Apple Inc. is stepping up its rivalry with Google Inc. by adding its own advertising system to the next version of software that will power its iPhone, iPad and other mobile gadgets. Apple Chief Executive Steve Jobs said Thursday the new operating system will include an advertising capability, dubbed iAd, that allows developers of the programs available in Apple's App Store—many of which are free or cost 99 cents—to include ads in their software.

Mr. Jobs, speaking at an event at the company's Cupertino, Calif., headquarters, took direct aim at Google when he noted that people are increasingly accessing the Internet on phones rather than search engines. He said ads inside apps were a more attractive way for companies to advertise on phones compared with traditional search ads, an area dominated by Google.