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Apple trying to corner market on location-based advertising?

Apple hoards user location data to bolster iAd bus

Apple is hoarding user location data to bolster its iAd business

Apple’s recent decision to revise its iOS4 privacy policy so it can begin collecting user location data proves that Steve Jobs does plan on making money on mobile advertising after all.

The Apple CEO said earlier this month that the company’s new iAd mobile ad network was created mainly to help the iPhone developer community make money via in-application ads. However, the revised privacy policy to enable location data collecation is all part of Apple’s play to protect its targeting assets and give its iAd network a competitive advantage—in order to start raking in the dough.

“This is about Apple controlling the experience, and especially now that it’s in the advertising business, Apple needs that location data just like any other advertiser does,” said Noah Elkin, senior analyst at eMarketer, New York. “Given that iAd is about to roll out next week, Apple is collecting location data for its own purposes rather than for the benefit of others.

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“Location is an important element that illustrates the promise of mobile and social,” he said. “Look at the way that the mobile environment is developing—proximity marketing is really the direction that we’re headed.

“Being able to marry data about a user’s location and data about a user’s likes and dislikes—being able to present a relevant offer—raises the bar in terms of the relevancy of the advertising messages.”

Android vs. iPhone

Google's Android OS is going head to head with Apple's iPhone

After buying mobile ad network Quattro Wireless for $270 million in December, the industry was convinced that Apple was set to dominate the mobile advertising space.

The launch of Apple’s iAd mobile ad network confirmed that notion.

Apple now plans to charge $1 million for in-application iAd packages and $10 million for launch campaigns, steering the industry to believe Apple was going for the big bucks in mobile ad dollars.

Apple hoards user location data to bolster iAd bus

A location-based ad within the Where app

However, Mr. Jobs’ utterances at the D8 conference knocking mobile search and claiming mobile advertising is not going to be a money-maker for Apple caused some serious head-scratching (see story).

Apple also recently made changes its iPhone Developer Program License Agreement that prohibit unnamed non-independent mobile ad networks—ahem, Google/AdMob—from serving ads across its stable of devices, a move that is sure to come up in the inquiry by the Federal Communications Commission.

These decisions demonstrate how competitive the mobile advertising space has become, and how important user data, especially location and behavior history, continues to be. The decisions are proof that Apple does, in fact, plan to corner the location-based advertising market.

For or against?
These recent moves help shed light on Apple’s decision earlier this year to take a stand against location-based advertising within applications for the iPhone and iPod touch (see story).

“It sounds as though Apple has decided to address the use of location within its products more formally than previously,” said Nitesh Patel, London-based senior analyst of global wireless practice at Strategy Analytics.

“Apple appeared to initially be concerned about location-based advertising in third-party applications, and therefore stated that it would restrict applications that included location [solely] for the purposes of advertising,” he said.

This was probably also a defensive move while it worked out what it was doing with Quattro Wireless.

Apple also recently offered users of the iPhone, iPod touch and iPad the option of opting out of receiving interest-based ads from the iAd mobile advertising network via a Web portal at http://oo.apple.com.

“The introduction of a privacy policy and opt-out system seems to now allow developers to use location for better advertising targeting,” Mr. Patel said. “It's not clear if Apple will attempt to charge app developers for using their opt-in location service, like operators have been attempting to do—I suspect not.”

What is clear is that the value of location data for ad targeting purposes continues to increase as consumers grow more comfortable with the concept.

“Location allows local advertisers to better target their adverts to accommodate users’ location,” Mr. Patel said. “For instance, a local advertiser may well be more prepared to pay to put an advert for their products and services if they know the person is close by and in their vicinity.

“From certain locations it might be more obvious what a potential customer might be looking for, for example, if they are wondering around in a restaurant district or within a shopping mall,” he said. 

All about location
With mobile social networks booming, it is becoming obvious that many consumers, especially younger ones, have no problem blasting out their current location to the world. And if the ads they receive can be more relevant, many are all for it.

“If Apple knows that they’re going to do iAd, the whole thing is adding location information to improve the targeting and relevancy of mobile ads,” said Mike Morgan, senior analyst at ABI Research, Oyster Bay, NY.

“Apple wouldn’t want to release that information for free, so I could see how they would hold that back while iAd was baking in the oven,” he said.

The whole idea of privacy is changing, and Apple seems to be following best practices by giving users the ability to opt out of its targeting mechanisms.

“Do we really have any privacy anymore?” Mr. Morgan said. “The world knows that privacy is a bit of an illusion nowadays, and it really isn’t treasured that much, if you look at all of the young people who put their lives up on Facebook.

“Most privacy is an illusion, but if nothing else, this is Apple saying ‘We will take responsibility for your privacy,’” he said. “There has always been location-based information on handsets, and questions as to who is using it and how is it getting there.

