Thursday, April 8, 2010

Apple’s IPhone Software May Deliver Multitasking, Ads (Update1)

By Connie Guglielmo and Olga Kharif

April 8 (Bloomberg) -- Apple Inc. is readying a new version of its iPhone software that analysts predict will add support for multitasking and advertising, features that escalate its competition with Google Inc. for mobile users and developers.

Apple said it will hold an event today to give a “sneak peek into the future” of the iPhone operating system --software that third-party developers have used to create 150,000 applications for the iPhone, iPod Touch and new iPad tablet.

Since the iPhone’s introduction in 2007, customers and developers have criticized its inability to run more than one third-party program at the same time. Speculation about the ad system, meanwhile, was spurred by Apple’s January acquisition of a mobile ad network called Quattro Wireless. That deal came after Google agreed to buy market leader AdMob Inc.

“This just gives Apple developers a new way to make money in the nascent market for mobile ads,” said Shaw Wu, an analyst with Kaufman Bros. in San Francisco. He recommends buying Apple shares, which he doesn’t own personally. “It’s just a lot easier for developers when you have the infrastructure, and that’s what we think Apple is doing.”

Natalie Kerris, a spokeswoman for Cupertino, California- based Apple, didn’t respond to requests for comment.

Apple fell $1.05 to $239.55 at 9:39 a.m. New York time in Nasdaq Stock Market trading. The shares have more than doubled in the past year.

Apple regularly updates the iPhone software. The company first opened up the operating system to outside developers in 2008, giving them a way to create applications for the device. Apple also added business features that year, including support for corporate e-mail systems.

Developer Ranks

Today, Apple has more than 100,000 developers, who get a 70 percent cut of revenue when their apps are sold through the company’s Apps Store. The apps run on the more than 70 million iPhones and iPod Touch players sold over the past three years.

There are also more than 3,000 applications available for the iPad. Apple sold at least 300,000 iPads in the first day of its U.S. debut last weekend.

While a new ad platform wouldn’t add much to Apple’s coffers, it could attract developers looking for easy ways to make money from their programs, Wu said. That includes programmers who offer free apps. Wu estimates that 30 percent of the apps available today are distributed at no cost.

Apple’s potential ad platform, which the company’s fan sites have been calling “iAd,” comes at a time when Google is trying to complete its $750 million takeover of AdMob.

FTC Scrutiny?

U.S. regulators sought sworn declarations from Google’s competitors and advertisers as part of their probe of the deal, a sign the Federal Trade Commission may challenge the takeover on concern it will reduce competition for Internet advertising on mobile phones, people with direct knowledge of the matter said last month.

U.S. mobile ad revenue will rise to $720 million in 2010 from $330 million last year, Kelsey Group estimates. Sales may climb to $3.1 billion by 2013, the Chantilly, Virginia-based research firm said.

So far, Google has been “ahead of the curve” in serving ads tailored to mobile users’ location and demographics, said Michael Boland, a senior analyst at Kelsey Group. “It has a very large competitive edge -- it has been very forward- thinking.”

Android Software

Google has its own phone operating system called Android, which is used by companies such as Motorola Inc. and HTC Corp. The Mountain View, California-based company also sells a handset under the Google brand called the Nexus One.

Apple will likely use some of the location information it collects from users to send more targeted ads, said Richard Doherty, an analyst with Envisioneering Group in Seaford, New York. A newspaper might serve its own national ads through its app, as well as relying on Apple to deliver ads that are specific to a user’s location. That way, an Apple user who lives in Portland, Oregon, will see ads for a local store, instead of something for a New York boutique, Doherty said.

Advertisers may be able to buy ads through Apple directly or through the content providers, Doherty said.

The revised iPhone software will probably be a precursor to a new model, said Gene Munster, an analyst at Piper Jaffray & Co. in Minneapolis. Apple, which updated the iPhone in July 2008 and then again in June 2009, will likely release a new version this summer that’s smaller than the current 3GS models, he said.


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