Apple's iAd platform called a 'billion dollar opportunity'

Posted:
in iPhone edited January 2014
When Apple's just-announced iAd mobile advertising platform matures and sees wide support from the App Store developer community, it could generate as much as $4.7 billion in revenue per year for the company, one analyst believes.



Broadpoint AmTech



Brian Marshall with Broadpoint AmTech said Friday that Apple could employ a "hybrid" ad pricing model that would include cost per click, cost per action, and cost per 1,000 viewers. In a wide-ranging sensitivity analysis issued in a note to investors, the high-end pricing assumption could generate $32 per 1,000 viewers, at a price of $0.032 per ad, generating $4.67 billion in revenue in one year.



In the middle ground of his analysis, which Marshall cautioned investors relies on "numerous assumptions," Apple would earn $17 per 1,000, resulting in $2.48 billion in revenue.



"Once again Steve Jobs and gang did a phenomenal job with the iPhone OS update scheduled for summer (iPhone/iPod touch) and fall (iPad) launch," Marshall wrote. "While we believe multitasking was the single most incremental functionality added (of the 100+ new features), it is our view that AAPL's new mobile advertising platform ("iAd") stole the show and will be significant to the financial model."



He continued: "In fact, we believe the iAd platform could generate an incremental $2.5bil in revenue and $1.00+ to AAPL's financial model when the business hits its stride."







Piper Jaffray



Gene Munster said he believes iAd "could be the catalyst mobile advertising needs." He sees Apple's advertising business in 2011 amounting to $220 million. He said the total market for in-application mobile advertising was just $45 million 2009.



By 2013, he sees the in-application market for advertising reaching $700 million, with about 70 percent that from ads in the iPhone platform. Munster said Apple could capture $380 million of the market through iAd, giving it a 77 percent market share on the iPhone platform.



"We believe the iAd platform could act as a significant catalyst for mobile media as it will be the first solution to deliver rich media to a significant user base in a friendly format on the mobile web," Munster wrote his note to investors Friday morning.



Apple's presence in the mobile display advertising space has led Piper Jaffray to increase its estimates for the market. While the firm had originally expected mobile ads -- both in applications and on the mobile Web -- to top $1 billion in 2013, they now believe that threshold will be reached in 2012. Munster noted though they expect Apple to be a "significant player," revenue from mobile ads is "unlikely to be meaningful in the scope of Apple's broader business."







Kaufman Bros., Needham & Company



The iAd announcement also earned a positive reaction from analyst Shaw Wu with Kaufman Bros., who said iAd has the potential to "uproot and redefine" the mobile advertising market. However, he doesn't see it as a strong direct financial opportunity for Apple



"Mobile advertising is particularly important for free apps, which we estimate represent approximately 25%-30% of total apps," Wu said. "We continue to believe the financial impact to AAPL will be minor to negligible as this is more a service for app developers to make money."



In addition, Charlie Wolf with Needham & Company called iAd a "game changer." He also believes Apple's multitasking solution "blows out" the competition.



Revealed on Thursday, iAd aims to redefine mobile advertising with interactive and media-driven content included right in mobile applications without having to launch a browser. Jobs said that he believes a lot of the advertisements in existing App Store software "really suck."



Jobs showed off a sample advertisement for Toy Story 3 that included character views, sound and video clips, and even a miniature game within the ad. The advertisement could be closed at any time by clicking an 'X' in the upper left corner, taking the user instantly back to the application they were using.



The new platform stems from Apple's purchase of mobile advertising firm Quattro Wireless, acquired for $275 million early this year. Jobs admitted Thursday that Apple's first choice was competing firm AdMob, but Google "snatched" them before Apple could make a deal.
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Comments

  • Reply 1 of 29
    SpamSandwichSpamSandwich Posts: 30,405member
    These analysts don't know a thing. There's a built-in assumption the agencies would willingly cede all of their business to Apple sight unseen, which may be true for a small fraction of developers up front. Secondly, there is no immediate visual distinction between an iAd and a regular "click-me-and-I'll-kick-you-out-of-your-app-and-open-Safari" ad. I still wouldn't click on the ad because I've already experienced the unpleasantness.
  • Reply 2 of 29
    paxmanpaxman Posts: 4,589member
    As mobile devices become ever more pervasive the iAd model will grow. That is if the App model OS/gui becomes dominant. It is hard to see how it won't at this point. I suspect a derivative / iteration of the iPhone OS is the future of virtually all mobile computing. Apple won't be the only player, of course but they have a good head start.

    I think a big challenge for the advertisers will be to not piss the end users off with intrusive poorly placed ads.
  • Reply 3 of 29
    Quote:
    Originally Posted by SpamSandwich View Post


    These analysts don't know a thing. There's a built-in assumption the agencies would willingly cede all of their business to Apple sight unseen, which may be true for a small fraction of developers up front. Secondly, there is no immediate visual distinction between an iAd and a regular "click-me-and-I'll-kick-you-out-of-your-app-and-open-Safari" ad. I still wouldn't click on the ad because I've already experienced the unpleasantness.