“At least you know it is Apple, and it’s an opt-in program with sufficient consumer controls.”

A key question that the Federal Communications Commission and other are sure to ask: Does location targeting offer a benefit to consumers?

“Yes, it does offer a benefit, because I believe consumers will receive better targeted, more relevant ads—they will get ads from the pizza place right next to them, not the one in another state,” Mr. Morgan said. “Apple has a vested interest in not letting this get screwed up.

“Location data can offer a competitive advantage towards being able to design and deliver a better advertising experience,” he said.

“I have yet to see this in play—I want to see how it’s executed—but having this valuable data and having it under one roof of devices Apple owns, that can be very useful for marketers looking to continuously improve and deliver a better product for ads.”

Industry impact
With Google/AdMob and Apple/Quattro jockeying for position, the other players in the ecosystem are trying to take advantage of all of the buzz around mobile advertising that the big boys are helping to create.

Greystripe, an independent mobile advertising network, updated its iPhone SDK to makes it compatible with Apple’s new mobile operating system, iOS4.

Greystripe has updated its SDK over the air so that developers and publishers can continue running ads in their applications on the Greystripe network without having to make any adjustments. 
 
Developers using other ad networks may need to integrate a new version of their ad network’s SDK and resubmit for Apple’s approval.

Given the recent changes to Apple’s iPhone Developer Program License Agreement that prohibit non-independent mobile ad networks, this is a huge risk for developers, according to Greystripe.
 
Greystripe helps developers navigate Apple’s somewhat murky approval process to get their applications ad-enabled.

Impressive LBS
Quick-serve restaurant chain Sonic, clothing and accessories retailer American Eagle Outfitters and outdoor recreation gear and sporting goods giant REI have all run location-based mobile marketing initiatives to drive consumers into physical stores.

These brands have used Placecast’s ShopAlerts to deliver location-triggered mobile messages when shoppers enter geo-fences that can be created around virtually any area (see story).

“Apple has realized that mobile is actually all about location—location is the defining characteristic that differentiates the mobile medium,” said Alistair Goodman, CEO of 1020 Placecast, San Francisco.

Apple acquired Placebase and Quattro recently, which gives it a mapping platform and an ad network.

“Collecting user positioning data is the next necessary ingredient for ‘location intelligence,’ which will bridge the gap between these two acquisitions and enable them to deliver a really relevant experience based on place and time,” Mr. Goodman said.

Apple said earlier that it is blocking applications that wanted to use location-based information solely to deliver targeted ads on mobile.

The current revision to the privacy policy is about keeping its users’ data from competitors whenever possible.

“This announcement appears to be about Apple securing this data at the OS-level for itself, which is consistent with its attempt to vertically integrate the advertising offering inside the Apple ecosystem,” Mr. Goodman said.

Every piece of mobile advertising will eventually have location as a component of it, according to Mr. Goodman.

Consumers’ location and the time of day is a critical input into understanding what advertising is relevant for them on their mobile device.

“It gives a marketer the ability to deliver an offer that drives traffic into physical store, or to ‘claim’ a place or event in the mindset of a consumer for the brand when they are there, like at a concert or sports competition,” Mr. Goodman said.

“We have seen through all the programs that we deliver that location-relevant marketing increases brand favorability, purchase intent and actual foot traffic into stores,” he said.

In the programs 1020 Placecast ran during the last holiday season for Sonic, American Eagle Outfitters and REI, 65 percent  of participants made a purchase over the course of the programs and 79 percent said that the programs increased their likelihood to visit the retailers.

“This is ultimately why Apple is embracing location at the OS-level,” he said.

The bottom line is that location data is incredibly valuable to marketers.

Apple and all other companies collecting consumer data have an obligation to communicate how that data is being used, and how it benefits the consumers who agree to share it.

“There seems to be a growing number of location-based applications, especially in the social realm, and a lot of other services coming to market using persistent background location information,” said Dan Gilmartin, vice president of marketing at Where Inc., Boston. “What are all of these companies doing with this data?

“Are they selling it to advertisers or third parties that want to get access to an API to see where users are and what they are doing on a platform?” he said. “Perhaps some of these companies are benefitting by providing that access through a financial arrangement.

“I’m not surprised that there is an interest in using location—it is our stewardship to make sure we protect users’ location and any data that is collected.”

 
Related content: Ad networks, Apple, iAd, iAds, iOS, iOS4, iPhone, iPod touch, iPad, App Store, iTunes, Quattro Wireless, Google, AdMob, iPhone Developer Program License Agreement, eMarketer, Noah Elkin, Strategy Analytics, Nitesh Patel, ABI Research, Mike Morgan, Placebase, Greystrip

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