Watch out Google. Apple has entered the mobile advertising space through the acquisition of Quattro Wireless, sending ripples through the industry.

The sale of mobile ad network Quattro to Apple surprised many for its price tag, $275 million?only slightly more than one-third of what Google paid for rival AdMob. This publication was the first to report on the news that Quattro had been acquired, before Apple was named as the acquiring company (see story).

?This puts Apple into the business of mobile advertising for the first time,? said Michael Boland, San Francisco-based senior analyst and program director at BIA/Kelsey. ?The explosive growth in iPhone and iPod touch usage has become a conduit to content delivery for Apple.

?A mobile ad network puts a monetization engine behind some of these efforts?something in which it showed interest in the rumored failed bid for AdMob last quarter,? he said.

Calls to Apple and Quattro Wireless were not returned. However, Quattro did announce the acquisition in a blog post:

Happy New Year from Quattro Wireless!

We are thrilled to let you know that Apple has acquired Quattro. We want to share with you our excitement about this news and what it means for our customers.

We have built our business by enabling advertisers to reach the right consumers across the mobile Web and in applications.

We remain focused on delivering more engaging, relevant and useful ads to mobile devices, and improving the measurement and execution of digital campaigns.

Together with Apple, we look forward to developing exciting new opportunities in the future that will benefit our customers.

For now, the offerings and services you receive from Quattro Wireless will not change.

We will continue to operate the Quattro Wireless network across all devices and platforms.

Your client and support teams will remain the same, and you can continue to expect the world-class service we are proud to deliver to our customers.

We look forward to working with you during this exciting time.

Andy Miller, vice president of mobile advertising at Apple.

Mr. Miller?s former title was CEO of Quattro, so it is noteworthy that his title has changed even before the deal has cleared regulatory hurdles.

More revenue please
The Quattro acquisition marks a notable shift in Apple?s strategy, making it clear that it is looking for new revenue streams.

?It surprised me a little bit, because this is not really Apple?s core competency?they make their money on selling devices,? said Tole Hart, Philadelphia-based director of consumer services, technology and service provider research at Gartner. ?This is an indication of how important they think mobile advertising is.

?Apple believes mobile advertising is important, as all of their competitors are in it, so they felt they had to have a mobile ad network as well,? he said. ?It is out of their core competency, because they make most of their money on mobile devices and computers?they don?t make a lot of money on the App Store or iTunes, but their services are good so people buy their devices.

?They have to keep up with their competitors, which is a sign of how important the mobile advertising market is.?

Mobile ad networks: Who?s No. 1?
In the wake of the Google-AdMob deal, IDC released a study that estimates the revenue and market share of the major mobile ad networks (see story).

Since then, industry sources provided IDC with additional data points, and the research firm released a revised list based on IDC's forecast for 2009's total U.S. mobile advertising spend of $287 million:

? Google-AdMob: $59 million, 21 percent
? Millennial Media: $35 million, 12 percent
? Yahoo: $29 million, 10 percent
? Microsoft: $23 million, 8 percent
? Apple-Quattro Wireless: $20 million, 7 percent
? Jumptap: $18 million, 6 percent
? AOL/Advertising.com: $7 million, 2 percent
? Nokia: $7 million, 2 percent

The remaining 32 percent of market share is made up of other players such as Mojiva, InMobi and Greystripe.

After the $750 million Google-AdMob acquisition, IDC estimated that Quattro Wireless could be worth as much as $500 million dollars, so in that light $275 million seems like a bargain.

It is likely that Apple?s participation in the bidding for AdMob drove up the price significantly. After Google won that bidding, did Quattro swoop in with an offer Apple could not refuse?or vice versa?

Who?s next?
Who could be the next target of the mergers-and-acquisitions bonanza? The number of independent mobile ad networks is fast dwindling.

?Apple's acquisition of Quattro Wireless continues the consolidation of the mobile advertising space,? said Karsten Weide, San Mateo, CA-based industry analyst at IDC. ?It shows how serious Apple is about developing the ad revenue stream.

?This purchase also reduces the mobile dating scene for Yahoo and Microsoft, with only Millennial Media and Jumptap left as potential acquisition targets,? he said. ?It could mean higher price tags for those networks in potential acquisitions.?

Many believe that the Google-AdMob and Apple-Quattro deals are only the tip of the iceberg.

?Generally, we also expect more M&A activity in the mobile ad space in the coming months,? Mr. Boland said. ?This will include the remaining tier-one ad networks out there, and others planting various stakes in mobile, such as Yahoo and Microsoft.

?These will be driven by similar motives for the Google-AdMob deal: a need to beef up offerings to advertisers as they themselves increase interest levels in mobile advertising,? he said.

?In terms of industry impact, better one-stop-shop ad offerings combined with an improving economy will stimulate mobile ad spending levels throughout the coming year.?

Everyone is expecting Microsoft and Yahoo to make a move. However, could a handset manufacturer such as Research In Motion get into the mobile ad network space with an acquisition?

"The global mobile advertising race is wide open,? said Anne Frisbie, San Francisco-based head of North America at InMobi. ?Everyone in the U.S. is focused on an Android versus iPhone battle, but Nokia, RIM and Microsoft are main contenders on the global playground as evidenced by our data in over 125 countries."

