(Kudos to Fast Company for this image)
Steve Jobs has a well-earned reputation for willing Apple to success in markets with innovative products that consumers fall in love with. He’s done it with computers, music players, mobile phones, and tablets. Now he is turning attention to a market that is desperately in need of his genius: advertising. Jobs recently announced that his company is creating a mobile advertising service called iAd, which will arrive with the next operating system upgrade in June. With iAd, app developers will have the chance to embed their games and tools with advertising brokered by Apple and receive 60% of ad revenue. Sounds like a great deal for the millions of entrepreneurs around the world who are dreaming up better games and tools for Apple products. But there are five six reasons that I believe iAd will fail to meet the lofty expectations for a world-changing ad model:
1. The cost per engagement model is not variable.
Apple has been known for simplifying pricing in every market it enters. It chose to set music prices at $.99 for a song, and $9.99 for a movie download. Although the music and movie companies fought for more variable pricing, Apple stuck to its guns because it felt consumers wanted a simplified model. With iAd, the company has announced that it will charge one penny per advertisement exposure, and $2 per person who clicks on (or otherwise chooses to engage with) each ad.
I think marketers will accept the penny-per-exposure pricing. That translates to a $10 CPM, which is high compared to Web banners but below most TV buys. On the other hand, a $2 per interaction comes with a big problem: It is an arbitrary number that is set with no knowledge of the end value. After more than a decade of Web marketing, brands still have little ability to measure what a website visit or banner click-through is worth. I’m surprised that Apple did not implement a bidding system like Google Adwords, where brands compete for space and pricing ends up rising or falling to what the market will best bear.
2. There is no scale opportunity.
At the end of the day, no matter how much excitement Apple’s products generate, iAd will be just another of the dozens of new and old places where marketers can run advertising. There are 85 million iPhones, iPad Touches, and iPads out there worldwide today, on which users spend 30 minutes a day with apps. But not all of these apps will have advertising. Meanwhile, there are 300 million people in the U.S. alone who watch television an average of 2.8 hours per day. There will be many, many more people who read newspapers, buy magazines, or ride subways than own iAd devices.
The big brands that Apple is targeting desire to create an advertisement once and spray it across as many of these media options as possible. But in its efforts to improve the advertising market by controlling it, Apple is making it a hell of a lot harder for marketers to include it in an ad buy. The service will not allow Flash programming–making most banner ad creative units obsolete–and it will have other rules and processes that are still being sorted out. Apple will also use its own measurement system instead of tying into other services that allow comparisons across media choices.
3. The cost to play is too high.
Reports are trickling out that Apple will only allow advertising by companies that agree to spend up to $10 million on the iAd platform. This compares to similar deals in the $100,000 range for other mobile ad networks, which I would guess is often cast aside anyway. Again, even the big brands that Apple covets and that are used to paying for media in the millions of dollars will be loathe to bet so many bucks on a relatively small, unknown, and untested advertising model.
Big marketers want the chance to test and play with a new medium before going in guns-a-blazing. What they like best in new media is a self-serve advertising model that even allows them to place a few ads with a few thousand dollars to see what happens. Google Adwords and Facebook Ads, for example, both allow brands to learn with limited expense. No matter how cool it might seem to place your brand on the most discussed ad network ever, it takes a big personal risk to move so many dollars so early.
4. Better creativity cannot be forced.
Apple showed off its iAd platform by mocking up what ads for Nike basketball shoes might look like. Of course they look cool–like just about anything Nike does. Jobs has spoken often of how poor the world of banner ads is, and he believes that marketers will do a much better job with the tools that Apple is creating with iAd. But not every brand is Nike….
In fact, most advertising is for stuff that people likely won’t want to click on, no matter how cool the iAd platform can be. Will people want to engage as much with day-to-day companies such as banks and toilet paper? Nope. And while Jobs thinks most banner advertising is crap, that’s not because there aren’t enough tools to spiff them up. Flash and rich media banners allow a great deal of creativity and engagement already. You can play games, request samples, get geo-targeting, and watch cool video from a banner today. Sorry, Steve, but most banners suck because the companies that buy the space don’t believe that the extra cost of creative development and rich media buys are worth it. Why would these same advertisers Jobs wants suddenly believe that iAd is now the answer?
5. Apple will have a hard time building a sales competency (NEW).
I added this after my original post after reading a great Twitter comment from David Rubinstein. If Apple really wants to get into the ad game, then it needs to play by the rules. And Rule #1 is that you need a sales force that can start wining and dining the clients. This has got to be a pretty foreign concept for Apple. It is the coolest kid on the block, and more used to companies coming to its campus in Cupertino for help and advice versus begging for a 30-minute meeting in Manhattan. But that’s not how it works in the advertising world. While some clients will be enamored enough with the company to write a big check right away, most trust their media planning and buying agencies to do the hard work of deciding where ad dollars go. So the Starcoms and GroupMs of the world are the ones with the power. Apple will have to put the hard sell on these tough negotiators in order to build up an ad business. They will have to play the game of relationship building and create a true sales organization. This is not easy. Just ask Google, which built its billions on a self-service and self-selling ad platform, and is only now, slowly, getting its arms around selling to big, billion-dollar brands. It’s been tough for the Google engineering-driven culture to figure out how media planners and mass marketers think, despite hiring many folks from the traditional ad-selling side.
6. Apps are more meaningful than ads.
Regular readers knew that this point was coming. I believe Apple does have an opportunity to make a few bucks by creating a slightly better option for interruptive advertising. But Apple has already done so much more for marketers by creating these killer platforms for value-added apps. In fact, I would wager that brands have already spent more on creating apps than they have in buying mobile banners like what iAd will sell. Examples such as the Kraft iFood, the REI Ski Report, and Charmin restroom finder apps all provide value to the consumer and create much more meaningful connections for life. These brands and a growing number of others would rather create apps that directly engage with the consumer, instead of buying ad space on someone else’s irrelevant game or utility. This is where the marketing world is going, and surely where marketers will play most on Apple’s platforms.
Steve Jobs is not afraid of taking on a large, old industry with inefficient practices by bringing the end consumer a better way of living. In music, for example, he created an iPod device and iTunes software that improved the music-listening experience so much that the music industry had to play ball. With iAd, Jobs is challenging the advertising model built around cheap GRPs, poor creativity, and buggy software. But while this new platform might be marginally better, it is still an interruptive advertising model that is barely a fundamental improvement for the end consumer.