Google is stepping into location-based advertising with the introduction of mobile banner add that show users nearby services.

The unit is an offshoot of AdWords' location extensions. It allows advertisers to attach their phone numbers and business location on an expandable map.The new ad format will run on sites and applications that are part of the Google Display Network. Users of smartphones like iPhone and Android will see a text call to action and small thumbnail graphic. Tapping on the ad expands it to show a Google Map with the business plotted and number displayed.  Google will only charge advertisers when users tap to call the business or visit the advertiser's mobile site. Surojit Chatterjee, senior product manager for mobile ads at Google, said Google would determine the location of users through a variety of means, including nearby WiFi networks and the Internet Protocol address. The process is trickier than location-based search ads since users will not opt-in to provide Google specific location information. "We try to do our best to get the location as good as possible," he said. "We're trying to infer it from indirect means as best we can." The process is complicated by the large role Google rival Apple plays in the mobile market. Its rules forbid application developers, for example, from collecting location data only for advertising purposes. Chatterjee said the radius for location ads would vary. A car dealership listing, for instance, could be miles away, while a coffee shop ad would be within blocks. Google has eyed mobile advertising as potentially a huge driver of future growth. It faces competition in the area from independent ad networks like Millennial Media and Greystripe as well as Apple's new iAd net. Google bought mobile network AdMob for $750 million, and it has rolled out several types of mobile ad products, including click-to-call placements and expandable ads that display video and other content.

The decision basically bets that advertisers will put up with the continued fragmentation of ad sizes and requirements

The Interactive Advertising Bureau has decided the ad market for mobile applications is too new for standards. The decision basically bets that advertisers will put up with the continued fragmentation of ad sizes and requirements in return for the ability to experiment in a still nascent medium. "Any effort to promote simplification of ad formats must make it easier or cheaper to produce creative for the medium, without stifling creativity of those designing content or advertising for that medium," the IAB wrote in a report released today. "At this stage, the in-app ad landscape is too new and dynamic to be ready for creative standards." The IAB based its decision to take a pass on standardization on a marketplace study that gathered feedback from app platforms and publishers. It found a fractured market that is inching in the direction of consistency.
 
Standard display sizes are emerging. For example, the 300-by-50 pixel display ad is accepted at a majority of the 14 publishers surveyed. There are also many publishers offering wider ads that display better on iPhone screens. Yet, other areas are more unsettled. Expandable formats vary, the IAB noted. File weight limits differ wildly from publisher to publisher, ranging from 5 KB to 15 KB in the IAB survey. Newer opportunities like the iPad increase the variables. The IAB found a mix of standard sizes from the Web with common mobile sizes -- and even a couple publishers offering super-sized ads that take advantage of the Apple tablet's larger screen.
The process becomes even more complex when taking into account various devices, and the IAB found one publisher offering formats targeted to specific BlackBerry models. The IAB traditionally has served as the Internet industry's clearinghouse for standards and guidelines. It's a role that could come into question as digital advertising moves from the desktop into wireless, TV and other areas. The mobile industry, for instance, already has standards set by the Mobile Marketing Association. The MMA said it modeled the guidelines on what the IAB devised for Web display advertising. (The MMA endorsed four graphical sizes and one text unit at the 6:1 and 4:1 aspect ratios.) An IAB rep said the two organizations would work together and "were we to issue official guidelines around formats, we would involve them in every step of the process." For now, the IAB is encouraging basic best practices, including building mobile-specific landing pages for campaigns, keeping creative file sizes low, and building specifically for different devices. The final best practice should ensure the mobile ad market remain fractured for some time to come.

