• by Mark Walsh  @markfwal, June 24, 2009

The market for advertising in iPhone apps is heating up. Google today announced the beta launch of AdSense for Mobile Applications, allowing developers to monetize their iPhone and Android apps with contextual banner ads.

With more than 1 billion iPhone apps downloaded and a string of Apple competitors opening their own app storefronts, Google and other companies are vying to be the ad networks of choice for mobile apps. To that end, mobile ad network Greystripe Tuesday announced it would guarantee iPhone app developers at least 25% higher CPMs than competitors for 60 days.

Why is Greystripe so confident that it can do better? It maintains it can deliver higher CPMs to its full-screen rich media ads that allow marketers to make more of a splash. The company told TechCrunch its effective CPMs typically run from $1.50 to $2, which is higher than the average rate delivered by other ad networks.

"Our new program reinforces our commitment to establishing a sustainable CPM that promotes the free app ecosystem," said Greystripe CEO Michael Chang in a statement. The company's "CPM protection program" appears to be a thrust at iPhone-centric mobile ad network AdMob in particular.

AdMob on Wednesday, however, said its eCPMs on iPhone ads also range from $1 to $2. With the company serving more than 1 billion impressions a month via the iPhone, Jason Spero, AdMob's vice president and managing director for North America, expressed little concern about a competitive threat from GreyStripe's CPM pricing incentive.

He said he was more focused on Google's extension of AdSense to the iPhone. While acknowledging that the search giant was a "formidable competitor," he suggested that AdMob was well-positioned to take on Google as well as Greystripe.

From what he's seen of AdSense ads being tested in iPhone apps, he said, "it looks like a PC solution squeezed down into a mobile device." Without optimizing ad units and landing pages for the iPhone, he added that Google would "struggle to derive relevance in a mobile environment."

With its own app storefront in the Android Market, Google has an interest in advertising in mobile apps that goes beyond the Apple device. But so far, Google's own store has only about one-tenth the App Store's 50,000 apps.

If nothing else, Spero noted that Google's push into ad-serving in mobile apps would help further validate the space as a legitimate option for marketers. "It's flattering that they realize this is a very important market," he said. The entire mobile ad business is still tiny. Interpublic unit Magna projects mobile advertising to reach only $229 million this year, growing to $409 million by 2011. By comparison, U.S. online ad spending last year was estimated at $23.4 billion.