How Apple Plans To Take A Big Bite Out Of Google's Revenue

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In 2010, Apple's Steve Jobs vowed to "destroy [Google's] Android, because it is a stolen product." Obviously, the courts disagreed because Google has been pumping out Androids for years. But Jobs and many others at Apple were (and are) convinced that Google has stepped over the line with its Android products, and now Google must pay.

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In an interesting piece published on LinkedIn, Jason Calacanis points out that the iPhone line of products generates a little more than 70 percent of all of Apple's profits. That means that Apple owns a considerable amount of the smartphone marketplace, and that is where the problems start for Google. Apple has decided to use its strength in numbers to plot the destruction of Google.

Apple's First Wave Of The Attack Is Called iOS9

Apple has just announced the release of the iOS9 update for the iPhone operating systems. This new OS makes it incredibly easy for developers to create ad blockers, and even easier for users to download and use the ad blockers. These are ad blockers that stop marketing companies from tracking your online activity, and they also stop all third-party ads from popping up on your smartphone screen.

According to Inc. Magazine, $15.5 billion out of Google's $17.3 billion in revenue for the first quarter of 2015 was from digital advertising. The strange thing is that it is estimated that almost 40 percent of mobile users do not realize they are clicking on a Google ad because the ads are often disguised. With extremely small close out buttons and ads that take up entire screens, many iPhone users do not realize that they are actually clicking on Google ads and revealing their browsing information.

Since Google makes the bulk of its revenue from digital advertising and Apple controls the lion's share of the smartphone market, things are looking pretty grim for Google. As long as Apple does not actually initiate the ad blocking software itself, then this remains perfectly legal. But if there starts to be a run on the amount of people who download and initiate ad blocking apps on their own, then Google could sue for unfair business practices. Google may win, but the damage done will be tremendous.

Why Is Apple Able To Do This?

If you are reading this article on a desktop or laptop computer right now, then there is a good chance that there are ads all over the page. But since they are placed around the content, you can ignore them. But mobile ads come in the form of annoying banners and page pop-ups that people simply do not want to deal with. All of that advertising noise and activity tracking also slows down the performance of the iPhone, which makes ad blocking very popular among iPhone users.

The problem for Google is that more people are accessing Internet content through their smartphones than their desktops. That means if users are easily able to block Google's marketing efforts on their iPhones, then Google is going to lose a lot of money. There is no way for Google to work around this problem. Because of the limited size of the iPhone screen, Google has to either hope that ad blocking falls out of favor or be prepared to sue.

Customer Match Is Part Of Google's Answer

Google has been dealing with iPhone ad blocking for a while, so it has been developing ways to get their messages through despite the blocks. One method Google has come up with is a program called Customer Match. This is a program that allows an advertiser to upload a list of email addresses from users who agreed to get ads on their phones, and then allows the marketer to release ads that fit into the consumer's schedule. For example, the consumer may like to browse their news service apps in the morning, and that allows Google to place strategic ads that go along with the content the consumer is viewing.

While Customer Match is an ingenious idea, it is also very limiting. While the customers do opt-in for the program, the marketing content from Google can still be stopped by ad blockers. The hope is that if the advertisers can limit how often a consumer gets ads on their smartphone, then the user won't use ad blocking apps.

What Is Next?

Google's economic fate is in the hands of its worst competitor, and that is never a good position to be in. Apple maintains that it is the consumer's choice to activate an ad blocking app and that Apple has nothing to do with it. But industry observers know that Apple has everything to do with it, and Google will probably pursue legal avenues if the company loses too much revenue.

But this whole thing really has smartphone users wondering about the future of Google. How stable is Google's business model when it relies on the competition to deliver its advertising, and when a big part of that advertising is mistakenly clicked on by users who have no desire to be consumers?

The small publishers who rely on Google advertising income to stay in business are also going to suffer during this prolonged war. Apple wants those publishers to put their content on the iTunes store and charge for it, and there could be some credibility to that model because circulation revenue is outpacing advertising revenuein the publishing industry. But will the masses of people who drive advertising revenue really switch to paying for their news content? The publishing industry is not sure about that.

In the end, Apple has fired a huge shot across Google's bow, and now it is time to see how Google reacts. Apple maintains that its revenue comes from people who knowingly buy their products, while Google's revenue is based on deception. That may be an unfair characterization of the Google business model, but it shows just how far Apple is willing to go to put its biggest competitor out of business.
 
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