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Apple iAds: A Game Changer for Mobile Advertising?

Posted on Thursday, April 15th, 2010 by Print This Post Print This Post

Categories - Featured, Mobile, News

On April 8, Apple unveiled iAds, a mobile advertising service that will be integrated into the new iPhone operating system, iPhone OS 4.0. The iPhone OS 4.0 is scheduled to be released this summer for iPhone and iPod touch, and in the fall for iPad.

This new mobile ad platform will be the first to facilitate media ad integration into apps. During the iPhone OS 4.0 unveiling event, Steve Jobs highlighted the interactive aspect of iAds, pointing out that the ads will be experienced by users within the application instead of being redirected out of it. Formerly, when users clicked on an ad, they would automatically be taken to the browsers. In order to get back to the app, they had to first exit the browser, go back to the home screen, and then restart the previous app—a process that some users found quite annoying. With iAds, users are allowed to remain in the app, and when finished, then can get back to where they started simply by clicking the ‘X’ on the upper corner of the screen. Jobs emphasized that mobile users spend  much of their time using apps rather than web browser to find information; thus, it is only reasonable to integrate ads directly into these apps.

Apple will be selling and hosting the ads, and the revenue will be split by Apple and the developers—Apple taking 40% and the developers the remaining 60%. iAds will provide a new revenue stream for developers beyond app downloads or updates, especially since many of the 185,000 apps in the App Store are free. According to Jobs, there will soon be 100 million Apple mobile devices on the market. An average user spends about half an hour on apps daily— so if an ad is shown every three minutes, a user will see ten ads per day, and in total, 1 billion impressions can be made through iAds each day. An article on BNET cautions that these numbers are probably overstated and that Apple is nowhere near 100 million devices that could incorporate ads, but still assures it is in the many tens of millions.

iAds offer some new  features in mobile advertising, allowing advertisers to present videos, games, downloadable content, and execute sales. The success of iAds will, however, will ultimately depend on its presentation and ad placement. If the ad is not relevant to whatever app the user is running when the impression is made, then the user will not be likely to find the ad of interest, and the advantages of iAds will never be realized. There is speculation over the implementation of an approval process of these ads, although nothing has been confirmed yet.

There seems to be mixed views on the magnitude of the iAds opportunity by financial analysts. Brian Marshall with Broadpoint AmTech thinks that by enlisting a “hybrid” ad price model—incorporating  cost per click, cost per action, and CPM—Apple could potentially reach as much as $4.7 billion in revenue.  On the other hand, Shaw Wu with Kaufman Bros., was not quite as optimistic, stating that “the financial impact to AAPL will be minor to negligible as this is more a service for app developers to make money.” Apple has not yet provided the details on how these iAds will be sold, nor has it addressed the issue of whether or not publishers will be allowed to sell into the iAd space.

In any case, Apple is still a fresh newcomer to the advertising business. Jobs himself admitted, “We don’t know a lot about advertising, but we’re learning. We tried to buy AdMob, but Google snatched them up because they didn’t want us to have them, so we bought another smaller company, Quattro. But we’re babes in the woods.”

It will be interesting to see what kind of an approach Apple will be taking in running this new ad network, especially since they will essentially be controlling the ad space on its mobile devices. Will iAds be as successful as Jobs imagines it to be and become the prototype of future mobile advertising?  Or will it be disregarded as an amplified nuisance that iPhone users will have to live with as a compromise for free apps? Perhaps it is even possible that the implementation of the iAds will steer some users who would’ve used the free ad-inclusive version of an app to actually purchase the full ad-free version to avoid the interactive-ness of the ads altogether.

About Grace Kobayashi

Grace Kobayashi is a graduate student at the University of Southern California in the Master’s in Human Behavior program She was born and raised in Honolulu, Hawaii, and after graduating from high school, moved to Tokyo to do her undergraduate studies at Waseda University. She is working as an intern for the Client Services team at The Search Agency.

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2 Responses to “Apple iAds: A Game Changer for Mobile Advertising?”

  1. Great article.

    One thought is that the iAds could potentially be a larger revenue stream that could allow Apple to mimic the mobile sales ‘free phone with service’ model.

    Imagine if a lower end iPhone (or iPad) was essentially free, with Apple making their money from iAd sales, AT&T fees and App developer rev share.


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