The Future of iAds : Is it Really a Premium Network?

About a month ago, Apple announced iAds  and when it was first launched there was a lot of speculation as to whether or not it would be the right tool to help media companies monetize their mobile applications. We wrote a blog post on it here stating that it probably was not the best solution for most media companies.

Apple is enforcing a lot of rules around the iAd platform. Firstly, they are controlling all of the inventory. If you want to run a house ad or retain your existing ad sales team to sell your inventory, you are probably out of luck. This would be a major change of strategy for a number of media companies who do indeed use ad networks at times, but usually sell their own advertising and then use networks to fill remnant inventory. Secondly, Apple is taking 40% of all the profits. I cannot think of a single media company that would be willing to give up 40% of all their advertising revenue to Apple.

Today, the Wall Street Journal unearthed some more information about iAds. They found out that Apple will charge upwards of $1 million for certain ad-buys.

To be among a select group of advertisers at launch could cost $10 million or more, the WSJ suggests.  Ad executives say they’re used to paying between $100,000 and $200,000 for similar mobile deals, but Apple is certainly putting a premium price on it’s so-called premium mobile advertising opportunities.

Apple is planning to charge advertisers a penny each time a consumer sees a banner ad, ad executives say.  When a user taps on the banner and the ad pops up, Apple will charge $2.  Under large ad buys, such as the $1 million package, costs would rack up to reach the $1 million mark with the various views and taps combined.

Our question is this, if media companies do not use iAds because it simply doesn’t provide them with the logical solution they need (inability to manage their own inventory and retain significant revenues), how is iAds a premium network? Why would big advertisers opt to spend $10M on a network buy that includes low quality financial apps or even worse fart apps?

I understand that Apple can target based on application category -i.e. Entertainment, but the only applications worth spending big advertising budgets on in that category are the ones developed by big media companies (MTV, CBS, etc). Those companies are using ad platforms that enable them to sell their own ad inventory and don’t take a massive 40% cut, leaving  applications to advertise on that are by no means ‘premium’.

Maybe we are missing something, but there seems to be a disconnect in the logic here. What do you think?

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4 Comments

Filed under advertising, mobile

4 responses to “The Future of iAds : Is it Really a Premium Network?

  1. Jay Freeman

    I think that:

    1. You are underestimating the value and efficacy of integrated, targeted, rich media advertising. This is not your father’s mobile advertising. In fact, I would argue that it’s an entirely new form of advertising that has the appeal and engagement of entertainment, the personalization of mass customization apps and the conversion and ROI of ecommerce platforms.

    2. Everyone already pays a “premium” for Apple products because of the company’s unparalleled design sensibility, product innovation and emotional appeal. This is a “flight to quality” play for Apple and advertisers. Do they want to pay to play on the top brand platform in the world or choose to advertise for cheap on Lycos?

    3. Apple is not playing me-too here. They are creating a new market and reinventing mobile advertising. Anyone who doesn’t see this is blind and will end up like Creative in the mp3 market.

    4. It’s a complete fantasy to believe that Spreed can compete against Apple or Admob/Google in this space unless you are focused on bottom of the barrel ad inventory for Canadian Tire or other washed out brands.

  2. Thanks for the comments Jay. I have some responses for you below.

    1.) I completely agree that this is by no means “our fathers mobile advertising.” Apple has got this one right from the start. Mobile advertising should by no means by 2-dimensional and/or un-interactive. Mobile advertising needs to be highly targeted and engaging to the point that it truly adds value to the end user and in turn the advertiser.

    2.) I understand that people already pay a “premium” for Apple products because of their design sensibility. My only issue here is that even the ad agencies are worried about Apple actually designing the ads. I am not sure whether Apple will actually be making any design implementations (sounds like a lot of over-head). However this quote from the Creative Director makes it sound like Apple is trying to take a hold of design. If this is the case they may have trouble getting some of the big agencies on their side.

