Now with that behind us, and iOS  adopting device-level legal compliance, it is poised to become a juggernaut of mobile advertiser revenue – and eventually will be second only to television in overall ad spending.

UDID inadvertently stifled advertising

The legal gray area around UDID became a serious and expensive issue for two of the biggest apps in the iOS ecosystem in May of 2011. Pandora and The Weather Channel were both named in a lawsuit because of how they used personal data, namely UDID, and combined it with location-based data or other demographic data. The lawsuit specifically called out the fact that with UDID, users were not able to opt out of ad tracking. In response to this lawsuit, both apps stopped using any ID at all for tracking. Many other apps followed suit and some platforms in the ecosystem switched to using different IDs.

This stymied advertisers and marketers, who understandably sought a legally compliant way to track downloads, and so many simply stopped advertising via mobile at all. Others opted to advertise apps without any tracking in place – they would rather market their products blindly than deal with the legal fallout from the use of UDID – drastically reducing their ability to track ROI.

The good news is this legal gray area will be cleared up on May 1. In response to critics of UDID, Apple has created a legally compliant alternative called, simply enough, IFA, or ID for Advertisers that is built directly into iOS 6. Crucially it also allows users to opt out of any advertising tracking method by changing a setting at the device level. This solution means that starting next month, anyone advertising on the iOS platform will be legally compliant. The device level solution also puts iOS somewhat ahead of the PC web, where legal compliance with ad tracking has to be handled on a site-by-site basis and is currently a messy struggle with no system-level opt out.

Why accurate conversion tracking matters

For a new medium to grow, showing clear ROI to marketers is key. Once they know the ROI, their ability to scale budgets is only limited by maintaining that ROI. Google has shown just how scalable this model is on the PC with AdWords, with massive year-over-year growth.

Facebook also clearly understands the value that conversion tracking can provide. After testing their conversion tracking system with major advertisers for almost a year, it recently opened up the program to all its advertisers. With conversion tracking in place and the ability to optimize campaigns, it claims a 40 percent lower cost per conversion. The savings per acquisition can now be applied to acquiring more users, effectively increasing the total budget.

Even Apple’s iAd, which has always had conversion tracking, has seen significant growth in this transition period away from UDID. The platform was originally marketed as a rich-media advertising option for brands, but pivoted to performance advertising. The high prices and low ROI of rich media ads sent a chill up the spine of the Madison Avenue executives who bought them.

At TapSense, we meet with agencies and customers all the time that tell us their number one barrier to spending on mobile is conversion tracking (Disclosure: the author’s company is one of many that offer mobile tracking services, among other things.) They don’t know what options they have and how it works without UDID, which means they’re not spending. Once conversion tracking is in place on iOS, marketers will be able to see beyond the download and deep into their conversion funnel.

iOS revenues will skyrocket in 2013

With the legal issues around UDID cleared up, a lot of the friction that was holding back large advertising budgets will be reduced. Additionally, the 14 percent decline in PC sales in the first quarter of 2013 confirms that consumers are quickly moving to mobile. Despite having a smaller overall mobile market share, Apple’s iOS  dominates both mobile ad traffic and mobile revenue; a recent study shows overall that iOS accounts for 44.5 and 49 percent respectively, versus Android’s 31 and 26.7 percent shares. And so with the continued shift away from PCs, marketers will flock even more to iOS, where they can best reach an affluent demographic.

Gregory Kennedy is vice president of marketing at TapSense. Follow him on Twitter @tapsense.

Have an idea for a post you’d like to contribute to GigaOm? Click here for our guidelines and contact info.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Analyzing the wearable computing market
• Confused about the wireless markets? Here’s a breakdown
• Carrier IQ and the continued erosion of operator trust

When a user sees a TapSense interstitial ad and chooses to download an app, they call up a page that recreates an App Store page with details, reviews, ratings and images. One more tap on an “install” button and the app begins an automatic download. The user, who has never left their original app, can then continue on where they left off. Another version of the new ads also allow users to share the promoted app on Facebook, and via text message and email.

The App Store ads specifically call the “SKStoreProductViewVontroller” in iOS 6, which allows developers to recreate the App Store environment. Previously, this functionality was limited to Apple’s iAd ads, which also had higher conversion rates because of its integrated App Store, said George Kennedy, co-founder chief evangelist of San Francisco-based TapSense.

Kennedy said the App Store ads are in beta and will take a while to roll out fully as more consumers upgrade their devices to iOS 6. But he said early results show they are converting at a rate three to five times better than normal ads.

“The less friction there is between seeing what you want and getting it, results in more conversions,” said Kennedy.

Apple recently appeared to be clamping down on some app recommendation apps that promoted other apps in a manner that could be confused with the Apple’s App Store. Kennedy said the new language in clause 2.25 in the developer guidelines applies to apps that mimic the App Store, not apps or ads that use iOS 6 to officially recreate the App Store experience.

TapSense currently works with advertisers including Trulia, HotelTonight, Poshmark, Pocketgems, and Tiny Co. TapSense focuses on placing ads in top 40 apps and optimizes campaigns in real time to target loyal users, who will return to an app after downloading it. TapSense competes against Google AdWord and AdMob.

TapSense was founded last year by Kennedy, a former InMobi global marketing director; Ashwani Kumar, head of smartphones at InMobi; and Amit Manjhi, a former software engineer at Google. The company came out of stealth mode several months ago and has received seed funding from early AdMob investors.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Facebook’s IPO filing: ideas and implications
• Readers weigh in: future prospects for Twitter
• How to stand out in the app development game