Apple, no stranger to creating premium payment models for its goods and
services, could charge advertisers five to 10 times the normal amount for
campaigns created for applications running on Apple's iPhone smartphones and
iPad tablet computers.
Apple April 8 introduced iAd, an advertising platform that runs ads directly
within applications for the company's popular iPhone smartphone. Application
developers will get a 60 percent cut of the revenue, with Apple taking the
remaining 40 percent.
The company could charge as much as $1 million for ads running on its
iPhones and iPads, compared with $100,000 to $200,000 for comparable mobile ad
deals, ad industry officials told the Wall Street Journal (paywall).
Ad executives told the Journal that Apple may charge advertisers a penny
each time a consumer sees a banner ad, and $2 each time someone taps on that
banner ad. Apple could also charge up to $10 million for ads in iPhone
applications to begin appearing with the launch of the iPhone 4.0 in June, the
Journal said.
Apple CEO Steve Jobs unveiled iAd during the introduction of iPhone 4.0, stressing that
advertisers are better off targeting ads within applications rather than
running ads alongside search results.
The idea is that the user can see the ad seamlessly, without being taken out
of the application he or she is using. The ad, which could include a movie
trailer, runs atop the application, returning users directly to the application
when it is finished. Jobs compared the experience to watching an ad during a TV
show and being returned to the program.
Asked about Apple's plan to charge a premium for in-application ads, Piper
Jaffray analyst Gene Munster told eWEEK that he believes iAd will be a
disruptive platform over time, with this caveat:
"It seems the gap between the
mobile budgets Apple is going for is much larger than most mobile budgets. The
big brands might step in, but the reality is money from mobile still comes out
of emerging media test budgets, which are smaller budgets. That said, if anyone
is going to pull it off, it's going to be Apple."
Apple is in an interesting position in the market. Apple has no track record
in digital advertising, and Google's similar plans to bring ads to mobile
applications have hit a snag.
The Federal Trade Commission is closely investigating Google's proposed $750 million bid for AdMob, which provides the same type of
in-application ads Apple plans to offer with iAd.
Google has the advertising clout with major brands all over the world thanks
to its desktop search empire. But Apple has strong mobile cachet thanks to the
iPhone, which has sold more than 50 million units in three years, and the iPad,
which sold over 500,000 units in the first week. iAd already has analysts
rethinking their predictions for advertising on the mobile Web.
Munster said he expects the
mobile in-application ad opportunity to be roughly $220 million in 2011, the
first full year of iAd, commensurate with the growth of Apple's mobile device
user base. Looking farther out, he said he believes the in-application
advertising market could reach roughly $700 million by 2013, with $500 million being
generated by ads on the iPhone platform.
"We estimate Apple could capture $380 million of this market through
the iAd platform in gross ad revenues, or 77 percent market share on the iPhone
platform for advertising, as we expect AdMob and others to continue to compete
on the iPhone platform," Munster wrote in an April 9 research note.
Broadpoint AmTech analyst Brian Marshall was more bullish, predicting
that the iAd platform could generate an incremental $2.5 billion in
revenue when the business hits its stride.
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