Analysis: Apple's changes won't mollify trust-busters

SAN FRANCISCO/WASHINGTON Fri Jun 11, 2010 2:47pm EDT

Apple CEO Steve Jobs poses with the new iPhone 4 during the Apple Worldwide Developers Conference in San Francisco, California June 7, 2010. REUTERS/Robert Galbraith

Apple CEO Steve Jobs poses with the new iPhone 4 during the Apple Worldwide Developers Conference in San Francisco, California June 7, 2010.

Credit: Reuters/Robert Galbraith

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SAN FRANCISCO/WASHINGTON (Reuters) - While Apple Inc has eased restrictions for iPhone advertising, targeting them more pointedly at rival Google Inc, it hasn't done enough to mollify antitrust regulators.

Officials with the U.S. Federal Trade Commission have been informally probing Apple's new iAd service, which is set to launch July 1, looking into whether it stifles competition and reduces choice for application developers.

Google on Wednesday lashed out at Apple, saying recent changes that Apple made to its developers' agreement would effectively bar Google's advertising tools for the iPhone and hurt app developers.

However, the language appears to safeguard smaller, independent mobile ad networks serving iPhone ads.

"We're not banning other advertisers from our platforms," Apple Chief Executive Steve Jobs said at a conference earlier this month.

But, to many, it was plainly obvious that Apple was targeting Google with the new restrictions.

"All Apple did here was remove any possible doubt," said one source who has spoken to the FTC about its probe.

"The question the FTC cares about is does this prevent people from using alternatives (to iAd)?"

The new iPhone developers' agreement allows crucial usage data from applications to be transmitted only to "an independent advertising service provider," which most people in Silicon Valley interpret to mean "anyone but Google." Ad networks need such data to help target their ads, and without it, they would have a difficult time competing with iAd.

The terms also appear to ban third-party app usage analytics firms such as Flurry -- which has been singled out for criticism by Jobs -- from the iPhone.

Excluding Google will likely bring Apple antitrust trouble. "The FTC thinks these are very serious concerns and they're looking at this very intensely," said David Balto, a former FTC policy director.

One app developer, who currently uses several networks -- including Google's -- to serve ads on the iPhone in order to optimize his costs, expressed concern about decreased competition.

While the developer said he was very excited about the prospect of Apple's iAd improving his ad revenue, he said he wasn't sure that Apple's network would have enough ad inventory, at the right prices, to satisfy the thousands of developers who want to advertise in their applications.

"It's really important for the ecosystem to have multiple ad networks that are healthy and successful," he said.

Apple's apparent stab at Google is the latest twist in their increasingly contentious relationship. But regulators see the companies as something of competitive counterweights.

Google recently won approval for its purchase of mobile rival AdMob, at least partially because of Apple's entry into the market. Apple, which had lost the bidding for AdMob, instead purchased another network, Quattro Wireless.

CLARITY AND SCRUTINY

Industry watchers said Apple, which is famously tight-lipped, has removed some of the uncertainty surrounding competing ad networks on the iPhone.

Krishna Subramanian, co-founder of Mobclix, a mobile ad exchange that operates on the iPhone platform, said his business won't be affected by the new rules because independent networks are protected.

"Having more clarity around how analytics works, around other ad networks being able to participate, those are all positive things," he said.

Jeff Schinder, a former special counsel to the FTC and a partner with law firm Constantine Cannon, said that Apple's aggressiveness in staking out a place for itself in mobile advertising could raise the hackles of antitrust watchdogs.

If the FTC took action, the most likely fix would be a simple requirement that Apple not exclude Google, said Schinder.

"Apple will argue that that will sanction free riding on their network. There's something to that argument. This is a great issue," he said. "I see capabilities for them to get power over a really rich set of advertising. They're being brazen about it because they have some interesting and frankly compelling defenses."

The FTC declined to comment. Apple also declined to comment.

(Editing by Gerald E. McCormick)

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