Apple iAds: Exploring the good, the bad and the ugly

Apple’s announcement in April of its own proprietary advertising platform, iAds, has created quite a stir.  Set to have begun running on 1 July, there have been some delays as advertisers get to grips with the new platform.

iAds sees Apple taking direct control of ad sales while offering publishers of apps 60% of the total advertising revenue.  Major advertisers such as Unilever, Nissan, Disney, and CitiGroup have come running and we’ll probably see some mind-blowing displays of creative genius over the next few weeks and months as ads begin to flight.

But will it work?

iAds is not the only avenue to advertising on iPhone, iPad, or iTouch

Advertisers will retain some level of choice – iAds is, for now at least, not the exclusive solution available to developers/publishers who wish to monetise their applications or content.

At face value however, iAds does seem to be the simple way to monetise a new app, and I reckon we’ll see a large majority of new apps going the easy route.  Besides the convenience, there’s something that seems very logical about using Apple’s advertising platform on Apple products.

How well will Apple sell the space?

As a company with no history in digital ad sales, Apple may take time to get this right.  The recent acquisition of mobile ad company, Quattro, should help though. In my opinion, Google’s advertising success has rested largely on being able to accommodate advertisers of all sizes: the big brand and big spenders, as well as the long tail of small advertisers – which can’t be under-estimated.

Apple’s alliance with agencies and big advertisers, while critical to success, is hopefully only the first step in making iAds accessible to advertisers of all sizes.  With a reported entry fee to each advertiser of $1-million, Apple is setting up an elitist club and exclusivity is already being granted to advertisers in certain sectors. I don’t believe the product will fly without taking advantage of the enormous advertiser base that exists in the digital space – thanks largely to Google, who have educated the marketplace.

Given that the iPad and iPhone have Location Services, Apple’s iAds could in theory accommodate small advertisers extremely well as an appealing local business advertising tool. But for the next six months, prepare yourself to see Nissan, Disney and CitiGroup promtions ad nauseum.  Quattro’s apparent lack of a self service solution for small advertisers may mean it will be sometime before Apple or Quattro can offer accessibility to iAds to small advertisers – if at all.

Creative Control

Steve Jobs cites his concern of a deteriorated user experience as one of the big motivations behind iAds.  He believes that with iAds, Apple can take control of the creative quality and the way in which ads engage with the user.  Apple’s move to introduce blocking of online ads in the new Safari web browser confirms his strong feelings about ads interfering with the user experience.  So, will Apply allow their users to block iAds?

Something that has always surprised me when observing the performance of our own advertisers (on Ad Dynamo), is that the poorer creative work often performs the best.  I don’t have an answer as to why, but I can say that the commercial outcome for an advertiser (which must surely be the primary objective and measure of ad success) is not always achieved by award-winning creative.  Sometimes, simplicity trumps creative genius.

For now, Apple will sell the ad space, but the app developers can still decide where and how to make the ads visible to the user, so whilst Apple may control creative, they won’t have control of the point during the user experience that is used to present the ad.

Threats

Price may be a deterrent to iAds receiving the take up anticipated.  Current costs (besides that hefty reported entrance fee of $1-million) are  $10 CPM (cost per thousand) + an additional $2 CPC (cost per click).

iPad and iPhone contenders could diminish the allure of a device-specific advertising platform, though a true challenger to the popular devices seems unlikely at this stage.  But then again, Nokia seemed untouchable five years ago, so nothing is certain.

Anti-trust rulings could shake things up as well. I don’t see Apple’s attempt to exclude rivals such as Google holding up for long.

Limited to the Apple user-base, the fact is that advertisers who go the iAds route will need to prepare separate creative campaigns through separate advertising platforms, which could of course dampen its uptake.

Possible Competitors

Adobe has formed an alliance with Greystripe that will see Flash ads being able to be exported to HTML5 (iAds format).  This will offer advertisers an advantage in using one set of creative to reach web, Apple devices, and other Flash compatible devices. 

Adobe seems to have some more advertising related plans up its sleeve, but unfortunately, though they produce fabulous tech, I don’t see Adobe posing a threat.  In recent years they seem to have launched lots of great products but with no focus.  Also in the back of my mind is the spectacular failure of the Yahoo! PDF advertising initiative launched years ago, which seems to have fizzled into obscurity.  Microsoft’s Silverlight (a direct rival to Flash) is also gaining traction and appears to have the thumbs up from Apple.

Google acquisition of AdMob has given it a larger chunk of the mobile ad market.  AdMob sees 30% of its revenues derived from Apple devices, and, with Apple’s recent change in terms, it seems likely that AdMob may lose its rights to power advertising on Apple devices.  Don’t expect Google to take this lying down though.

Final Thoughts

I believe that iAds will end up being an important component of the interactive advertising ecosystem for large, global brands. For the foreseeable future iAds will not be accessible to advertisers who have been able to reach iPad and iPhone users through AdBrite, AdMob, MXit, or even Apple-owned Quattro.  Even if small advertisers could use iAds, the creative cost may not be economical; in the US and UK it is acceptable to spend up to 30% of the budget on a digital ad campaign’s creative, whilst in emerging markets such as South Africa this would be excessive.

From a South African perspective, feature phones (cheaper phones with smart phone like capabilities but with limited processing power and storage capacity) represent 75% of the market.  The iPad and iPhone users represent a small, albeit affluent, percentage of the total market

Apple will keep its platform open to other advertising vendors and I believe that we will see some interesting new entrants over the next year.