Steve Jobs unveiled sweeping changes to the iPhone OS that powers the iPad, iPhone and iPod Touch on Thursday, including one that analysts say will bring the company hundreds of millions of dollars of revenue in advertisements within free software.
Before the announcement, Steve Jobs reportedly told advertising executives that this is Apple’s “next big thing,” and he could be right: Analysts say the ad platform will soon bring the company hundreds of millions of dollars in revenue yearly.
For the first time, developers can serve interactive and video ads within apps for the iPhone, iPod Touch and iPad from Apple’s servers, and all they have to do to be included is provide Apple with the files.
Apple will keep 40 percent of revenue from the ads — a significant bump from the 30 percent it collects from app developers, record labels and book publishers — in return for selling the hardware, serving the ads and owning the ecosystem within which they run.
“Steve Jobs believes there will soon be around 100 million Apple devices on the market and that most of people’s mobile activity will be dominated by applications, where they will spend around 30 minutes a day,” said Ovum principal analyst Eden Zoller. “According to Jobs, if 10 ads were to appear on each device per day, this would make for one billion ad impressions daily.”
Much of the platform is believed to be based on Quattro Wireless’ mobile ad platform, which Apple purchased for $275 million about four months ago. Steve Jobs hopes to do something new with the iAd platform, he said yesterday: Combine the immersiveness of television ads with the interactivity of web ads using HTML5 code, which has multimedia capabilities that would make its ancestors blush.
As usual, this concept will spread to Android; Google has also embraced HTML5, and has been trying to purchase Quattro rival AdMob for $750 million since last year, although regulators haven’t yet approved the deal. After Apple’s iAd announcement, they are more likely to do so, because Google now has clear competition within the space.
Apple told Wired.com that it will still permit competing mobile ad networks to serve ads within apps on its platforms; deny them would only draw regulatory scrutiny. However, analysts predict that Apple will serve a large percentage of the advertisements running on its devices.
In addition to giving Apple yet another way to profit from its popular devices, iAd borrows a page from Tom Sawyer’s playbook: getting third parties to enhance its platform for free, and even better, charging them for the right to do so. Likewise, Sawyer notoriously convinced his friends to paint a picket fence while he stood idly by — eating an apple, of all things.
By giving app developers a way to enhance Apple’s platforms without charging users, the company adds to its army of software developers, most of whom don’t work for Apple in the traditional sense of the word.
All in all, analysts believe the iAd platform will be worth far more than the $275 million the company spent on Quattro Wireless.
“We believe in-application advertising could reach roughly $700 million by 2013, with about 70 percent going to ads within the iPhone platform, or $500 million,” said a Piper Jaffrey analyst, according to the Wall Street Journal. “We estimate Apple could capture $380 million of this market through the iAd platform in gross ad revenues, or 77 percent market share on the iPhone platform for advertising as we expect AdMob and others to continue to compete on the iPhone platform.”
These video and interactive ads will appear on devices you can carry around, so their location awareness is critical to extracting the maximum revenue from each ad served. Mobile smartphone ads have some potential for abuse in this regard, because advertisers know who you are, where you are and, often, what you’re doing.
As one safeguard against privacy-invasive advertising, Apple will only allow apps that have “beneficial uses” of locational data to serve location-based ads. In other words, you’ll only see ads related to a place if you’re trying to do something else with that locational information.
The iAd platform, part of the iPhone OS, will allow users to watch videos, play games and even purchase products within an ad inside of an app and is expected to roll out in the next few months.
