Daniel Eran Dilger in San Francisco
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iAd: Is Apple taking mobile ads in a new direction?

Daniel Eran Dilger

Steve Jobs apparently thinks “mobile ads suck,” so what is he doing about it? The story so far is that his Apple bought Quattro Wireless, turned it into iAd, and will be bundling it into its iPhone OS Software Development Kit so that App Store publishers can monetize their apps. But that’s nothing new, and doesn’t really change anything.
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AdMob and a gang of other competitors are already trying to monetize mobile apps for the iPhone (and other platforms) using the same old strategy as the web: by putting up somewhat relevant ad banners that click through to marketing offers. But that sucks, and it doesn’t make much money, even on the web. Google doesn’t make its money from placing AdSense banners, it makes its phenomenal revenues from paid search.

Come to think of it, Apple doesn’t seem to have such a high regard for slapping somebody else’s name anywhere near its own properties. It didn’t really like the idea of mixing the iTunes brand with Motorola’s ROKR before the iPhone, and it doesn’t market the iPhone now as being “With Google.” It doesn’t put Intel Inside stickers on its Macs. And none of Apple’s software, not even iWorks.com, has any ad banners trying to support it.

So how is it that Apple is now going to be launching another Google AdSense type network that puts tacky ads into iPhone apps? This seems so very un-Apple.

Apple sells its own products. And these days, Apple has a lot of products to sell. Not just categories of hardware and software, but loads of other people’s media: music, movies, TV, audiobooks, iBooks, and of course, mobile software.

Of course, it is possible that Apple might just duplicate the same thing we’ve already seen elsewhere, but it seems more likely that the company’s ad network will improve upon mobile ads in a way that’s both classy and directs attention to Apple’s own products.

iAffiliates

It would make sense for Apple to take its iTunes affiliate program, currently run by Linksynergy, in house. It’s already fairly easy for site operators to sign up and begin creating links to items in iTunes, then post the links and Apple-supplied artwork to their website. But what if the company made it even easier for App Store developers to add iTunes affiliate links to their apps, create banners for actual products rather than supposedly “relevant” links, and paid out commissions rather than charging for impressions and clicks?

This would tend to advertise iTunes content to the very people most likely to buy it, and constantly remind the people who use iTunes for their iPhone, iPod touch, or iPad that there’s lots of other content they might not yet have seen in the iTunes Store. Apple could even float paid promotions through its iAd network.

Essentially, rather than posting up ads, there’d just be iTunes Store recommendations. It’s far more likely that such ads would create revenue compared to impression banners trying to get somebody to visit a website; there just isn’t much value there. But when 1% of click throughs end up as actual purchases, there’s significant money to pay out to support content and development.

I know I’ve consistently earned more as an Amazon affiliate than I have running Google AdSense, and nobody notices the affiliate links (partly because I don’t do them much any more, but Google’s ads are always right there in your face. Imagine taking a mobile app and trying to put as many ads on the screen as there are in most websites. It’d be far more classy to just link to a few favorite movies or books in iTunes toward the end of your content.

Apple has a separate but similar affiliate program for its Apple Store merchandize, and another for MobileMe subscriptions. It could bundle all those things together and make it easy for users to sign up and begin recommending apps, Apple gear, or iTunes content online, in their mobile apps, or anywhere they post HTML, and earn a small commission on each sale. That’s a great deal for Apple because it’s high quality, low cost advertising. It only pays a slice on actual sales.

No Apple vs Google

Such a move would differentiate Apple’s iAd from Google’s bid to buy AdMob, the search giant’s mobile ads doppelgänger. That might prompt the FTC to keep Google and AdMob separate. Meanwhile, iPhone apps would be monetized by iAd’s slick iTunes suggestions, while Android would have the same old “relevant” ads that dump you off in a website link any time you inadvertently click one.

Apple could beat Google at its own game, and revolutionize how content and apps are monetized. All without actually engaging Google in a directly competitive way. And that, it would seem, would be more along the lines of what a company like Apple would do in online and app advertising.

25 comments

1 s_ba { 04.08.10 at 1:09 am }

Nice article Daniel – as always.
Why is it that I always see the same ads on your website, my favourite being “Could I have Lupus?”. No, I can’t, since I am a 35 year old male and not a 42 year old woman with joint pains and chronic fatigue. I wonder what Google even bothers collecting information about me, since I have never really seen anything relevant and click a banner about once a month.

