We might have known that it would only be a matter of time before the ubiquitous Google AdSense machine started to tie in to the mobile applications market. There has been a predictable explosion in interest for smartphone applications and it would seem that the sky is the limit. Downloadable applications proliferate for Apple iPhone and Android platforms.

Google is now moving into the mobile ad market following the testing of text and graphical ads in private beta. The web-behemoth has expanded its field testing and is playing with contextual ads for both platforms. According to Google the ads can be targeted by “applications, locations, categories or keywords.”

Program developers can insert a snippet of code within their applications, allowing iPhone and Android powered handsets to display ads. This effectively synchronizes the application with the Google ad network and opens up significant earning opportunities down the road.

One of the challenges associated with the approach is, as always, to get past the typical consumer “ad resistance”. Harold Steinberg, director of business development for Urbanspoon (one of Google’s startup development partners in the venture) concurs. “What we are looking for… is to allow the user to look at the whole application as one and not say, “oh, that’s an ad, I’m not going to pay attention to it.”” If the ad is successfully integrated within the application there is more chance that the consumer will interact with it thus allowing the app developer and Google to make money and the advertiser to gain traffic.

It does appear that the banner style of ad will likely be utilized, rather than the text ad we are all so familiar with. The traditional desktop style webpage rendition does not convert very well for the iPhone screen, as we know and it appears that Google is well aware of the potential difficulties associated with trying to first “expand” and then click on tiny text ads. They maintain that the AdSense ads will all be “above the fold” and will thus be instantly viewable as soon as you surf to the relevant page, just ready for the click, or touch in this case.

For the marketer, “pay per click” is one of the primary traffic-driving platforms available online. Google markets this opportunity as “AdWords” for the advertiser (you pay Google and they display your ads) and “AdSense” for the webmaster, or in this case the application developer (Google displays your ads and they pay you if somebody clicks). While many people are highly successful using Google’s AdWords, the concept must be approached with a lot of caution. You can wipe through an advertising budget very quickly if you are not sufficiently prepared and/or very sure of your keyword choices, composition and landing page relevance. As far as the new AdSense for iPhone potential is concerned, the same cautions apply. While it may be tempting to jump all over anything that has to do with the mobile Internet revolution, marketers should exercise additional caution here. It remains to be seen how accepting consumers are to the idea of “in your face” advertising on the phone screen, as this is only just rolling out. We must also see how much it will cost to specify that your ad appears on this platform and whether it can be sufficiently integrated (see Steinberg’s comments above).

While Google is keeping things small right now and only working in beta with a small number of highly qualified partners, it has (as usual) a clear advantage in this marketplace. When Google opens up and allows marketers to select mobile applications as part of their overall AdSense campaigns, bidding will increase significantly and ad rates will go up.

As the smart phone market experiences unprecedented growth and the future looks equally as rosy, expect there to be significant interest in this platform and who would bet against good earnings potential. Mobile application usage is expected to quadruple in five years and Google is perhaps banking on the fact that those eyeballs will be drawn to mobile AdSense, especially as the mobile advertising market is touted to grow to almost $5.7 billion within that period of time.

Have you started to use AdSense Applications on your iPhone? We would love to hear your feedback.

Matthew Toren