Apple's Quattro Buy Validates Revenue Streams for the Mobile Web

Apple's purchase of Quattro Wireless for a reported $275 million is a sign of an industry hungry to create new revenue streams, according to experts who watch Internet trends. Just as Google underlines the importance of the mobile ad-supported Web by bidding to buy AdMob for $750 million, Apple recognizes the opportunity to make money from the mobile Web by pairing ads with mobile applications. Analysts from Forrester and Gartner weigh in on Apple's bid for Quattro, along with comments from Jumptap and support from Google.

Apple's quiet purchase of Quattro Wireless for a reported $275 million is more than another shot across Google's bow, it's a sign of an industry hungry to create new revenue streams, according to experts.

Quattro is a mobile ad network and Website designer that lets publishers such as Time, CBS Interactive and Visa pair eye-catching mobile ads with their Web properties. IDC said the startup has garnered about 7 percent of the mobile ad market.

The deal, which former Quattro CEO Andy Miller announced via a brief blog post Jan. 5, comes almost two months after Google offered to buy mobile ad network AdMob for $750 million. That deal, which would give Google one quarter of the mobile ad market, is on hold pending scrutiny by the Federal Trade Commission.

Some might say Apple buying Quattro is a knee-jerk reaction to the Google-AdMob tie-up; that wouldn't be giving Apple's its due. Like Google, Apple recognizes the opportunity to make money from the mobile Web by pairing ads with mobile applications.

Forrester Research analyst Charles Golvin noted that Apple's play for Quattro isn't a shocker, even if it is a departure from its typically technology-oriented acquisitions. Golvin explained:

"The longstanding revenue models for mobile phones -- everyone is looking for alternatives. It's not like the service model where the subscriber pays is at risk, but carriers, device makers players like Apple and Google and Internet Players are looking for other kinds of revenue sources to take the pressure off. You can't keep squeezing more and more service revenue out of consumers. You can only grow so fast that way. There is a belief on both parties' part that there is an opportunity for big growth in revenue coming from mobile ad and they want to be there to take advantage of it."    

Jumptap CMO Paran Johar, whose company also commands a chunk of the mobile ad market in competing with AdMob, Quattro and others like Millenial Media, agreed that handset makers, software providers, infrastructure vendors, and carriers are all looking to carve out a share of the mobile Web, which will be the primary access point of the Internet in five years. Johar  added:

"Though it didn't fit Apple's existing business model, they saw the opportunity and captured it. One can only speculate where this could lead, perhaps free ad supported devices or a proprietary app store ad network? The mobile advertising ecosystem is unique in the sense that it is so personal and can tie so many other pieces of media together. Whether complimenting TV, out of home, or print, many other non endemic advertising companies see the enormous potential."

Apple, Johar said, wants both a way to make money from free apps with the Quattro sales force and capture a share of the growing mobile ad dollars. "It is abundantly clear that Apple is now in the media business and will be competing head to head with Google."  

Gartner analyst Tole Hart agreed, noting that Apple saw how Google pushed into the mobile market with Android and benefited from advertising on applications sold in their stores. Hart  added:

"The eyeballs on the mobile phone are likely to shift to some degree to the mobile Web as mobile Websites improve their functionality to get closer to mobile application functionality. The mobile Web allows for developers to write once for many devices, while mobile applications developers have to write for a particular device type. This has been an Achilles heel for developers in the fragmented wireless market. Quattro's core capabilities allow Apple to offer Web-based solutions which Websites can advertise on."

Hart also said Apple also has its forthcoming tablet computer in mind with the Quattro deal, noting that the company will likely offer developers the opportunity to develop Websites, applications and advertising capability on the tablet. Quattro, he said, can help with the Web browsing and advertising capability of the tablet.

For its part, Google loves Apple's play for Quattro because it lends credence to its argument that the mobile ad market is fragmented and highly competitive, one of the arguments the search engine must make as it seeks to convince the FTC that its AdMob bid does not pose antitrust threats to the nascent market. Google Group Product Manager Paul Feng said Apple's play for Quattro is:

"...further proof that the mobile advertising space continues to be competitive. And with more investments and acquisitions in the space, including from established players like Apple and Google, that's a sign that vigorous growth and competition will continue. That's ultimately great for users, advertisers and publishers alike."

Finally, with Google going after AdMob and Apple annexing Quattro, ad networks such as Millennial Media and Jumptap may not be long for this world as standalone concerns with Microsoft and Yahoo lurking.