    There is a subtle but I think significant difference, which is that iAds have an almost Wii-like "iAd" in the corner:







    I think it's enough for people to quickly differentiate.
  • Reply 4 of 29
    blastdoorblastdoor Posts: 1,888member
    The FTC might give Apple a second shot at AdMob.
  • Reply 5 of 29
    ilogicilogic Posts: 298member
    Quote:
    Originally Posted by Blastdoor View Post


    The FTC might give Apple a second shot at AdMob.



    Even if Quattro is already purchased? I don't think Goog will sit by idle.
  • Reply 6 of 29
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by Cousin Dirk View Post


    There is a subtle but I think significant difference, which is that iAds have an almost Wii-like "iAd" in the corner:







    I think it's enough for people to quickly differentiate.



    Nice pic, the iAd branding may help but don't you think people will ignore the ad simply because it's an ad. For me to consciously to click on an interactive ad I would have had to have been informed via word of mouth, that this ad is worth clicking and the demos don't seem any different than going to product's website for an interactive experience. Don't get me wrong, I think it's a great move in many ways I just don't see it generating many more clicks than the current setup.
  • Reply 7 of 29
    Just can't wait until start searching for my uncle's "TOMATski" name to place a call to be greated with a "Tomato sauce" ad from someone...



    Right... this is system wide ads... why won't Apple use it in their apps?
  • Reply 8 of 29
    mactelmactel Posts: 1,275member
    If ads were like the ones Steve demo'd I'd be clicking on them just for the entertainment value. It is exactly as he said. Current ads take you out of your app. If you're really unlucky you'll get some malware to boot from them. These iAd ads will be refreshing. I'm speaking as a person that mainly watches the Superbowl for the commercials.
  • Reply 9 of 29
    replicantreplicant Posts: 121member
    Quote:
    Originally Posted by ilogic View Post


    Even if Quattro is already purchased? I don't think Goog will sit by idle.



    The AdMob deal is dead and there is no value for Apple anymore as they are rolling out iAd. Steve Jobs said it, mobile ads (the majority of them are from AdMob) currently suck for lack of better words. There is no way he is interested in AdMob now.



    I have a feeling that developers will migrate to iAd in droves because it's simply better. If this happens, Google's attempt to prevent Apple from entering the Ad business will be useless. I hope this happens



    Google entered Apple's market and then snatched up AbMob for a huge premium.

    Don't be evil, right?
  • Reply 10 of 29
    Quote:
    Originally Posted by SpamSandwich View Post


    These analysts don't know a thing. There's a built-in assumption the agencies would willingly cede all of their business to Apple sight unseen, which may be true for a small fraction of developers up front. Secondly, there is no immediate visual distinction between an iAd and a regular "click-me-and-I'll-kick-you-out-of-your-app-and-open-Safari" ad. I still wouldn't click on the ad because I've already experienced the unpleasantness.



    I think that agencies could benefit from this. Apple is primarily serving as a host. Apple will not be creating the ads. I think that we will be able to figure out which ads will take you out of the app. If developers use ads to support their free apps, and also use Apple's iAd platform, I expect them to promote that fact as a differentiator from other developers who use the old style of ads. So when you look at the description of an app, you would see that detail highlighted. It's also possible that there may be a logo or something next to each app that identifies the apps as using ads that are iAd-based. If the apps are sufficiently engaging and provide a chuckle or two, then some of us will not mind clicking on them, otherwise we'll mostly ignore them, like we do with other ads.
  • Reply 11 of 29
    Quote:
    Originally Posted by solipsism View Post


    Nice pic, the iAd branding may help but don't you think people will ignore the ad simply because it's an ad. For me to consciously to click on an interactive ad I would have had to have been informed via word of mouth, that this ad is worth clicking and the demos don't seem any different than going to product's website for an interactive experience. Don't get me wrong, I think it's a great move in many ways I just don't see it generating many more clicks than the current setup.



    I think overall people will choose to ignore ads way more often than they will click on them; however; in some situations, ads may using the iAds platform may get clicked more frequently than regular ads. I think that you're right, it's word of mouth and app reviews that may change that. Ads that are visually interesting, offbeat, funny, or actually useful, will get some clicks after word spreads. Let's say you're in an app and you see a banner or something to click on, advertising another app by the same developer. If clicking on that app gave you a video preview of the app, but did not take you to a website, you may be more inclined to click on it. One of the reasons why I hesitate about buying apps is because I don't have a feel for the gameplay. A video of the app may be appealing enough to make impulse buy it from the app that I'm in. Ads in the form of interactive mini games may also be more click-inducing than regular static ads.



    So my point is that after a while, we may begin to get a feel for which developers use iAd for lame ads that are a waste of time, and which developers have deep enough pockets and enough creativity to make us consider clicking. App reviews may be main vehicle for spreading the word about the quality of ads. App reviewers are not shy; they will let us know if ads are worth a click. Just my thoughts. How this all plays out should be really interesting, but Apple appears to be really trying to keep developers in their camp.
  • Reply 12 of 29
    neutrino23neutrino23 Posts: 1,515member
    Advertising can work even without the viewer clicking. There is value in name recognition alone.