Apple Inc. doesn't appear to have barred Google Inc. and others from selling targeted ads inside iPhone and iPad applications, after implying several weeks ago that it might do so. Software developers say their new and updated applications are getting approved by Apple, even though the apps are enabled to serve ads by third-party ad networks such as Google's Mobile Adsense and AdMob. Apple and Google declined to comment on the ad services. At issue is the control that Apple is trying to exert over mobile ads in its devices like the iPhone and iPad. The Cupertino, Calif., company on Thursday launched its own mobile-advertising service, iAds, which works with brands to create interactive ads that appear inside applications. Apple is charging $1 million to $10 million to marketers who use iAds, with 60% of revenues going to developers. But questions have arisen about Apple's intent to limit other advertising networks from competing with iAds, particularly after the company in April changed the rules governing the development of applications in its App Store. The new rules, part of the license agreement for Apple's iOS 4 operating system for its iPhone and iPad devices, were interpreted to mean that the company would prohibit ad companies from collecting usage data from applications, making it harder to target ads to users and compete with iAds. Apple relaxed the terms in early June to allow independent ad networks to collect user data to sell ads. But the changes were believed to still bar Google from serving targeted ads in Apple's App Store because it said explicitly that advertising service providers owned by a developer of mobile phones and mobile operating systems did not qualify as independent. Apple has never confirmed who it was referring to with this statement, but Google has publicly criticized Apple over the amendment. But many apps including "Super KO Boxing 2," a popular game app made by Glu Mobile Inc., were approved recently for use in iPhones and iPads. The app uses Google's AdSense to place ads. Nikolai Sander also had his "Spawn Glow" app—which uses Google's Mobile Adsense—approved last week for the iPhone 4. Mr. Sander said he believes Apple "is not enacting the restriction." It's unclear why Apple hasn't enforced the rule. But as the fast-growing mobile-advertising marketplace has attracted the scrutiny of federal antitrust regulators, that apps with third-party ad services are still getting approval into the App Store could take the pressure off of Apple. The Federal Trade Commission currently is conducting an informal inquiry into Apple. Mobile advertising is important for developers because they get paid for hosting the ads. Revenue from ads sold on cellphones in the U.S. is expected to increase by 43% to $593 million in 2010, up from $416 million in 2009, according to research firm eMarketer. By 2013, it is expected to reach $1.56 billion. Despite Apple's allowance of new apps with third-party ad services, other developers aren't taking any chances. "We stayed away from adding anything other than the iAd network," said Scott Dunlap, chief executive of NearbyNow Inc., which develops apps for media companies like Condé Nast Publications Inc. Mr. Dunlap said it helps that iAds is more lucrative than other ad networks. Developers said Apple will charge advertisers a penny each time a consumer sees a banner ad, and $2 each time a user taps on the banner. With other ad networks, they get a fraction of a penny per banner ad shown, if they get anything, and 70 cents or less per click. Apple, which said last month that it had iAd commitments for 2010 totaling more than $60 million from at least 17 brands, said it started on Thursday with two iAd campaigns: Nissan Motor Co. for its Leaf electric car and Unilever PLC. for its Dove Men's products."IAds will roll out in North America first and we'll ramp up the number of ads served in the weeks and months ahead," said a spokeswoman for Apple, adding that campaigns will be timed with the back-to-school and holiday shopping seasons. For now, advertising companies said iAds is creating more business rather than inhibiting competition because it's generated so much interest in mobile advertising. "Apple's introduction of iAds has woken the brand community up to mobile, and their efforts are benefiting everyone selling in the space," said Eric Litman, CEO of mobile-advertising company Medialets.

Editor’s note: The following guest post is by Krishna Subramanian, co-founder of mobile ad exchange Mobclix.

Mobile search is still one of the big unclaimed prizes on the mobile web. Everyone from Google and Yahoo to Apple is going after it, but Microsoft’s Bing may stealthily become the king of the castle by aggressively promoting Bing through mobile apps. Let’s look at each player’s mobile search strategy.

Apple: In The Driver’s Seat

During the Apple keynote in April, Steve Jobs announced the new iPhone 4.0, iAd and a few other features even he didn’t seem too excited about. Out of the many mediocre features, Mr. Jobs happened to squeeze in a declaration that, “ On mobile, search hasn’t happened. People aren’t searching on their phones.” During the keynote at WWDC this month, Mr. Jobs declared that iPhone 4 users would have the opportunity to select their search engine from among Google, Yahoo, and Bing. Out of the three, Bing got a special endorsement from Mr. Jobs.

Is Mr. Jobs trying to blindside the other players in this space by making them think he is not concerned about search? I’m sure all of the search traffic he is sending to Google is driving him nuts. Meanwhile, Google has happily—and quite beautifully—optimized their search results page on the iPhone to make it extremely convenient for local searches by incorporating phone numbers, maps and more within the Safari window.

Remember the days you would dial 411 or, even more recently, send an SMS to GOOG for information about local businesses or venues while you are on-the-go? Does anyone do that anymore? I’m sure people love paying $1.75 to find out the name of the local pizza shop. By the time you dial 411 and struggle through the automated voice menu, you could have pulled up addresses, phone numbers and reviews to the five nearest pizza places and be one click away from an interactive map.

Apple brought the traffic to mobile search, but why not make money off it? Google, Yahoo! and Microsoft all see the value of controlling search across mobile devices—not just the iPhone. Similar to the web, these three goliaths want to be the starting point for every consumer query. All three have launched iPhone specific apps with slightly different flavors as they try to first win the hearts of the iPhone user.

