Leave Google Alone!

Why the Federal Trade Commission should let Google and Apple do what they want in the mobile-ad business.

Eric Schmidt and Steve Jobs

Is Apple the most powerful mobile technology company? Or is it Google? The Federal Trade Commission’s apparent answer to that either/or question: They both are.

On the one hand, the FTC appears ready to oppose Google’s $750 million purchase of the mobile advertising company AdMob. Google is already the largest advertising firm on the Web; if it gobbles up AdMob, it would become the largest advertising company in the mobile-app world, too. Is that too much power for one company to have? The FTC has been looking into this question for half a year and has solicited opinions from several of Google’s competitors and others in the ad industry—a sign that regulators might be ready to declare Google too big to merge.

But now look at Apple. This week the New York Post reported that the FTC and the Department of Justice are discussing the antitrust implications of Apple’s new developer contract. The contract—which every programmer who wants a place in the iPhone App Store must sign—was updated last month; it now prevents developers from creating apps using third-party programming tools like Adobe’s Flash. Apple’s contract also imposes heavy restrictions on how developers can use third-party advertising systems in their apps. In particular, it seems to block programmers from allowing companies like AdMob to collect traffic data in order to serve targeted ads inside apps. Apple is reserving that right for its own new app-advertising system, iAd. This would make Apple the only viable advertising company for apps on the iPhone and iPad—which is why, according to the Wall Street Journal, regulators have been calling people in the mobile ad industry to ask whether Apple might be overstepping the antitrust line.

It certainly makes sense for the FTC and DoJ to keep an eye on the market for mobile phones, apps, and ads. This looks to be the biggest new sector of the tech industry, and it’s wise for regulators to prevent any single company from illegally dominating the fledgling business. But I’m hoping that for now, regulators will hold their fire against both Google and Apple. It’s true that both companies look poised to play a big role in the wireless business—they both make phones and the software to run them, they both run mobile app stores, and they’re both trying to build advertising platforms to squeeze revenue from these devices.

But that’s just the thing—they’re both very powerful. If you have to ask whether either Google or Apple is too big for the mobile business, isn’t that a pretty good sign that neither one of them is? Only one of them can be a monopoly, after all. At the moment, each company has enough power and ingenuity to prevent the other from gaining a permanent, monopolistic foothold in the phone market.

I’ve voiced my opposition to antitrust regulation of the tech industry in the past. In retrospect, the government’s prosecution of Microsoft in the late 1990s looks misguided. Yes, Microsoft did wield its operating system monopoly to crush upstarts like Netscape. But even with that bullying, Microsoft couldn’t last long at the top. It was quickly eclipsed by upstarts like Google and old rivals like Apple (whose stock market value looks poised to surpass Microsoft’s).

That’s the way it goes in tech—one day you’re in, the next you’re out. This is partly because the tech sector is extremely welcoming to start-ups. Some of the biggest companies on the Web—like Facebook, Twitter, and YouTube—didn’t exist 10 years ago. Technology is also inherently unpredictable—to stay successful, big companies like Apple and Google must keep making bets about the sorts of gadgets and software people will want to use in two, five, and 10 years. Sure, they can skew those bets in their favor by hiring a lot of talented people and buying a lot of companies. But you can’t win all your positions; sooner or later Apple or Google will stumble, just as Microsoft did, and some other company will come to lead the tech business.

Antitrust regulation is often too slow to respond to these market shifts. Just consider that some regulators are still hashing out what to do about Microsoft’s power in the PC industry. The same problem will plague any effort to police Apple’s or Google’s mobile plans. Yes, Apple looks indomitable now, and Google’s handle on the ad market sure looks imposing. But not long ago we were all worried that Microsoft would soon rule the Web. Things change.

Still, shouldn’t we worry about Apple’s and Google’s behavior in the absence of regulation? Won’t they gouge customers and roll over everyone else in the industry if they’re allowed to operate unfettered? To be sure, there is some reason to worry, especially with regard to Apple.

While many in the tech world have been focusing on the feud between Apple and Adobe over Flash’s place on the iPhone and iPad, I’m more troubled by Apple’s moves in the advertising business. Because Apple owns the iPhone platform—and because it has inserted restrictions on other ad systems into its developer contract—Apple’s iAd has clear advantages over its rivals. iAds, for instance, could serve up messages targeted to your previous iTunes purchases—while reading a newspaper app, you might see an iAd for the new Lady Gaga album, since iTunes knows you love her. iAds could also let iPhone users buy stuff through their iTunes accounts—you could click on that Lady Gaga iAd and buy the album instantly, which Apple won’t let other ad platforms do. And then there are the “analytics”—all the traffic data that Apple will be able to collect on your iPhone and deliver to advertisers and app developers to enable them to serve up better ads. Apple is very proud of these built-in advantages; in its sales pitch for iAds, it has been pointing out that its rivals won’t be able to keep up.

All of these bells and whistles will come at a price. According to the Wall Street Journal, Apple is looking to charge about $10 million to advertisers who want to be featured in the first round of iAds. On rival ad companies, comparable deals go for a few hundred thousand dollars. But advertisers may have no choice but to buy iAds; with Apple shutting out rival ad systems, there may be no other way to get ads on the iPhone.

And that’s why it’s so absurd for the FTC to question Google’s AdMob deal. If federal regulators put a stop to Google’s acquisition, then Apple’s outright domination on the iPhone and iPad will be assured. So the FTC has a choice: It can smack down Google now and Apple later, or it can leave both companies alone and let them compete. I’d rather see the fight go on.

Like Slate  and  Farhad Manjoo  on Facebook. Follow us on Twitter.