Weekly Update

Can iAd Help Publishers Kill Free Content?

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Apple’s pending launch of its iAd platform for the iPhone and iPod Touch — and at some point, presumably, the iPad — has already been declared a “game changer” for the mobile advertising business. Not only does it open another front in Apple’s ongoing battle for supremacy with Google, some analysts estimate it could turn into a $4.7 billion per year business for Apple. As GigaOm Pro mobile analyst Colin Gibbs argued last week, it also changes the regulatory calculus regarding Google’s pending acquisition of AdMob.

Another significant, if less-widely noted, effect of Apple’s new mobile ad platform could be more paywalls going up around media content on the web.

I’ve speculated before that media companies would rush to develop apps for the iPad because it offers publishers the chance to create a digital version of the same controlled environment for their content that traditional, analog media platforms provided, without all the scraping, aggregating and indexing that typically goes on on the web. And so far, that speculation has been borne out, as print publishers, in particular, have raced to introduce paid-content apps.

The iAd platform, however, truly closes the circle for publishers. Not only can they control the presentation of their content within a proprietary app, they can now also control the presentation of the ads. Currently, when a user clicks on an in-app ad she is shunted into the browser to connect to the advertiser’s web site. Not only does the app developer have no assurance the user will come back for more content (and thereby other ads), it’s awkward for the user, and has led to low click-through rates compared with ads in web-based applications that are already running inside a browser. With iAd, however, rich-media ads can run inside an app, without having to dump the user into the browser. That’s likely to lead to much higher click-through rates and more seamless integration of the ads with the surrounding content.

Presumably to avoid charges of anti-competitive behavior, Apple will still allow third-party ad networks like AdMob and Google to serve ads in apps. But it has stacked the deck in favor of iAd by prohibiting third-party advertisers from gaining access to information about the user or the device. Developers who use iAd, on the other hand, will have access to the device’s GPS and accelerometer data, allowing them to tell advertisers where someone was and, more or less, what they were doing when they saw the ad.

The bottom line is that ads placed through iAd will be more valuable to advertisers — and thus to publishers — than those placed through other ad networks, or even with publishers’ directly. Valuable enough, perhaps, to sustain something like traditional CPMs.

More than simply raising digital CPMs, however, with iAd and the App Store, Apple is ushering in an entirely new paradigm for monetizing digital content. Instead of the stark choice between putting up a paywall and suffering a loss of traffic on the one hand, or making content freely available in pursuit of traffic and suffering low CPMs on the other, Apple may finally offer publishers a realistic chance of generating high traffic while maintaining high CPMs.

At that point, however, continuing to make content freely available on the web could become not simply an inefficient way to monetize digital content but an impediment to implementing the more profitable business model. The ad inventory around free content would continue to dilute CPMs while advertisers would continue to face a high degree of clutter.

Paywalled content on the web, on the other hand, would present less of a conflict. Whatever traffic it diverted from the high-CPM app would be offset by revenue from the paywall, making it something of a wash for publishers.

In short, not only does the iAd platform give publishers another option besides giving content away for free, it’s the best argument yet for not giving it away for free.

Question of the week

Will advertisers begin to shift online dollars away from the open web and into proprietary apps?