With millions of iPhones and wifi enabled iPod Touch’s, and over 100 million applications sold, Madison Avenue is playing close attention to Apple’s success. Who wouldn’t? But the MadMen in New York are seeing opportunities, not applications. They are seeing how incorporating advertising into social networking applications like “Loopt” can turn those millions of iPhones into 21st century bill boards. And they’re betting the farm on it.

According to recent studies by the research firm Informa Telecoms & Media, the mobile ad market is on a nearly $2 Billion dollar pace for 2008, and promise to grown to an estimated $12 BILLION in mobile ad revenue by 2013. That’s a lot of ads. But how will it work?

The idea is that with smartphones that are GPS enabled, software can pop up targeted ads into social networking sites which seek to find where all your friends are. It can also be embedded into such applications as Google Maps through cell phone internet browsers. Users can see an add for a nearby restaurant, for instance, tap for directions and go directly there.

And other applications like Pandora Radio are getting into the game with major clients such as Best Buy, Beck’s and Jaguar. And using a subsidizing scheme where ads will support making more applications for free, it could be the key to reaching that 12 billion dollar ad ceiling.

But the real question is, do users want their iPhones to harass them with digital advertising pollution?
Frankly, I just want a phone that makes phone calls.

Hat Tip – CNN Money