Apple’s iAd service is likely to set the benchmark for mobile advertising when it launches in September.
The service, which embeds video ad links into applications, provides another revenue opportunity for the US manufacturer through monetising a very specific asset – the app store.
Apple’s move provides another revenue opportunity for developers too, giving them the means to monetise free apps.
And for Apple it represents a lucrative proposition, says CCS Insight analyst Geoff Blaber, pointing to the manufacturer’s already established platform and developer base.
On launch it will ‘change the rules of the game with its richness of experience and relevancy’, he adds.
Strategy Analytics analyst Nitesh Patel agrees. He says: ‘If anything, it may help everyone else – like the iPhone has done for touch-screen phones.
‘Apple may bring credibility to the potential to deliver targeted ads.’
Because of iTunes, Apple has information on which apps people have downloaded, as well as data use levels.
And all players will stand to benefit. Last year, spend on internet advertising overtook radio and mobile advertising and it continues to rise.
But mobile advertising is not going to reach internet levels any time soon, says Patel. ‘It’s a very fragmented market in terms of platforms. But with mobile there is contextual awareness of where consumers are.’
What’s in it for everyone else?
There are bigger questions surrounding Apple’s iAd proposition. What Apple is essentially offering advertisers is a video within an app, which will require bandwidth.
With operators such as O2 removing unlimited data due to an increasingly saturated network, this will be an issue. As Blaber says: ‘The user has the option of clicking on the ad/video so a lot is down to the user’.
However, many iPhone users blame the network when their iPhone doesn’t work well.
‘They will conclude this to be another one of the operators not providing the service,’ says Blaber. ‘And there is little in this for the operators – they get nothing from the advertising.’
He adds: ‘A lot of operators talk about partnerships with Apple, but the partnerships don’t go deep and they don’t get iTunes revenue. This is the situation the operators are in and there is very little they can do.’
However, as much as the iPhone has seen phenomenal growth, there is still a big opportunity for operators to drive mobile advertising in other areas, which O2 is doing through O2 Media and Orange through Orange Shots.
For an advertiser, Apple’s iAd service is another screen to reach an audience.
However, ad budgets are only so big, and those advertisers have to decide where budget is going to move.
‘It’s a double edged sword,’ says Blaber. ‘It’s an opportunity to reach a demographic they want to hit – the luxury consumer. But Apple delivers this by being very controlling and closely dictating terms. That is an opportunity for others such as Google. Google purchased AdMob so we will see richer advertising within applications – but Google is much broader (see box).’
All advertising revenue is finite, adds Patel. People won’t add more to their advertising budgets so the money has to come from somewhere.
But Apple will raise expectation and set the benchmark for mobile advertising. It will be more appropriate for the ‘rich experience’, and those who use text based delivery will still be part of the mix.
As for developers – it’s wait and see, says Blaber. He adds: ‘On paper it’s a big opportunity to make some money. This offers a bigger base of advertisers to the platform. But there are some questions on how Apple should set stipulations for advertisers – it will depend on whether they do and how much they spend, and so how much the developers get.’
iPhone 4 spearheads Apple’s attack
The iPhone 4 is spearheading Apple’s attack on the mobile advertising market.
At the launch of the iPhone 4 at a conference in San Francisco in June, Apple chief Steve Jobs claimed that Apple would control 48% of the mobile advertising market by the end of this year through iAd. The iPhone 4 is the first iPhone to include iAd.
The iAd platform allows app developers and Apple to make money from advertising contained within apps. Apple is offering developers 60% of all advertising revenue from their Apple apps.
Tim Shepherd, analyst at Canalys, says iAd adds another dimension to Apple’s offering. He says Apple’s high-end users would be of particular interest to advertisers.
Apple versus Google
It is not necessarily a case of Apple versus Google, as initial reports have suggested.
Google’s ambitions are far broader, says Blaber, and mobile is just one part of its business strategy. ‘Apple iAd is about monetising a very specific asset in the app store,’ he adds.
Meanwhile, iAd is a premium ad space and premium experience and it will only focus on Apple, says Patel. Google is taking a much broader approach.
He adds: ‘When you look at it properly, it isn’t one against the other. Apple has the high-end and Google will go broader – they are both focusing on very different segments. It’s the same battle but a different game.’
Mobile advertising reaches $3.6bn
In 2009, Strategy Analytics estimated the global mobile advertising market (defined as advertiser spend on placing adverts into mobile media e.g into games, apps, video, etc) to be $3.6bn.
Forty-two percent of the $3.6bn was generated in Japan, where mobile advertising has been developing for some time.
The analyst firm is forecasting this global total to rise to $38bn by 2015 as mobile media and data consumption increases and advertisers aim to target users within the mobile media environment.