Can Apple make mobile ads work?

Steve Jobs thinks mobile advertising "sucks". That was his message at the start of April, when he unveiled the latest operating system for the company's wildly popular iPhone. His goal is to make it suck a bit less, and to this end he revealed a new mobile ad platform for iPhone, iPad and iPod Touch devices. Predictably, it has been christened iAd.

The announcement, which marked Apple's entry into the world of advertising, worked the US tech blogs into a frenzy. But should marketers in Asia be getting excited?

The platform will roll out in the US first, then is likely to go to other developed markets with iPhone penetration by end of year. In Asia, markets like Singapore and Hong Kong are obvious candidates, though the iPhone has been seeing rapid growth in Japan and Korea too.

The launch of iAd has been made possible by Apple's purchase of mobile ad network Quattro Wireless at the start of the year. Though it is smaller than rival company Admob, now part of Google, Quattro claims to have a global profile.

The buzz around the service focuses on the potential of iAd to serve rich-media ads within apps on the devices (Jobs displayed an ad for Toy Story 3 including videos and mini-games). Crucially, these ads can be viewed and clicked on without leaving the original app, reducing the level of user interruption.

Geoffrey Handley, CEO of mobile specialist The Hyperfactory, has run in-app campaigns for clients such as Intel. He argues that iAd is largely "Apple hype", as advertisers could run rich in-app ads already. "It has bought Quattro and has now created a new walled garden. You can, and have been able to, buy in-app ads for the iPhone from other networks for years."

However, the PR seems to be working. He admits that since the announcement, "dozens of agencies" have contacted him about these campaigns.

Adam Gerhart, mobile lead for Mindshare Worldwide, is more excited about the launch, calling it a "game-changing advance for the mobile ad industry". He has been talking to Apple about running pilot campaigns on the platform.

For him the most exciting aspect is the targeting that the service will be able to deliver. Apple devices run via the iTunes platform; from that iAd can tell what content preferences users have (what films they watch, what music they listen to). "No other mobile operator has this level of targeting capability," says Gerhart. He adds that everyone should benefit-Apple and the app developers make money, consumers see more relevant ads, and marketers waste less.

Plenty of questions remain. For a start, Handley says it isn't clear what metrics marketers will be able to access when using iAd. What's more, it can only reach a small group of consumers (owners of Apple devices), and the creative developed for it cannot be transferred to other platforms.

Then there is the cost of running ads on the platform. Apple has been slow to divulge these, but press reports in the US claim that the platform will charge on both a CPM and a CPC basis. It is believed that advertisers will be charged a US$10 CPM, plus $2 for every interaction with the ad (of this, Apple will keep 40 per cent of the revenues, while the app developer will receive the rest). By contrast, Admob charges an average CPM of $10 to $15, with no per-click charge.

Expensive as it appears, Gerhart believes advertisers will be willing to pay. "There is speculation that iAd will see revenues in excess of $1 billion a year. Even if it's only a fraction of that, it will still be a staggering amount of money."

Like most things Apple does, the launch of iAd is the throwing down of the gauntlet to the rest of the industry. Expect other players, not least Google, to respond soon.

This article was originally published in the Summer 2010 issue of Digital Media.