Questions remain as to how to properly integrate a mobile ad network into a larger company with different business goals. That will not stop companies from trying to make a big splash.

?Given high fragmentation of the mobile advertising space, consolidation is likely to continue in 2010,? said Alec Andronikov, CEO of MoVoxx, Los Angeles. ?What remains to be seen is whether large media will be using mobile acquisitions to truly validate mobile advertising as a digital force to be reckoned with or are simply acquiring mobile players for the sake of ?doing mobile.??

It?s all about monetization
In addition to selling computers, iPhones and iPod, Apple can now get tap into the additional revenue stream of advertising within its ever-growing catalog of free applications.

?I think it?s certainly an exciting start to the new year and an indication of more things to come,? said Boris Fridman, CEO of Crisp Wireless, New York. ?There has been a lot of activity in the mobile marketplace in general, and this is just a bellwether.

?Apple has not been making a lot of acquisitions, particularly outside of their core strategy, but Apple wants to make sure it can monetize the app market to the fullest extent,? he said. ?They haven?t participated in the monetization chain when apps are downloaded for free?most apps are free and ad-supported?and Apple wants to participate in that revenue stream.

?From their perspective it made a lot of sense, particularly considering that Apple will be a huge player in the delivery of media?with AdWords and the Tablet, Apple will be one of the most important media players.?

Will the increasing attention this deal brings to the mobile advertising be good for all players? Will a rising tide lift all ships?

?There?s no question it?s good for the industry?acquisitions continue to increase the heat in our space,? said Bob Walczak, CEO of Ringleader Digital, New York. ?It is interesting from Apple?s perspective, because they were clearly the second-place bidder in the AdMob deal, and they continued to bid and bought Quattro.

?The clear line of connection is the distribution channel they had for applications?Quattro is probably No. 2 in the in-app advertising marketplace after AdMob,? he said. ?In addition, Apple wants to maintain control of their developers by including Quattro?s SDK inside its primary application SDK.

?That will give that control back to Apple, and at the same time make the market much less fragmented, because developers can include a single universal SDK that would make their app compatible with all mobile ad networks, which becomes a standardized way of serving ads inside of an application.?

The fact that Apple chose to acquire an existing mobile ad network to enter the space instead of building one itself is also significant.

?Nexage and Quattro Wireless serve many premium publishers together and we are excited about Apple?s acquisition of Quattro, which further validates the mobile advertising space,? said Devkumar Gandhi, CEO of Nexage, Waltham, MA.

?The recent acquisitions of AdMob and Quattro are acknowledgement that mobile is truly a different medium than online, requiring specialized technology, infrastructure and industry knowledge," he said. 

?As market leaders such as Google and Apple integrate mobile acquisitions into their media infrastructures, liquidity and mobile advertising budgets will continue to open up.?

Ready for prime time
The Google-AdMob and Apple-Quattro deals are further proof that we have entered the Mobile Decade (see story).

?We?ve talked potential for years?it?s now prime time," said Eric Harber, president and chief operating officer of HipCricket, Kirkland, WA. ?Brands are spending money, so Google and Apple are ready to get in.

?Apple?s acquisition of Quattro Wireless creates a new ecosystem that will ultimately benefit the entire market: Advertising will help better monetize applications and provide more incentive for marketers to create branded applications,? he said.

The fact that Apple had never participated in the advertising industry before in any way, shape or form makes this deal all the more noteworthy.

?It?s fantastic that we?re seeing another innovative tech company invest money in the mobile marketing space, but the real news here is that Apple has moved into a place in mobile that they?ve never moved into on the fixed-line Internet,? said Kristine van Dillen, director of industry initiatives and partnerships for the Mobile Marketing Association, New York.

?They?re identifying mobile as the medium they can use to add marketing and advertising to their business mix,? she said. ?Mobile is not only an important piece of the marketing mix, but the most important piece of the marketing mix.?

With the economy improving and smartphones evolving into even platforms for advertising, many mobile insiders are expecting a very big year.

?The Apple-Quattro news reaffirms our belief that mobile advertising is crucial for the long-term benefit of consumers," said Zohar Levkovitz, cofounder/CEO of Amobee, Redwood City, CA. "Apple has always been a consumer-conscious company and by leveraging advertising within their developer platform, it should ultimately result in consumer savings."

Meanwhile, competitors put a positive spin on the news.

"It?s an acknowledgment that consumer adoption of mobile advertising and applications are trending up," said Jay Sampson, senior director of emerging media sales for the U.S. at Microsoft Advertising, Redmond, WA. "Certainly it's a good thing when technology companies begin making a significant investment in mobile, which is a harbinger of things to come.

"In general, it's a good thing for the industry," he said.

Comparing Apple to Google
While both are significant, there are important distinctions to be made between the Google-AdMob and Apple-Quattro deals.

?This is a great indicator for the future success of the mobile space," said Krishna Subramanian, cofounder of Mobclix, Palo Alto, CA.

?The difference between the two mobile ad network acquisitions is that Google-AdMob was a consolidation of ad networks coming together with overlap in terms of advertisers and publishers, whereas Apple-Quattro brings a new big powerhouse into the mobile ad networks space and adds a lot more value to the space,? he said.