iPhone 5 Expectations, And The Future Of iAd

After months of speculation, Apple will announce its iPhone 5 on Wednesday. Among the rumors that have gotten the most traction, observers are expecting to see a remade iPhone with a 4-inch retina display. That’s a half-inch larger than the current iPhone 4S and comes with a resolution of  640 x 1136 pixels — in other words, the display features 176 pixels more than its antecedents.

While an extra half inch or so of screen space may not sound like a lot, mobile media buyers  are used to looking at very minute data points, so, if the rumors are true this is practically the equivalent of going from regular, square TV to a high-def set.

As one of the most profitable companies in history, Apple is hardly dependent on ad revenue. Still, it’s worth asking what sort of impact the larger screen — and expected increase of millions in sales — the latest iPhone will have on iAd, Apple’s mobile advertising platform that also covers the iPad series. The short answer is that Apple will likely not experience a significant boost in ad revenues. But the larger screen could make mobile advertising that much more interesting to brands, who have been wishing for just a little more smartphone real estate for their rich media placements and banners. And beyond that, it’s reasonable to assume that even as the iPhone 5 will definitely not come with a YouTube app pre-installed, Google, Apple’s main challenger with Android, could ultimately be the one to benefit from the new phone’s advertising possibilities.

“I don’t expect much of an impact on iAds, but what we are following closely is the continued move away from Google products by Apple,” Ben Schachter, analyst for Macquarie Securities, told AdExchanger. With the iOS6, Apple will not use Google Maps nor will it have a YouTube app preinstalled. A key question is if other changes, including search, are in the works.”

The Google-owned video site already put out an announcement a day before Apple’s big presentation, touting, among other things, that its new “official” Apple iOS app would now come with advertising. But aside from that, Google stands to benefit because it dominates search on the mobile web as much as it does in the PC-based online universe. Considering that most mobile ad dollars are outside of iAds’ closed world of in-app, rich media-based campaigns, the momentum in the direction of the mobile web is likely to continue, even as apps become evermore sophisticated as well as mainstream.

As we mentioned, Apple isn’t exactly hurting for revenue. But it clearly felt some pressure from marketers interested in accessing the iAds system. Last February, Apple lowered the price of entry to campaigns to $100,000. Apple introduced iAd in 2010 requiring that marketers spend a minimum of $1 million. That was then cut in half after marketers and agencies balked after the novelty of the first iAd campaigns wore off.

Of the several agency executives we spoke with, opinions as to whether or not iAd would benefit from the larger iPhone 5 screen were mixed. Michael Collins, CEO of WPP mobile marketing specialist Joule, believes that a sharper, bigger canvas for advertising, coupled with what are likely to be improved rich media capabilities will not only give iAd a shot in the arm, it will likely spur greater creative development in across all mobile devices and systems.

“To start, mobile, unlike online, is not a cluttered environment, so you’re already starting and ending with one banner per page,” Collins told AdExchanger in an interview. “So your ability to make an impact with a larger palette is even higher, whether it’s in-app or on the mobile web. That said, iAd does put an emphasis on rich media. If it can present advertising in even more flattering light, then marketers will demand to have their campaigns run on it. But it is not an an either/or between mobile web versus in-app. With developments in html 5 and constant improvements to mobile browsers, the experiences and functionality between the two sides will blur.”

Ultimately, said Zach Kubin, account manager for Joule, a larger format, means larger amounts of consumption. “When we compared screens of a variety of smartphones in the market, including iPhone, Android and Blackberry,  we saw 2x to 3x higher consumption for phones with a larger screen size.”

Although Apple has significant market share when it comes to smartphones, it’s hegemony is held in check by Google Android. According to the most recent IDC figures, iOS is present in 26 million units worldwide for 16.9 percent share, a decline from the 18.8 percent share of smartphones a year ago. Android, in stark contrast, has 104.8 million units globally for 68.1 percent share — demonstrably higher than the 46.9 percent it had a year earlier.

JP Morgan is calling for 8 million new iPhone units to be sold in the first few weeks of the latest version’s release; but even if such predictions come true, the market share for iAd won’t shift much. And that ultimately presents a problem of scale for major marketers — the kind who can spend $100,000 easily on a mobile campaign.

The clearest result, aside from Apple’s profits from iPhone sales soaring even further, is that mobile advertising will matter a lot more to marketers, said Rachel Pasqua, VP of mobile at Hearst digital agency iCrossing.

“I talk to VCs a lot and the questions I get about mobile advertising tend to be a variation of ‘Is this space over-hyped?’ and I have to think that the new iPhone is going to make a difference. After all, 176 extra vertical pixels doesn’t sound like much, but it’s just enough to make the creative more engaging.”

Pasqua contrasted the patterns of usage between smartphones (“quick, short, snackable bursts”) and tablets (“long-form, lean-back experiences”). The difference of a half inch won’t make the tablet obsolete, but it will make watching video and playing games more similar to what users feel when they hold a tablet.

“If people are spending more time with iPhone content, when they have more time to spare, that could have a big impact on the kinds of content they consume and the amount of engagement they provide,” Pasqua said. “Especially for people — and there are a lot of them — who still don’t own tablets. Beyond the context, we’ll have greater ability to make the ads easier to interact with and it will be a little easier to avoid false clicks.”

In the meantime, advertisers and agencies will be putting greater pressure on publishers to revamp their mobile websites — that is, if they want to attract the additional mobile ad revenue.

“The average brand website has an average lifespan of 5 years,” Pasqua said. “If you’re at the end of that phase, the bigger screen size won’t be a game changer. If you’re a brand stuck in the middle or beginning of that phase, those extra pixels will make the site much easier to navigate. Everyone will be thinking about that experience.”

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