Yahoo! Doesn’t Know What It Wants To Be

Yahoo! is all over the place in the App Store. It has two iPhone apps in the iTunes App Store. Within the reference category, the Yahoo! Search app is ranked at #30 with 658 comments. For the most part it includes many of the same core features that the other search apps offer.

To get more mindshare from users, Yahoo! has sprinkled many other apps in various categories with the Yahoo! Finance and Yahoo! Shopping and Yahoo! Entertainment apps and a pretty successful Yahoo! News app (#47 with close to 50,000 comments). This attempt to build interest just dilutes Yahoo!’s audience across multiple apps—which, if combined together, could have a significant impact.

It’s Google’s Game To Lose

As the default search engine plugged into mobile Safari on the iPhone, Google has always had an advantage driving mindshare to its mobile apps. It was the first one to use voice activated search and has steadily built out its host of features since making it easier to access core Google products like Gmail. The Google Mobile app is currently ranked first in the reference category for iPhone apps with more than 2,000 comments.

Hello, Bing!

Far behind when the gates opened, the Bing team is pushing out new features as fast as possible, trying to draw from Google what works best. Interestingly enough, the results (even on a local level) are quite different from the very accurate Google search results. The Bing search app received a nice endorsement from Mr. Jobs at the WWDC keynote, so lofty expectations are already set. It is currently ranked No. 2 in Reference.

Microsoft released an updated Bing app last week with a few new notable features: Visual Scanning (very similar to the Red Laser iPhone app eBay acquired earlier this month) and tapping into social graphs through Facebook and Twitter status updates. The entertainment angle is allowing Bing to create a unique niche that ties back to search. It also redesigned its mobile browser search to make it more of an app-like experience.

Advertising as a Distribution Channel

The biggest hurdle is getting these app installed on as many devices as possible, but thanks to all the apps in the App Store there is an abundance of ad inventory available for marketers. App developers, if you don’t already love these big boys, you should. They have been spending significant amounts of money (think six figures-plus) desperately trying to get in front of as many of your users as possible, which translates into more money in your pocket.

All of the search giants use in-app marketing to push their own apps. Yahoo! and Google have done a great job avoiding creative saturation by building out a wide array of messages, colors, languages and landing pages, as well as making use of geo-targeting.

Boom! Bing Changes the Game

As the Bing team continues to spend more money on advertising, they recently changed the game, significantly crushing Google in the app rankings. How? Easy…

Attaching yourself to successful apps with consumer brand power is a sure fire way to rise to the top.“We absolutely market our applications on the iPhone, I don’t think of it as unique to anything else. It is like promoting on the toolbar,” Yusuf Mehdi, Senior Vice President, Bing recently told TechCrunch co-editor Erick Schonfeld. “Yes, it has been effective.”

For example, Bing took the Top 100s by Year app that allows users to stream songs by decade for $1.99, rebranded it to Top 100s by Year by Bing, made it free and inserted advertising to drive users to download the Bing Search App.

The Top 100s by Bing app instantly surged to the top of the App Store and remained in the top five for weeks. It remains at the top of the music category hovering near favorites like Pandora and Shazam. And, as I mentioned, the Bing search app is currently No. 2 in Reference, and in the top 100 free iPhone apps overall.

Ads within the Top 100s app that drive users to download the Bing app:

Fresh off the success of leveraging sponsored apps to drive downloads to the Bing app, Microsoft has recently reached out to a new audience segment by sponsoring the ESPN World Cup Trivia app, which is ranked No. 6 in the sports category.

Rather than taking the viral nature of the Top 100’s music app, Bing and ESPN are also running display inventory to drive additional traffic to the World Cup Trivia app.

So where does this leave the Bing search app? How about in the top 100 of all free apps and, more importantly, at one point it even squeezed Google’s app out of the top 50 free apps. Bing has taken a simple concept, executed and proved the value of the model by consistently keeping their brand top of mind across top apps in different categories.

Mobile search is here, whether you want to believe it or not. Take Apple’s recent acquisition of Siri for a small sum of around $200 million to $250 million. It will be pretty easy to use that as the nucleus for an Apple-owned local search product for mobile. Not to mention the valuation is around the same price tag as what it paid for Quattro Wireless.

As the market grows, Yahoo!, Google, Bing and Apple will become more cut throat. Don’t expect to see Bing ads on Google Mobile Ads or Apple featuring Yahoo!. Likewise, we may not see as many new Google and Bing apps in the App Store in the near future. But they will keep pushing forward as much as they can. After all, they probably don’t have much time before Mr. Jobs begins to think differently about mobile search.