Now, could you explain that bit about Google earning the big money through paid searches again? I thought the revenue came from the chumps that DO actually click on banners.

[Google does make money (and pays publishers) for banner ads impressions and clicks, but this revenue is pretty much nothing compared to what Google really does, which is paid search, the business it stole from Overture.

Apple makes money from its shareware-priced iWork apps, but certainly nothing compared to the revenues it makes from its hardware sales. It's kind of like that. - Dan]

2 dchu220 { 04.08.10 at 2:00 am }

One hallmark of Steve Jobs is that he doesn’t try to beat other people at their own games. Hopefully we will find out what he’s thinking tomorrow. Currently in Asia.

3 uberVU - social comments { 04.08.10 at 2:20 am }

Social comments and analytics for this post…

This post was mentioned on Twitter by atomictag: RT @DanielEran: New: iAd: Is Apple taking mobile ads in a new direction? – http://tinyurl.com/yfrpxc7

4 majipoor { 04.08.10 at 2:39 am }

Excellent analysis: while reading it, I thought it would make a lot of sense indeed. I would bet you are right.

5 tonortall { 04.08.10 at 5:16 am }

Daniel,

what you’re suggesting doesn’t seem to require the purchase of a third party to achieve the outcomes. Do you have any thoughts on why Apple purchased Quattro?

[Apple hasn't ever had an ad network team. The existing affiliate program is farmed out to a third party. So to bring that in house, it needed to hire people who had some experience in selling ad space in mobile apps. (Whether its for what I described or a simple AdMob clone) - Dan]

6 broadbean { 04.08.10 at 6:02 am }

It’s also possible Apple doesn’t want Google having too much real estate on their iPhones. How would you feel about see ads for Nexus One there all the time? :D

7 tundraboy { 04.08.10 at 6:44 am }

Nice take about how Apple releases a product only if it offers a significant innovation over the existing players, i.e. a “unique selling proposition” in marketing speak. So yes, speculating about what Apple could do with mobile ads is intereting. But not half as interesting as what Apple might have in store for search and maps. And you know they’re working on something over at their skunk works.

8 jomi { 04.08.10 at 6:52 am }

In addition, this is another point where no one in the world can compete with Apple – because there’s no other company with their own mobile OS and their own huge storefront.
(Note: I’m not ignoring the Android Market here, I’m just saying it has neither music nor movies nor TV shows nor Podcasts…)

9 iLogic { 04.08.10 at 7:06 am }

Daniel,

This has always made sense to me, I always thought Apple could potentially create a new type of search engine as well. Based on its own iTunes content, a “premium content” affiliate network, combined with Spotlight results that allows me to see relevant results on my mac. Now that would be a smart and valuable search engine! Obviously my personal stuff would not show up publicly, it would only show up when I’m working from my mac. A premium network is what I’ve always wanted from search, I get so tired of all the weak results out there. What about all the possible good content you might be missing? There are plenty of easy solutions that could implemented to let the best websites get it on the action. “Not that big a deal”

I guess I’m dreaming too much, the pundits would have field day if something like this ever came out of Manzana Inc.

iLogic

10 T. Durden { 04.08.10 at 8:54 am }

While I can understand developers wanting to make extra money via ads, I just can’t help but feel that introducing ads, however classy, will cheapen the whole Apple experience.

I have a recipe app for the phone with some 170’000 recipes – and one irritating, flashing, Google add. (I actually paid more not to have any ads displayed, so I don’t know why it’s there now, come to think of it). Result: I don’t use that app any more – it was too hard to keep trying to hide the ad banner behind one finger, whilst reading the rest of the screen.

For normal web browsing, I’m an avid user of AdBlock and ClickToFlash and really don’t mind paying just a little bit extra for access to “clean” sites.

But that’s just me. Perhaps I’m alone in holding these views.

11 Peter C { 04.08.10 at 9:00 am }

I suspect Apple will seek to personalise the adspace using a Genius-type function as per iTunes: cookies on steroids, if you will.

Ad’s that help you, rather than smack you in the face. Instead of ad’s being for tools, services and appliances, the ad’s would themselves be the tools, services and appliances.

It’s called “redefining the genre” and it’s always how Apple competes.

12 frankeee { 04.08.10 at 12:30 pm }

It’s so very based on the experience passing on a CD of an artist you like for a listen.

