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Summary:

Advertisers are already shelling out big money to be a part of iAd, which debuts tomorrow. But the new ad platform faces far too many hurdles to capture the 48 percent of the mobile ad market Steve Jobs is hoping to claim.

Apple’s much-hyped iAd is slated to debut tomorrow on iPhones and iPod touches, and there’s no shortage of advertisers willing to dig deep into their pockets to be a part of the platform. As I discuss in my new report over at GigaOM Pro on in-app advertising (sub. req’d), iAd will surely give the market a boost thanks to the emergence of the iPad, whose size and display quality make it an ideal device for using apps and viewing ads. But here’s why iAd won’t capture the 48 percent of the market that Steve Jobs is gunning for:

  • It’s expensive. Apple is charging advertisers $1 million just to be a part of iAd, which is five to 10 times more than what competing ad networks charge, according to the Wall Street Journal. Some are paying Apple as much as $10 million to be the exclusive advertiser in their respective industries. What’s more, Apple’s prices of $10 per thousand impressions for banners and $2 per-click on actionable ads are the highest in mobile. That’s a lot of money to spend to align yourself with Apple when other alternatives are available.
  • You don’t have to use iAd to advertise on the iPhone and iPad. While Apple’s initial developer agreement for iOS prevented rival ad networks from being able to track the performance of ads delivered through the operating system — essentially forcing advertisers to use iAd to advertise on iPhones — the company revised its terms earlier this month after getting pushback from the mobile ad industry. The new rules restrict the use of analytics data to independent companies “whose primary business is serving mobile ads,” which is a not-so-subtle swipe at Google and AdMob. Those terms drew a quick rebuke from AdMob CEO Omar Hamoui, who said they punish both developers and consumers, and they have justifiably drawn the attention of federal regulators. But the terms also give advertisers and publishers freedom to partner with any of the countless independent players in the mobile advertising space, including well-known companies like Millennial Media and Greystripe, instead of using iAd.
  • Big publishers want to sell their own inventory. In its role as an ad network, Apple will place ads on all sorts of inventory on the mobile web and in applications. But as Medialets CEO Eric Litman told me earlier this week, established publishers are already capable of dealing with advertisers directly. “Publishers that have meaningful sales capabilities want to own those relationships with brands,” Litman said. “They don’t want to be sold blind.” And while publishers usually like to package their inventory across platforms — including iPhone and Android apps and web sites for PC and mobile users — iAd forces them to invest time and money to deliver ads through only one platform.
  • Apple’s insistence on being involved is already slowing deployment times. As AdAge noted earlier this week, Apple is handling the technical production of iAds and telling agencies it may take two months to build an ad after creative is complete. We’re sure to see some knockout iAds with top-notch production values thanks to Apple’s input — especially once iAd extends to the iPad in November — but there are much quicker ways to bring your ads to the iPhone.
  • Android has arrived. Apple still dominates the mobile-app world and, with it, in-app advertising. But Google’s mobile operating system continues to close the gap on iOS, garnering 26 percent of all AdMob ad impressions in May. That gap will continue to close as manufacturers churn out a wide variety of supporting handsets and as Android-based tablets come to market.

The emergence of iAd will have some long-term repercussions — especially if ad businesses from Google, Microsoft, Nokia and others remain blocked from accessing analytics. It’s likely Apple will raise the bar for mobile advertising as a whole too. Indeed, iAd is luring some high-profile companies like Campbell Soup, DirecTV and Sears to invest heavily in mobile advertising for the first time, and Citi and Nissan are paying top dollar for exclusive deals on the platform. Apple’s efforts will surely help drive a U.S. mobile ad industry that will explode from $416 million last year to $1.56 billion by 2013, according to eMarketer. But there are far too many established, innovative players for Cupertino to capture nearly half the space by the end of the year.

Image courtesy Flickr user Daveness 98.

Related content from GigaOM Pro (sub. req’d):

The In-App Advertising Landscape

By Colin Gibbs

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  1. One of the things you are missing is that iPhone users make up a very desirable demographic and advertisers know that. That’s a really big deal because they can expect much higher returns from a demographic that tends to be well educated with expendable income than a bunch of Android or other users who bought what was cheapest that week. If you haven’t even figured that out then you know little about advertising and there is no reason to buy in to your conjecture about what might happen with iAds.

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    1. You’re right that iPhone users are the sweet spot in terms of demographics, Darwin. But like I said clearly: You don’t have to use iAd to advertise on the iPhone and iPad.

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      1. No but odds are that users will prefer iAds over any other ads.

        This may play out just the same way with the 2 billion phones capable of running Java ME games, barely no user cared about mobile games until iPhone came along and made the game a pleasure to play.

        I believe that the quality of ads can be a deciding factor. If the quality of iAds makes a better impression on consumers by the same factor as Java ME games vs. iPhone games. Then iAds will be bargain for it’s price tag.

        The question is; will you get return on your invested ad money. As I see it the odds to get a good return is much higher with iAds, than any of the current solutions. Than in all honesty are quite despised.

        Apple’s goal is to get the quality bar on ads so high that users actually want to watch them. So far I have seen very very few ads from competing networks that have ever made me want to click them.

