Is Apple’s new iAd system a game-changer for the business of mobile application development?
With Steve Jobs’ announcement at yesterday’s press preview of the new iPhone OS 4.0, Apple’s now in the ad network business. Like Google before it, Apple is opening the advertising market to a new group that didn’t have easy, direct access to it before – in this case, mobile application developers.
Sure, many current apps are ad-supported: Just cruise through the iPhone app store and look at how many apps come in two versions – a paid one and an ad-supported “free” or “lite” version. But by integrating an ad service system with the iPhone’s operating system, which will now support multi-tasking, Apple’s new iAds have the potential for offering a far superior user experience than current “click-away” ads.
We’ll have to see iAds in a live environment before the publishing industry will learn if the iAd’s improved functionality leads to better click-through rates among iPhone application users. Thanks to a generation of lousy ads for lousy products, many consumers have been conditioned to hate ads, and either to ignore them or ignore applications or publications that place them too obtrusively within their content.
Functionality is nice. The ability to stay within the application while viewing an expanded ad is helpful both to readers and to publishers. But, ultimately, that functionality doesn’t matter to someone who never clicks or selects an ad.
Apple will need to find a way, working with its app developer partners, to improve click-through rates on ad-supported apps, if app publishers are to see any significant increase in revenue from iAds.
Publishers currently making significant income from app sales will want to keep an eye on how popular iAds become, too. If the public accepts the iAd format, expect to see a rush of publishers abandon “pay” applications in favor of offering iAd-supported free ones, ultimately pressuring other publications to drop (or eliminate) their application prices, as well.
One of the great utilities that Google has provided its AdSense publishers is access to Google’s eye-tracking research showing the “hot spots” within various common webpage designs, to guide page designers on the most effective place to position banner ads. Apple will need to have similar research in hand, and be willing to share it with developers, to maximize click-through potential for the iAd.
Similarly, Apple will need to develop a sub-community within its developer community, devoted to analyzing ad design. As a news publisher who’s been tracking the click-through performance of hundreds of ads run on my sites over the past few years, I’ve learned some valuable lessons about which elements within ads elicit clicks from my users. That’s information that advertisers and publishers will need to learn from the iAd environment. Apple’s in the best position to facilitate the conversations that will lead to such learning. If it fails to do so, the learning process will take much longer for all involved, damaging the iAd’s potential for success.
Ultimately, though, the iAd will succeed or fail on its content. Is what is being advertised in an iAd something of interest to a particular app’s users, or not?
Google’s brilliance was not in selling text (and, later, banner) ads on publishers’ websites, it was how it did that. Google created an automated process by which “long-tail” advertisers could bid on previously unsold space on “long-tail” publishers’ websites – sites that often did not have well-paying ads before AdSense, due to those publishers’ inability (or lack of knowledge how) to sell ads.
Google extended the advertising market, by matching smaller advertisers with smaller publishers in a way that nevertheless resulted in highly targeted ads. Eventually, bigger players got involved, and now you can find slick, Flash ads from Fortune 100 companies running on one-person blogs, as well as text ads from mom-and-pop stores on the webpages of major traditional news publications.
Apple’s not yet provided the details on how it will sell iAds. Nor has it said if it will enable publishers to sell into the iAd space, as Google’s AdSense partners can do (and very easily, using Google’s AdManager system). Apple bought mobile advertising company Quattro Wireless earlier this year, giving it a strong head start in luring large advertisers and publishers to the iAd.
But the big money online is not in servicing a few large accounts. It’s in servicing millions of smaller ones. If all iAds do is to provide a slightly better functioning advertising tool for businesses already engaged in mobile advertising, it might provide a nicely improved revenue stream to those companies. But if Apple can find a way to expand the market for mobile advertising the way that Google did on the Web with its text ads, then Apple will transform mobile application publishing, creating a powerful economic incentive for millions of people to start developing their own apps.