Why Apple Could Still Be An Advertising Giant

Tim-CookApple CEO Tim Cook answered the question “How important is the mobile advertising business for Apple?” at All Things D’s D11 conference earlier this week with the following statement: “We got into mobile advertising because we want developers to make money…It wasn’t about Apple making money.” Cook also noted Apple’s mobile advertising business isn’t “large enough to be core” to the company.

AdExchanger asked two former Apple execs to reflect on Cook’s comments. “It is true that the primary motivator that drove Apple into the ad business was to create another revenue stream for developers,” claimed Adelphic Mobile co-founder Jennifer Lum, a former exec at Quattro Wireless, which Apple acquired and Lum helped relaunch as the iAd advertising network.

“A growing part of an engaging customer experience with Apple’s mobile devices was with apps. Therefore, Apple needed to find ways to motivate developers to continue developing for – and building their businesses off of – the iOS platform. The launch of iAd allowed Apple to create a new revenue stream for developers.”

Apple has also learned a few hard lessons. After launching its iAd mobile ad network three years ago with an eye-popping baseline cost of $1 million, the company repeatedly slashed prices. It also boosted the revenue percentage that developers earn to 70%, reportedly to compensate for the ad network’s low fillrates.

In addition, along with other ad networks like Google, Apple is now losing ad-market share to more nimble mobile publishers like Facebook, Pandora and Twitter, according to a recent IDC report.

Regardless, Apple has “a tremendous opportunity in [its] hands,” according to Dan Grigorovici, CEO at AdMobius and another Quattro Wireless and Apple alum. “Apple owns the device, the app ecosystem, the ad SDK, the transactional system (iTunes, etc.), multiple media channels (online, TV – albeit that’s small today – smartphones, tablets), multiple content categories (music, movies, etc.),” Grigorovici commented. “From that standpoint, I had always believed that if Apple plans to evolve the ad business to be more important, they have probably the best opportunity for cross-channel advertising and one of the best data assets out there.”

More publishers and app developers are also throwing their advertising dollars at Apple’s iOS, which claimed 75% of the ad spend share, beating Google’s Android, according to a Q1 report by the mobile ad server MoPub.

What is holding Apple back, Grigorovici noted, is “the [low] fillrate and the advertiser demand for cross-OS scalable solutions…[unless Apple becomes] more interested in collaborating with and mediating competing ad businesses in the ecosystem, in order to fulfill advertiser’s needs. So there is a dilemma here: Apple’s closed ad ecosystem offers tremendous benefits and differentiation, but it fundamentally does not solve the scale problem.”

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