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  2. What iAd doing is fare enough if I think like a businessperson because I always love to block competitor in my own zone but in this way I may look like a Mob who try to kill all his enemy. I believe in openness, so it’s hard for me to support Apple, developer should go with advertising company that they feel profitable. Blocking other company this way, just show Apple weakness. They may be paying less but, yet don’t want to lose the developer. Nice comprehensive study.

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  3. [...] Apple mit Einsteigerpreisen für Werbekunden bei $1 Millionen US-Dollar und liegt damit nach GigaOM-Rechnungen bei einem fünf- bis zehnfach höheren Investitionsvolumen gegenüber seinen [...]

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  4. [...] small developers innovate is entirely true. And even big advertisers groan the iAd platform seems pricey and time consuming. Apple is charging $1 million membership fee for advertisers to be part of iAd, and its [...]

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  5. This analysis is very demand based, i.e. based on what advertisers want. However, advertisers will have to go where the supply lives. If Apple convinces the majority of free app developers to go with iAd because of the favorable terms and ease of use, then it’s no contest. Apple knows how to create gold rushes for developers. It’s why they highlighted the 1 billion developer payout number.

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    1. +1. well said.

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    2. Chat

      To be clear — advertising is always demand based. Advertisers are always in control and someone who has been in the media for a long time, it is clear as a day.

      Will iAd change that reality — probably not. Make life better for the developers — probably.

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      1. I agree to some extent. However, if Apple creates enough mommentum initially they can create a self-fulfilling prophecy — get enough demand from advertisers to make the first set of developer payouts big, then developers will move to iAds in search of riches, Apple will control all the inventory, then advertisers will have no other strong iOS alternatives, thus inducing them to buy if the ROI is there. The wonders of a closed system are many, particularly when you have the marketshare to bully entire industries. :) I think Apple is intentionally trying to create this snowball effect.

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      2. If Apple delivers a better user experience for Ads in Apps, and removes the friction for developers for integration (i.e. should I integrate Admob, MM, Greystripe, Medialets, Vdopia SDKs or should I #include iAds), it creates a single point of inventory for the buyers at the agencies. This supply-pull can be a iphone adgame changing factor.
        Another interesting question is gAds/Android if that offers an equally compelling marketplace, complicating the scenario for agencies and forcing them to buy X% iAd space + Y% gAd space for each campaign. Eventually, agencies want to reach their target-audience, not merely an ‘iphone owner’ .

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        1. @rohit

          Agreed on offering a better user experience. My view is that they cannot deliver a remarkably differentiated experience unless they re-train the advertisers into doing something different. Think of it this way: it is 15 years since the first banner showed up on the web and now we are retrofitting that same format for mobile, which is a whole different use case. My problem is with advertisers as they refuse to move with the times and try new formats.

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    3. @Om: how about a GigaOm tete-a-tete with someone like Rishad Tobaccowala or Sean Finnegan (Chief Digital Officer, Starcom) on this topic (Mobile Advertising, iAds, gAds,…) they probably have a lot to say in how they view it – non-obvious stuff to us living in the techvalley fishbowl.

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      1. I am all for that. I would love to converse with these guys and will get on it.

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  6. Why rush to judgement so soon? The ads are not out. Give it a few months to see (1) what the ads look like, (2) what kind of ROI advertisers get, and (3) what kinds of rewards app owners receive. I give Apple credit for trying something different.

    BTW, The lame Admob ads on my iphone ads will not entice me to click on them ever (I don’t even notice them most of the time).

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    1. I wouldn’t call it a rush to judgment, RK — I don’t think iAd is doomed. And I think you’re right that Apple may present ads that are better received by consumers than traditional mobile ads. But I don’t see how Apple brings so much to the table that it will capture 48 percent of the market.

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  7. Have you ever experienced the ads on Android driven by Admob? For example, with the NYTimes app in landscape mode it is virtually impossible to scroll up and down without triggering the ads across the top and bottom of the screen. This is the case in all the ad-supported Android apps I’ve tried and it is infuriating to the point where I deleted those apps. Apple’s control, from a consumer-perspective, is a huge advantage- they simply would not let this kind of thing happen.

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  8. @Darwin I wouldn’t say the “i”Users tended to be well educated. Tend to unquestion-lly follow trend and consume maybe – which are Advertisers’ dream targets.

    Apple is charging so much because it’s betting on the “elitist” mindset in the consumer it has fostered with its devices. If it can get iPhone users to pay for the rubber casing (which is expensive for a piece of rubber) to patch Apple’s own design flaw unapologetically, they can feed almost anything to its users knowing the users will eat it.

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  9. The size of Apple’s success with iAds will depend on many factors and the chances of Apple getting them all right out of the box is small. The bigger question is how much time will Apple have to get them right.
    That will be a function of many factors.
    But with regard to the ability of advertisers to package across multiple platforms and or the importance of Android etc. Apple unique demographic of their users are just too valuable for most advertisers to ignore.
    The Ronco Ginsi Knifes of this world and or discount video cards will be attracted to the Android crowd and higher end brands will want the iPhone crowd and be willing to pay for it.

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  10. I’m not certain how demanding the math is supposed to be; but, the slide shown in the Jobs talk you link to surely looks like 25% or so – not 48%.

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