Thanks to an SEC filing, another detail emerged today about Google’s acquisition of mobile ad network AdMob. We already knew the $750 million Google-AdMob acquisition was a cash and stock deal but we didn’t know the breakdown between the two. According to an SEC filing submitted by Google today, the search giant sold $530 million worth of stock as part of the deal, indicating that AdMob (and its investors) may have taken home the remainder, $220 million, in cash (because of some accounting issues, this number may not be exact).

So was AdMob happy with the split between cash and stock? I guess that depends on whether they think Google’s stock will keep going up. Google paid for the bulk of the deal with stock, and the deal will hardly make a dent in its huge cash reserves (the company has $26.5 billion in the bank).

The deal itself was drawn out due to concerns from the FTC over anti-trust issues. Over six months after announcing its plans to acquire AdMob, Google finally closed the deal at the end of May, a week after the FTC unanimously approved the deal.

 

Mobile search could grow from 9 percent of all queries this year to 20 percent by 2012, estimates RBC analyst Ross Sandler in a new report issued today. There is still a huge gap between mobile’s share of overall search queries and its share of search advertising. Sandler estimates that mobile will still represent less than 2 percent of search ad budgets this year, compared to the 9 percent overall share. But he thinks that gap can narrow and that mobile search advertising can be a $2 billion to $3 billion market in 2012. His assumptions seem a bit aggressive on the ad revenue side. There might always be a gap between mobile search share and mobile search ad spending because of the relative effectiveness of search ads on PCs versus on mobile phones. But Sandler does a deep dive into mobile search advertising and comes up with some compelling reasons why that gap should at the very least begin to narrow just as mobile search starts to take off thanks to the growth of large touchscreen devices such as the iPhone, iPad, Android, and Blackberry.

One big advantage the new generation of smartphones have over PCs in terms of search advertising is that the screen real estate devoted to search ads is much bigger. A single search ad on a PC takes up about 4 percent of the screen real estate, whereas a single search ad on a smartphone takes up about 20 percent of the screen. The relatively larger size of the ads results in higher click-through rates on mobile (as much as 3 to 5 times as much).  On the iPhone, one search ad takes up 22 percent of the screen, and if two search ads are served up it takes up nearly half (48 percent).  For Android, those numbers are 18 percent and 38 percent for one and two search ads, respectively.

Sandler tested the same keywords across different devices (an iPhone, Android Nexus One, Blackberry, and aPC), and found that the average, for both the iPhone and the Nexus One, was 1.1 paid search results per query, compared to 9.2 search ads per query on a PC.  Searches on Blackberries showed hardly any paid results.

Another key driver for mobile search revenues should be the growth of local ads.  Sandler found that the ratio of localized or geo-targeted ads to non-local ads is still low and expects that to grow as advertisers learn how to geo-target their search ads.  Geo-targeted ads should also perform better, leading to higher mobile search ad revenues.

So how many people actually conduct searches on their smartphones? According to comScore, half of all smartphone owners conduct at least one search per month, 20 percent search once a week, and 11 percent search almost daily (which is about the same as the percentage of people who search on feature phones every month).

This year, Sandler estimates there will be 374 million people with smartphones, increasing to 766 million in 2012.  Consequently, the number of smartphone searches will grow from 157 billion to 586 billion (up from 35 billion two years ago).  The comparable number of searches on PCs this year will be 1.3 trillion, growing to 1.6 trillion in 2012.  Any way you look at it, mobile searches will become a significant portion of total searches within two years.  But how much will those searches be worth?  That is still a guessing game at this point.

The last six months of jockeying between Google and Apple have put a spotlight on mobile advertising. The news has been such that one could be forgiven for thinking that these two companies have the only platforms needed to reach consumers on mobile devices. Both are certainly making significant investments to be consumers' platforms of choice. They have spent over $1 billion acquiring mobile advertising companies, and released new devices to create new product categories and distribution channels (e.g., Nexus One, iPad). Not surprisingly, such moves have attracted in-depth Federal Trade Commission investigations along the way. While the convergent timing may be coincidental, it is emblematic of a broader struggle over the future of advertising.

But if, as Gartner, Pew and Morgan Stanley predict, more users access the Web through mobile devices than PCs in as soon as three years, then marketers will need solutions beyond these platforms to maximize reach and engagement with their target audiences -- audiences that use, and will continue to use, different technologies and networks. And ultimately, because advertisers care more about reach and engagement than the particular device or OS, they'll need to embrace open solutions that work seamlessly across any mobile device running any operating system.

