Will iAds Benefit From the Apple Effect?

Under Steve Jobs’ leadership, Apple has been growing from strength-to-strength in recent years.  As my colleague Adam Viener reported, Apple is rolling out its iAds platform bundled with its iOS4 operating system for its various “i” devices. But will this make a splash in the market? After all, ad platforms for mobile devices already exist and have not made a significant dent in market share, despite some industry analysts harping the “mobile’s where it’s at” mantra for the past two years.

Maybe Apple has more than a fighting chance, given the demographic of its customers who are fiercely loyal, even in the midst of buggy equipment and services like lax App developer regulations, stolen iTunes accounts, and just bad antenna design in its iPhone4.

Let’s face it, Apple fans are either highly enlightened or are users who place a product’s form at a premium over its function, as a recent YouTube video has shown. Note that this video contains language that may not be appropriate for all viewers.

Strangely, or perhaps not, I noticed that Apple did not list iAds among the features on its iOS4 page.

CNET has reported the iAds platform is intended to help developers offering free Apple apps monetize their offerings by embedding iAds within their application, sort of like an-app-within-an-app. The way it works is that Apple will sell the ads and developers will earn about 60 percent of the ad revenue, with Apple taking the rest. Apple is said to have already brought on big brand advertisers like Nissan, GE, Best Buy, and Geico for their campaigns and Jobs has told App Store developers that Apple has secured $60 million worth of ad inventory for the year.

While that sounds like a nice chunk of change, it could go pretty quickly based on how Apple has structured the ad costs to advertisers.

The Wall Street Journal has reported that a penny will be charged each time a user views a banner ad and $2 when the ad pops  up. This translates to a $10 CPM and $2 pay-per-play/view cost. No wonder estimates that advertisers might pay $1 million or more for a campaign don’t look so optimistic after all.

I don’t think it’s too big a risk for advertisers given that the users have already pre-qualified themselves. They’ve paid a premium for their Apple product or locked themselves into subscription plans with AT&T, all done voluntarily (no one’s died from not having an iPod as far as I’m aware). Their disposable income and Apple loyalty predisposes them to viewing and possibly acting on the ads.

The Apple Effect is well-documented and refers to consumers paying double or more over what a competitor’s products costs, in large part due to going through the company’s premium user experience. Whether it’s cell phones, mp3 players or tablet computers, this effect has already been proven.  We’ll see if advertisers are also willing to pay to experience the Apple Effect.

iAds doing things differently

To borrow Apple’s 1997 marketing slogan, the company is likely to “Think Different”, if their demo ad is anything to go by: the Toy Story 3 ad looked more like an application with a playable game, collectible wallpaper, and sound clips from the movie, rather than run-of-the-mill TV advertising adapted for a small screen. Apple seems to have nailed down the interactive element of advertising and turned it into a user experience.

But all’s not rosy in Appleland. Even as the iAds platform is being rolled out, enterprising developers have started offering iOS mods intended to disable iAds on jailbroken devices.

Google’s not sitting still either. A recent development has been their rival network AdMob’s, concern that it might be blocked from the iPhone platform because of a recent change in Apple’s terms of service for developers.

But AdMob CEO Omar Hamoui has said it hasn’t been blocked from the platform. The arrangement of co-existence with Apple’s iAds platform remains to be seen. But Apple might be doing the smart thing by adopting a wait-and-see approach, ironing out most of the bugs in its ad delivery system before making the decision to work out a revenue share agreement with AdMob or moving them off the platform altogether.

With the $1 million ticket price to play in iAds’ game it’s unlikely that smaller affiliates will have the bankroll to buy in, especially with the pent-up demand Apple will be fulfilling. Down the road, there might still be opportunity, especially when Google’s own Android cell phone platform begins the game of catch-up.

There are lots of questions to be answered still about iAds:

Will advertisers be happy with their $1 million Apple experience?
Will Google’s AdMob be edged off the Apple platform?
Will Apple analysts and watchers get more sleep?

Except for a “No” to the third question, the other lingering questions will not have an immediate answer for now. Advertisers and consumers alike will have to wait and see if the Apple Effect is pervasive enough to hold interest and dollars against the growing tide of competition and unsatisfactory service.

About Andrew Wee

You can find Andrew Wee on Twitter @andrewwee

One Response to Will iAds Benefit From the Apple Effect?

  1. Josh Todd says:

    iAds will succeed. Bottom line. The question is, who will it succeed for? Will it just be big brand advertisers or will the rest of us get a chance to design slick ads and pay $2 per view as well?