sources about the direction Apple is headed following its purchase of mobile advertising company Quattro Wireless. Sources told the publication that Apple co-founder Steve Jobs hopes to "overhaul mobile advertising in the same way they had revolutionized music players and phones."

Specifics at the moment are not known, but a number of potential approaches were offered: Apple could rely on user data collected through iTunes and the App Store, along with geo-location technology due to GPS in the iPhone, to create targeted, local advertisements that would be more relevant to consumers. The company could also utilize gimmicks, such as having users shake their iPhone to win a prize.

"Some developers have profited by embedding ads in their apps, but the payments tend to be insignificant since the ads are usually smaller, less effective versions of their Web banner forms," the report said. "According to a source familiar with his thinking, Jobs has recognized that 'mobile ads suck' and that improving that situation will make Apple even harder to beat."

Earlier this month, Apple and Quattro confirmed the purchase of the mobile ad company. Andy Miller, former CEO of Quattro, was named the vice president of Mobile Advertising at Apple, a new position for the company. The Waltham, Mass., company has a client list that includes Disney, Visa and Ford.

The price Apple paid for Quattro has not been confirmed, though it has been reported to be a $275 million investment. The purchase came months after Google bought rival ad firm AdMob, with which Apple also allegedly had discussions.

BusinessWeek speculated that Apple's experience — and wealth of information about its customers — through iTunes, combined with the purchase of Quattro, could make it a formidable force in the mobile advertising space. In 2007, Apple said it had more than 500 million active iTunes users. Currently, the mobile advertising industry generates only about $2 billion annually, but that is expected to grow.

"Apple has a vault of valuable data that can help drive an ad business," the report said. "It knows precisely which apps, podcasts, videos, and songs people download from iTunes; in many cases it has detailed customer information such as credit-card numbers and home addresses. That gives Apple a chance to blend advertising and e-commerce in new ways, particularly after the acquisition of Quattro."

And as the rift between Google and Apple grows, one analyst speculated to BusinessWeek that the iPhone maker could look to remove Google's presence entirely from its devices. Such a deal could place Microsoft's Bing as the search engine of choice on the iPhone, Jonathan Yarmis with Ovum said. Or, he said, Apple could opt to create its own search engine.

As Apple apparently looks to offer mobile ads that don't "suck," one unique iPhone advertisement from Medialets did gain some attention this week for its original approach. When selected, a banner ad for the band Vampire Weekend included in an iPhone application brings up a music video which users can "edit" by shaking the device, and each shake changes the footage. The advertisement will appear in the NPR iPhone application until Feb. 11.