But iAds goes even further and makes it possible yourself “accidentally” having a copy right in your pocket, so if the friend requests, you can give to him for retail – commission based, which is proven to work and really not quite bad.

It really is quite a brilliant concept and I am confused as to why I didn’t come up with it. Something I always thought was wrong with the complication of my friend having to experience the trouble of having to go downtown’s CD store. Seemed such a waste of time and effort, if I could just pass on an exact replica of what I got for the same price as the store.*) right now, right here!

Imagine an a combo of iPhone, iPod Touch, iPad – iAd could go as far to pass on an advertisement of an album on your iPad to your friend’s iPhone (since he visited you and you had a few beers/wines and he really so got into the latest …. ahmmm, Def Leopard …. all via WiFi/Bluetooth/..3G(?)etc.

Imagine the possibilities!

Pretty pretty pretty … pretty smart!

*): I can see some criticism arising in terms of “monopolism”.

13 frankeee { 04.08.10 at 1:05 pm }

PS: One of the strongest updates by Apple since Leopard – possibly stronger?!

14 Maniac { 04.08.10 at 1:16 pm }

Sorry for the tired old metaphor, but iAd is yet another nail in Flash’s coffin. Incredible that HTML5 can do all that.

And on an aside, just imagine what all that industrial-strength VPN and improved security will do for iPad adoption in enterprise.

15 Maniac { 04.08.10 at 1:18 pm }

@ 13frankeee speaking of Leopard / Snow Leopard, are there any rumors about 10.7? I haven’t heard thing 1 about 10.7 yet. Daniel?

Sorry for the hijack, but usually by this time of year there are plenty of next-gen Mac OS X rumors.

16 TheMacAdvocate { 04.08.10 at 5:43 pm }

@T. Durden
I’m definitely with you. I imagine the best case scenario is that developers will be able to offer more robust free or cheap apps, having the advertising contribute revenue.

However, I don’t see developers using it that way. If an app is $2.99, why not just ad advertising and keep the price the same? I don’t think anything in Apple’s approval process will hinder this.

I think this is great for developers and will bring even more of them into the App Store ecosystem. But when we’re talking about 170K+ apps, does having 300K apps benefit the end-user that much more?

I guess I see developers gaining much more from this than users, and users possibly having their app experience suffer a little.

17 jpmrb { 04.08.10 at 7:12 pm }

War!
Off-track, but Gruber has declared war on Prince McLean (see “Why does AppleInsider Make It So Easy for Me?” at Daring Fireball). This is gonna be FUN (or ugly?)… Grab a beer!

18 StrictNon-Conformist { 04.09.10 at 5:14 am }

TheMacAdvocate:

Speaking as both a developer and an app user, here’s my thoughts.

1. The developer has to be paid somehow: their time, experience, and equipment and all other resources aren’t free.

2. Developers can reasonably be expected to provide quality software for a fair price: if they don’t provide quality software, no price is “fair” for the user.

3. It isn’t easy to determine what a “fair” price is, and the reality is the AppStore, in most cases, has become a race-for-the-bottom in terms of pricing of apps: I’ve not seen any other platform in my lifetime do that so well before the iTunes AppStore!

4. If the software is free of price for downloading, users should not get accustomed to software being totally without any sort of price: usually, this will either be as a result of referring users to certain information where other apps are shown (Now Playing likely does this, and gets money for users going through that app) and others that aren’t so easily and transparently (though users shouldn’t be naive enough to think that any sufficiently meaningful app should be free of charge in all ways!) then ads internal to the app should be the price users have to pay.

5. If an app is both a paid app AND requires users to see ads, a developer is living dangerously in the eyes of the market, and chances are, those apps will quickly get downrated into non-sales territory, unless the ads actually make sense for the app (example: racing game, or some other sports game, where not having ads or some sort of placement would make things unrealistic) such that things aren’t too intrusive to the user.

6. Users should vote with their wallets, and not be afraid to pay for something that they think has value: cheapskates that refuse to pay one way (pay for download) or the other (ads) can go to hell, for all most developers care, because they rarely contribute anything useful. Sadly, there are way too many users that bitch and moan about “All software should be free!” and often such users have persuasive power over other potential customers and help them make their choices.

