Andrew Frank“Most mobile advertising really sucks,” declared Steve Jobs in his preamble to the iAds unveiling. Sure enough, the demonstration iAds drew a sharp and heady contrast with the incumbent WAP banner model, combining, as Jobs pointed out, the emotional impact of television with the rich functionality and transactional possibilities of a native application. Much was made of the idea that these apps could appear within other apps, take over the screen and be explored by users without leaving the original app or losing context, which would be restored when the advert-app was done.
While being hailed as a breakthrough, for anyone who’s been in interactive advertising for any length of time, this articulation of the desire to combine the emotion – and, hopefully as a result, the spending levels – of television with the interactivity – and, hopefully as a result, the accountability – of Internet, will no doubt bring back memories of a great many pitches that launched a great many campaigns and companies over the years, some successful, others less so. Apple and its creative partners at Chiat Day are to be credited with identifying the right long-standing problem and envisioning what the solution might finally look like that inspires brands to shift large budgets in earnest toward a medium they’ve long resisted.
But alas, there’s more to the ad business than killer creative – there’s the business of media, which demands our messages not only be inspiring but also reach a big audience and thus forces upon us the notorious limitations of standard formats and dubious metrics. To answer this, Jobs declared the platform could offer as many as a billion impressions per day. That’s one ad every three minutes across an average app usage time of 30 minutes per day, multiplied by 100 million devices. I’ll leave it to others to debate the details behind these assumptions as there’s another point I’m anxious to get to. I’ll just mention, for comparison, that Google’s ad exchange is estimated to handle about 10 billion impressions per day on the Internet.
Anyway, accepting for a moment the overall reach is there, along with the oft-repeated invocation of “attractive demographics,” the question remains: will the ad network model that Apple inherits from its acquisition of Quattro Wireless fit this new medium? Or is the format, compelling as it may be, somehow ill-suited to the ad network mechanics of long-tail pricing models, contextual and segmentation targeting, real-time arbitrage, measurement and transparency issues and all the rest? Yes, I know, Apple’s will be a “new kind of ad network,” but it will still have to answer all the questions and do the things that other ad networks do, some better than others.
First, recall what gave rise to ad networks in the first place: the search-driven fragmentation of the online audience across millions of web sites that each had too little traffic to contribute to a significant media buy. It’s worth considering that the universe of App Store apps (185,000 apps and growing) is orders of magnitude smaller than the number of web sites, greatly diminishing the fragmentation problem and the corresponding number of successful ad networks. Remember, really popular apps are more likely to be able to sell directly to advertisers and avoid the middle-man.
With this in mind, a critical and somewhat obscure factor in establishing the viability of Apple’s ad network in this context is the shape of the power curve of app usage.
If the curve is steep, that would mean that a strong majority of app usage is concentrated among a relatively small number of apps, while the long tail majority gets little. (Sound familiar?) This would undercut the need for an ad network, as top developers could deal directly with select advertisers (who of course are eager to create ads like the ones Jobs showed) and keep 100% of the revenue rather than the 60% proffered by Apple – unless, of course, they were required to pay Apple or use its network to gain access to critical OS features such as reliable app suspension, or approval.
On the other hand, if the curve is too flat, then other problems appear: the revenue that developers earn will depend crucially on liquidity and the strength of the demand side of the network, giving the advantage to Google (whose pending acquisition of AdMob now looks less likely to be derailed by the FTC) and Yahoo and simpler formats that are likely to appear in far higher volumes than custom apps (especially if they can’t be produced in Flash – more on this shortly). A flat curve also puts more pressure on targeting and matching algorithms and independent metrics and transparency requirements from brand advertisers who do not want to see their ads appear in apps like this.
(What determines the shape of the curve? In addition to natural user behavior, there’s the App Store search and browse experience. But this seems a perilous thing to try to engineer, especially as demand for transparency grows with the market.)
In the Goldilocks scenario where there’s a narrow yet substantial enough segment of apps and brands that Apple can play an efficient matching game that works for everyone, we then confront the question of control and competition. Last year, Apple filed a patent for “Advertisement in Operating System,” foreshadowing its plans to use its OS to power a new format. This surely means Apple intends to make it difficult for competitors to duplicate its innovations in this domain, and also gives Apple some potential options to charge for OS-based advertising capabilities even if the network concept doesn’t play so well. That Apple feels emboldened by its position of control is evident in its declaration in section 3.3.1 of iPhone OS 4.0 SDK that it will evidently no longer tolerate apps developed with anything other (read:Flash) than Apple tools and Apple-approved languages. Will ad agencies flock en masse to Objective-C and HTML5? Not anytime soon. But maybe Apple figures time and momentum are on its side. After all, if the ads lift brands, then won’t clients demand them?
The good news is, starting this summer, everyone can try something new. The bad news is, the garden walls appear to be getting higher. And I think I see a glint of razor wire on top.
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