Apple iAd Could Charge $1m for iPhone Campaigns

Apple, no stranger to creating premium payment models for its goods and services, could charge advertisers five to 10 times the normal amount for campaigns created for applications running on Apple’s iPhone smartphones and iPad tablet computers.

On 8 April Apple introduced iAd, an advertising platform that runs ads directly within applications for the company’s popular iPhone smartphone. Application developers will get a 60 percent cut of the revenue, with Apple taking the remaining 40 percent.

The company could charge as much as $1 million (£652,000) for ads running on its iPhones and iPads, compared with $100,000 to $200,000 for comparable mobile ad deals, ad industry officials told the Wall Street Journal (paywall).

Sky high prices

Ad executives told the Journal that Apple may charge advertisers a penny each time a consumer sees a banner ad, and $2 each time someone taps on that banner ad. Apple could also charge up to $10 million for ads in iPhone applications to begin appearing with the launch of the iPhone 4.0 in June, the Journal said.

Apple CEO Steve Jobs unveiled iAd during the introduction of iPhone 4.0, stressing that advertisers are better off targeting ads within applications rather than running ads alongside search results.

The idea is that the user can see the ad seamlessly, without being taken out of the application he or she is using. The ad, which could include a movie trailer, runs atop the application, returning users directly to the application when it is finished. Jobs compared the experience to watching an ad during a TV show and being returned to the program.

A disruptive platform

Asked about Apple’s plan to charge a premium for in-application ads, Piper Jaffray analyst Gene Munster told eWEEK that he believes iAd will be a disruptive platform over time, with this caveat:

“It seems the gap between the mobile budgets Apple is going for is much larger than most mobile budgets. The big brands might step in, but the reality is money from mobile still comes out of emerging media test budgets, which are smaller budgets. That said, if anyone is going to pull it off, it’s going to be Apple.”

Apple is in an interesting position in the market. Apple has no track record in digital advertising, and Google’s similar plans to bring ads to mobile applications have hit a snag.

The Federal Trade Commission is closely investigating Google’s proposed $750 million bid for AdMob, which provides the same type of in-application ads Apple plans to offer with iAd.

Google has the advertising clout with major brands all over the world thanks to its desktop search empire. But Apple has strong mobile cachet thanks to the iPhone, which has sold more than 50 million units in three years, and the iPad, which sold over 500,000 units in the first week. iAd already has analysts rethinking their predictions for advertising on the mobile web.

Munster said he expects the mobile in-application ad opportunity to be roughly $220 million in 2011, the first full year of iAd, commensurate with the growth of Apple’s mobile device user base. Looking farther out, he said he believes the in-application advertising market could reach roughly $700 million by 2013, with $500 million being generated by ads on the iPhone platform.

“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,” Munster wrote in an April 9 research note.

Broadpoint AmTech analyst Brian Marshall was more bullish, predicting that the iAd platform could generate an incremental $2.5 billion in revenue when the business hits its stride.