Apple 'iAd' Could Generate Billions in Revenue, Says Analyst

Apple introduced its "iAd" mobile advertising platform, which will allow third-party developers to embed advertisements within mobile apps, as part of its upcoming iPhone OS 4. An analyst with Broadpoint AmTech predicts that iAd could earn Apple billions of dollars annually once actualized, but another analyst suggests that the platform could also present its share of legal headaches. In addition to iAd, the iPhone OS 4 update also includes multitasking and a social-gaming hub.

Apple's "iAd" mobile advertising platform, introduced April 8 along with a variety of other updates to the upcoming iPhone OS 4, may generate billions of dollars for the company once fully integrated into the iPhone's mobile apps.

During a presentation at Apple's Cupertino, Calif., headquarters, Apple CEO Steve Jobs displayed a slide suggesting that the iPhone and the iPod Touch was capable of delivering "1 Billion Ad impressions per day," if users of those devices spent an average of 30 minutes engaging with advertisement-seeded apps.

That could translate into a good deal of money, according to one analyst.

"It is in our view Apple's new mobile advertising platform (-iAd') stole the show and will be significant to the financial model," Brian Marshall, an analyst with Broadpoint AmTech, wrote in an April 9 research note. "In fact, we believe the iAd platform could generate an incremental $2.5 [billion] in revenue and $1.00+ to Apple's financial model when the business hits its stride."

Marshall points to the iPhone's global ramp-up, with the device now available in around 90 countries, and its $39.8 billion cash reserves as indicators of the company's future success; at the same time, however, unsustainable carrier subsidies, peaked gross margins, and the potential for the iPhone to cannibalize the iPod family could all become drags on Apple's bottom line.

Marshall's research note indicates that the analyst firm could become more negative on Apple if "international expansion slows in the computing, iPod and smartphone markets," carrier subsidy premiums decline, or if the company's innovative product pipeline dries up. "If Apple is unable to continue designing leading-edge consumer products for mass markets, this would clearly negatively impact the financial model and result in a lower target price for Apple shares," Marshall wrote.

The iPhone OS 4 is due for release at an as-yet-unannounced point this summer. In addition to the "iAd" platform, other updates include multitasking, an ability to collect mobile applications in specific folders, a unified inbox for e-mail, and a social-gaming hub. But "iAd" may end up attracting the most flak from a number of different players and overseers in the mobile space.

"The iAd is a big step for Apple-their way to stick a finger in the eye of Google, and even MSFT (Bing)," Jack Gold, an analyst with J. Gold Associates, wrote in an April 8 research note. "Sounds like the only ads going to iPhone and iPad ultimately will be through Apple's ad-equivalent of iTunes monopoly for music. This is a game changer, and I'll bet someone legally challenges this monopoly position (probably in Europe, where iTunes is being heavily challenged)."