Apple’s iAd Strategy is like Mexican Food in New York – It Should Be Good But It’s Not

Tuesday, April 20, 2010

Apple’s iAd Strategy is like Mexican Food in New York – It Should Be Good But It’s Not

I love Mexican food, and New York has the best restaurants in the world, yet somehow that doesn’t translate into New York having good Mexican restaurants. Let me explain - there is currently some great innovation happening around advertising right now, and Apple is known for making some of the most innovative products in the world, yet somehow iAd seems to have missed the mark for me in terms of being the game-changing advertising equivalent of the iPhone.

Let me start by enumerating some of what I think Apple got right with the iAd announcement.

- It’s good that they keep you in the app when you click on the ad. That is ticket-to-play functionality, there’s almost no point in putting an ad in an app if the user experience opens a link in a browser, particularly when you can’t run multiple apps at once.

- I like Apple’s motivation - or at least their declared motivation - to help app developers monetize their work through means other than or in addition to charging per download. I doubt that’s the only motivation, but it makes sense and it’s a good story.

- I like the idea that you can essentially create app-like functionality within an ad, including the ability to actually download another app. Much like Zynga (creator of Mafia Wars and Farmville) on Facebook, I predict some of the biggest advertisers to adopt iAd will be the App makers themselves.

Two of the biggest challenges that I see Apple facing with the iAd platform are that the ads are not integrated into the user experience, and Apple is setting themselves up as the exclusive ad seller.

The ads are not integrated into the user experience:

After launching DiggAds, I’ve become convinced that the future of advertising will be to integrate ads into the user experience of the site. This doesn’t mean just sticking them in the middle of the page, it means including the functionality of the site within the ad itself – essentially, transforming ads into content. Examples of this include DiggAds, Facebook’s social ads, Twitter’s new Promoted Tweets product, and of course Google AdWords. I was disappointed that Apple did not follow this model. In the demo, Jobs doesn’t mention the integration of the ad into the app, the entire demo focuses on what happens after the user clicks (or taps, I guess). In fact, by setting it up with Apple selling the ads, that virtually ensures that the ad unit must be consistent across the network and therefore won’t be custom fit for each app.

Apple selling the ads:

Apple is positioning itself as an ad network that will sell the iAds, and then distribute them across the apps. At Digg we use ad networks, but only for our remnant inventory and only when it’s sold on a blind basis. For example, we might give an ad network some impressions from the Digg technology section and they will sell them as part of a block of general technology inventory without saying that Digg is part of it. We do this to avoid conflict between our sales force and the ad network’s salesforce – we don’t want them selling the same product for different prices. What we’ve found is that when an advertiser, particularly the big brands that Apple used in their demo, is making a larger investment in a custom ad (like an iAd), they tend to want to buy directly from the site so they know where that ad is going to run. Ad networks work well when the ad is a low cost, easy to build unit that can be sold on a self-service basis, but for immersive experiences like iAds, I’m not convinced that brands will want to buy from an ad network, even if it is Apple.

What should Apple be doing then?

Despite the aforementioned challenges, there is a huge opportunity for Apple in the advertising industry. Apple should focus on building a technology platform to support advertising within the iPhone ecosystem. The low hanging fruit for Apple would be to allow apps to link to each other, to pages deep within the link structure or flow of the app. Apple could perfect a standard around this type of advertising, offering ad serving, targeting, reporting and other features to justify taking a few cents from every ad that is served on the platform without ever hiring a single ad sales person.

I am glad to see Apple entering this market and taking advertising seriously. I truly appreciate the intention of helping to subsidize the cost of apps through a real advertising platform. However, I think Apple’s vertically integrated strategy that they’ve used for hardware and software could get in their way and limit the potential for growth in the context of advertising. My prediction is that as long as Apple is selling the ads themselves, they will not be able to truly fulfill on that promise of selling ads at sufficient volume to be a viable business model for the long tail app developers on its platform. I hope to see them continue to invest in the ad platform, but as more of a Doubleclick-for-mobile strategy - as the backend technology provider to enable the app developers to create and sell more integrated and better advertising.

To put it more simply, I’m saying Apple should make the guacamole, but leave the burrito making to each individual restaurant.

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