    Also, I suspect that the developer may not be able to select which ads run in the app. They just offer space to the ad agency. The ad displayed probably changes from time to time.
  • Reply 13 of 29
    macslutmacslut Posts: 514member
    I don't know about anyone else, buy if my kids see a Toy Story 3 ad, they're going to click on it.



    Yes, a lot of ads won't be clicked on. That's why it's only $17 ppm.



    It's easy to say, I never click on ads, I skip through commercials, I change the station when ads come on, I never open junk mail, etc... But...enough people do that it makes it worth while.
  • Reply 14 of 29
    tawilsontawilson Posts: 484member
    Quote:
    Originally Posted by jpcarvalhinho View Post


    Just can't wait until start searching for my uncle's "TOMATski" name to place a call to be greated with a "Tomato sauce" ad from someone...



    Right... this is system wide ads... why won't Apple use it in their apps?



    Don't be an idiot!



    What possible reason could they have to include it in their own apps?



    Apple's own apps already serve to drive sales of some paid service already.
  • Reply 15 of 29
    mstonemstone Posts: 11,510member
    I guess we will find out in due time, but I am more interested in the specs. What standard sizes are allowed like we currently have online. 728x90 468x60 etc. And since they are HTML5, where are the JS files and images packaged? I'm sure there will be account info reporting etc in realtime to the agencies and the devs, but as ad creators we need to get our workflow guidelines in place as soon as possible. Probably in typical Apple fashion they will share the pertinent info with their partners first and let the little guys figure it out on their own, like iBooks, Tunekit and Pastrykit, releases were handled.
  • Reply 16 of 29
    macinthe408macinthe408 Posts: 1,050member
    And here I thought 'banner ad' and 'fun' were mutually exclusive.
  • Reply 17 of 29
    Quote:
    Originally Posted by SpamSandwich View Post


    These analysts don't know a thing. There's a built-in assumption the agencies would willingly cede all of their business to Apple sight unseen, which may be true for a small fraction of developers up front. Secondly, there is no immediate visual distinction between an iAd and a regular "click-me-and-I'll-kick-you-out-of-your-app-and-open-Safari" ad. I still wouldn't click on the ad because I've already experienced the unpleasantness.



    I bet the old ads will disappear very quickly once this goes live. If you're a developer with an ad supported app, you'd have to be crazy not to want to use these ad in your next update. The users will like it better and so will the dev, since they're making more money from ads.
  • Reply 18 of 29
    desuserigndesuserign Posts: 1,316member
    Who pays for the bandwidth to receive these ads?

    Does viewing an ad go against the user's data quota?



    Its probably negligible but its the principal of the thing.

    Its a bit like having to put up with commercials on cable when your already paying for the cable. (Remember when cable came out the rational for the giving the cable companies a monopoly was that there would be no commercials and the there would be lots of public access opportunities, community service stuff, etc. That soon evaporated.)
  • Reply 19 of 29
    cgc0202cgc0202 Posts: 624member
    Quote:
    Originally Posted by replicant View Post


    Google entered Apple's market and then snatched up AbMob for a huge premium.

    Don't be evil, right?



    From what I read (I can't recall the source now, more than likely NYT), Apple and AdMob entered into a 45-day (??) exclusive agreement. For whatever reason, Apple was not able to complete the deal within that period.



    From the point of view of the management of AdMob, do you think they would have sat idle as the deadline came near? From a purely strategic perspective won't AdMob have been lining up other prospective buyers even before the deadline?



    It is common for several companies to bid, once a takeover comes into play. It is not a similar situation, but the Vice-President of the real estate agent company that is handling a $6.5 million property that we are interested with is encouraging us to send a Letter of Intent. There were already other bidders because the property is in a very desirable location.



    Since it is the owners that make the decision, there is no apparent conflict of interest for the real estate agent trying to drum up more potential suitors, to get the best deal for his clients.



    The situation I described might have similar scenario with respect to the acquisition of AdMob.



    If I am not mistaken, it was after this deal did not materialize that Apple hired a new Vice-President(??) that will deal exclusively with acquisitions.



    I agree with the observation that Apple already bought the smaller ad agency. It to is a waste of time and money, as well as bad publicity, to attempt to go after AdMob, even if Google won't be allowed to buy AdMob.



    Apple could start with the existing talent of that agency (even hire more creative ones) and create a more innovative ad agency.



    Steve Jobs is the heart of Apple innovations. Similarly, Jonathan Ive is the heart of the design department. Apple can use the same model also to evolve their new Ad agency. All it needs is one very good artist/designer who understands the essence of consumerism.



    CGC
  • Reply 20 of 29
    The ads will be created by HTML5 programmers and served live (ie no wifi and no 3g/Edge, no ad) through the OS from Apple servers. Apple recently received a patent for serving ads through the OS. All the developer of the app has to do is tie his/her app into the Apple ad server via an API and collect 60% of the revenue. That's pretty compelling for the app creator and could help drive quality app creators to the Apple iPhone ecosystem. Because Apple is serving the ads they'll have a lot of analytics to kick back to the agencies/advertisers.
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