7. I strongly suspect Apple will work towards keeping iAds in a reasonable subset of available ads: those that prove unpopular by statistics, Apple will quickly change things to make sure they don’t last long, if they can, since Apple is more about providing both users and developers the best experience possible, with the desire being that both users and developers will buy into the platform that much more: developers buy in because there’s a paying market, somehow, and users because developers develop for it, and, of course, Apple profits from the hardware sales and market momentum, and, if they do things right, they also make money on the ads in general. If they only break even, but still get more developers and therefore more users buying more hardware and gaining hardware/OS market share, they’ve still won from a virtuous cycle where all parties win.

19 TheMacAdvocate { 04.09.10 at 6:28 am }

@StrictNon-Conformist

I appreciate your perspective on this as a developer.

No smart person can argue against “paying” for a free app through advertising – even for the worst quality app. I agree with all of your points that allude to people having to pay – either with their wallet or with their attention – for an app.

Although it’s popular to characterize the app market as “a race to the bottom”, the App Store is still a free market. Pricing decisions, in the end, are made by the developers themselves. If a shop chooses volume over per unit revenues, that’s on them, just like in any other free market. If you’re saying that the downward price pressure of the App Store economy makes iAds necessary, I don’t agree. If developers were losing money in the App Store, there wouldn’t be 170K apps there. Apps that aren’t making money are either poor in quality or are not priced in a way that allows them to recoup the investment in them. Neither of these things are the consumers’ or the market’s fault.

I think you’re putting a lot more of the regulatory burden on Apple than the role they’ve defined for themselves, at least from what I heard at yesterday’s presentation. I personally don’t see Apple throwing a “penalty flag” for “excessive use of advertising”. As you point out, it’s the market’s job to reward the $4.99 app developer who tastefully integrates advertising and punish $4.99 app developer who plasters ads throughout her app.

My only point is that people are already “voting with their wallets”, and in the end it’s based solely on the quality of the app. When Steve said “mobile apps suck”, my thought response was “isn’t that why you developed the alternative revenue model of paying for an app?”. For developers of paid apps who will use iAd, it drops a layer into the user experience that benefits only one party in the developer-consumer relationship. I have yet to see an advertising model that adds value for the user; the very best models are successful if they don’t piss consumers off. iAd is an incentive for developers, but with the App Store as rich as it already is, I do not yet see what’s in this for consumers.

20 dallasmay { 04.09.10 at 10:04 am }

I can imagine how hard it must be hard to eat your words on this. It was just a few months ago that you were harping on Google, predicting that it would be they who do this very thing. “It’s just using existing technologies and leveraging community efforts to advance its own adware platform. ” You said.

Who would have guessed that Apple would be the first one to make the dive and support ads on an operating system level. iAds ruins just about everything. Software has always been a haven from advertisement. But now, Apple has created a way to send ads out to your iPhone every time you open an app. Make no mistake. Delivering high quality ads from corporations with deep pockets just became very, very easy. This is the end of ad free software.

Another innovation from our beloved Apple inc.

21 stefn { 04.09.10 at 10:24 am }

Reading here and there, I can accept that Apple must do iApp if only to retain developers. ‘Cus Google will definitely offers that same incentives to recruit them.

Compare this with an article at 24/7WallSt.com on Apple killing search. In plain speak, it has to do with using search services from within apps rather than from Google’s search engine.

Killing Google search. Taking its ad business. Fending off its efforts to recruit developers. No question: These boys are in a tussle. Should be interesting.

22 stefn { 04.09.10 at 10:26 am }

Erratum: “Apple must do iAds…”

Please let us edit our comments.

23 stefn { 04.09.10 at 11:17 am }

And if you want an idea of how important the developer recruitment battle will be, between Apple and Google, look at the chart of the day at Silicon Alley: 50.7 K games on the iPhone OS cf 2.5 on the Sony PSP and 4.3 on the Nitendo DS. We an argue all day about “what quality of games where.” But Sony and Nintendo must find these numbers scary.

24 MetalboySiSo { 04.12.10 at 3:37 am }

@ Peter C,

A little late, but absolutely agreed. Apple is all about not competing in current genre, but redefining them.

25 okli { 04.13.10 at 11:24 pm }

@DED
You are right as usual…big Daddy
Googlevil get $$$ per click… no matter how does it happens
the Enterprises was googling around for too long !!!
now Apple give them a chance to get real value for $
Yep! Googlevil… you sucks!

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