Both Apple and Google are working to shape the mobile Web in their own image. Apple's mobile platforms enforce a "walled garden" of content and applications, controlled and distributed exclusively by Apple. In such an app-centric environment, Apple seeks to reshape the mobile Web as it sees fit. Adobe, for example, has already abandoned Flash efforts for the iPhone and iPad after recent restrictions imposed by Apple. And Apple's iAd advertising strategy seems focused on rich media delivery for premium brands.

In an opposite strategy, Google's Android platform for phones and tablets -- including its network-agnostic Nexus One -- seeks to break mobile's long history of failed walled gardens with an environment as open as the PC, friendly to all Web and client applications. Adobe Flash, to continue the previous illustration, will be supported by upcoming versions of Android. Google's advertising strategy, given auction marketplaces like Adwords and Admob, seems long-tail focused. But, according to comScore last quarter, Apple represented only 4 percent of the U.S. devices at the end of last year. Android held less than 1 percent. Nielsen reports that U.S. mobile Web reach is now 72 million, a critical mass. Clearly, to communicate with that audience, mobile advertising campaigns need to go beyond Apple to handsets from Motorola, Nokia, Samsung, RIM (BlackBerry) and LG, all of which have a larger installed base than Apple.

The promise of mobile is a more effective digital advertising delivery system given the personal nature of the medium. As it further delivers on its promise -- using consumer intelligence to target people -- the audience starts to narrow, particularly if one is targeting a specific mobile device. Therefore, campaigns need to reach across multiple platforms to aggregate large enough groups of users. Mobile Web publishers, application developers and advertisers want advertising solutions that work across all handsets and operators. Fragmentation -- specifically different standards, technology platforms, and capabilities from handset manufacturers and operators -- has been another large barrier to mobile advertising adoption in markets around the world.

Android alone, for example, suffers from fragmentation with four versions since its first product shipped in October 2008. These different operating systems have different capabilities (e.g., multitouch), requiring application developers to choose whether to adapt or not support. Many long-tail publishers will use Apple's iAd service by default because it is embedded in the application development kit. Google is likely to embed such services with Android, followed similarly by other phone platform companies (e.g., RIM, Microsoft, Palm). Further, many mobile operators have already announced application storefront offerings that include embedded ad network services. With more users moving to mobile devices every day, marketing messages and advertiser spending are sure to follow. Marketers need to embrace open solutions that work across operating systems.

-By Jorey Ramer

As noted in the chart above, Google controls the traditional search engine market by a wide berth. (comScore doesn't yet track mobile search data.) More than 97% of Google's revenue comes from search ads, and with computing and search going increasingly mobile, Google has been eager to make itself indispensible in the mobile market, also.

Contrary to Job's assertion, for the vast majority of smartphone owners, Google search is by far the leading search service.

Mobile ads will bring in an estimated $500 million in revenue for Google this year, according to Caris and Co. analyst Sandeep Aggarwal. That is "perhaps the fastest growing revenue line" for Google, Aggarwal wrote in a research note Monday. Aggarwal also adds that there are a couple challenges along the mobile road for Google. For one, Google's dominance of search means that each mobile search is -- cannibalistically-speaking -- one less desktop search. Second, apps on phones bypass Google search. But Google has hasn't exactly been a coasting on its desktop success. The push into smartphone operating systems with its Android three years ago has been the Trojan horse of Google mobile search. By contrast, Microsoft's(MSFT) disappearance from mobile hasn't been particularly helpful to the mobile adoption of its Bing. And Yahoo!(YHOO) has fumbled badly in mobile search.

Google has tried to move beyond the classic browser-based searches in mobile. For example, many Google Android phones, particularly the Verizon(VZ) Incredible and Droid line, have included free Navigation software that combines GPS, Google search and maps for turn-by-turn directions. Google has also honed its verbal searches, so users can speak their search terms rather than type them for surprisingly accurate results. Google's pending $750 million deal for in-application advertising shop AdMob stands to give the search giant a big piece of the mobile advertising market more targeted to display than search. Maybe too big though -- the Federal Trade Commission is reviewing the deal.

"Applications are an opportunity for Google," said Sullivan, who points out that Google doesn't have specialized search engines for information on things like restaurants. Outfits like Urbanspoon and Yelp have loads of restaurant data, like menus and reviews, all in one place.

"Applications are a threat, but not a big threat," said Sullivan. "People are always looking for the Google killer. I call applications the Google killerettes. They take a slice at Google in various ways."

--Written by Scott Moritz in New York.