    “As a creative director, I can completely understand that they created this new baby and they want to make sure it gets born looking gorgeous. But as a creative director, I don’t feel completely comfortable letting Apple do the creative,” says Lars Bastholm, chief digital creative officer at WPP’s Ogilvy.

    3.) I also completely agree with you here. Ad agencies have been aware of mobile advertising for a while. I was in NY for the Mobile Ad Summit recently and they all understood the potential of mobile advertising, but said that 2010 was still going to be a year of trial and testing. Mobile ad buyers will tell you that mobile is very far down their list of platforms to spend money on. I think iAds will get all the big agencies focused on mobile, whether it be on iAds, through other networks or directly with media companies

    4.) By no means is Spreed trying to compete with AdMobile (Google) or iAds. These are both networks. Spreed provides an ad platform which enables media companies to sell, administer, monitor and report their own advertising. iAds and other such networks does not enable media companies to manage their own inventory. Spreed’s CleverAds gives them 100% control over their inventory.

    Thanks again for the comments!

    Dave

  3. Rami Michael

    In response to Jay and Dave above it seems there are a few points missing in Jay’s argument.

    First, let’s go over some of the obvious. The advertising chain has two or three links: Advertisers, Ad Network (optional), and digital property owners. Apple is trying to take on a super ad network role (the first of its kind when all the parameters are taken into account), claiming that their track record of over-priced goods justifies this continued trend in the advertising chain. Of course to justify the higher prices, Apple is going to have to make sure that it is in fact a premium network and will apply ample resources to make sure that their Ads are top quality while giving advertisers a greater ability to target their desired demographic. And from the opposite angle, the only way they’re going to get 40% of ad revenue is if the top line is outrageous. Digital property owners are likely to accept giving Apple a $40K cheque if the $60K they’re keeping is way more than the alternative.

    So far so good.

    Now, what about ad consumers, the viewers of the ads who are being convinced to buy what they’re being shown? They’re the same regardless who’s the middle man. If the ad campaign is not set up with great targeting mechanism to find just the right users, it will not yield satisfactory results and will therefore fail, i.e. not every click is a good click. Advertisers will be reluctant to pay up the premium for Apple’s supposedly superior product and will opt back into a situation

    There are two big problems with Jay’s argument. The first is his dogmatic faith in Apple’s abilities and products. Just because iAds is a product of Apple doesn’t presuppose its success. Digital content providers and owners with worthwhile value will have a really hard time cutting off such a big part of their revenue stream for an extended period. If they agree to it at first they will simply opt out after they see a quarter’s worth of how much was handed over to Apple, disregarding how much they pocketed. Conversely, imagine a provider’s horror when they see a competitor’s ad show up on their digital property while making these payments to Apple. By saying this, I don’t at all believe that Apple will fail with iAds. I just don’t think they will be close to the success of Google/Admob who impose far fewer restrictions. Apple has to make sure a lot of things are working well in order for a semblance of success. Not impossible, but I am not as confident.

    Also, from a higher level standpoint, minus the iPhone/iPod, Apple’s track record is not really that shiny. Macs are at 4% proliferation. The best software for the Mac is Photoshop. Apple was near bankruptcy not so long ago, if I may recall correctly. Remains to be seen whether the iPad will carve out its own niche in a space where laptops serve the same purpose with better flexibility. Some would argue that Apple’s best product is their own cult.

    The second problem with Jay’s argument is the attacking tone that is not only unfounded but also misguided, indicative of youth and lack of background knowledge.

    And finally, what does “personalization of mass customization apps” mean? That just sounds like nonsense; an oxymoron at best.

  4. Gekko

    Hey Rami,

    It seems to me that your post has more of the “attacking tone” than Jay’s. In any case, to enlighten you given your “lack of background knowledge”, mass customization is a well known process in software and manufacturing that is focused on individual customization or personalization; e.g., Nike’s “build your own shoe” online configurator. See http://en.wikipedia.org/wiki/Mass_customization.

    By the way, given the amount of Apple hating you got going on, you’re either a Microsoft shill or the chip on John Sculley’s shoulder.

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