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on Friday, 17 February 2012
in Industry Report

iAd-vancement: Apple Wants to Improve its Ad Network

It conquered software. It conquered hardware. It dominates mobile and music and now even has a Grammy.

But the industry Apple doesn’t control – doesn’t even come close – is advertising.

CEO Tim Cook wants to change that, as he announced yesterday that Apple would be investing some of its vast reserves of cash into its flailing ad network iAd. And with $100 billion in the bank, he has the resources to take a couple bites of the Apple.

To start, AdAge reported that Apple lowered the minimum spend for campaigns to $100,000, down from a previous $500,000 threshold and a significant reduction from the initial starting price of $1 million, when Steve Jobs unveiled Apple's first ad product in 2010.

Cook also announced that Apple will be increasing the share of ad revenue it pays to App developers to run its ads, from 60% to 70%.

These are not moves from strength; Apple desperately needs to get advertisers in the door and retain developers so it can slow Droid’s growth in the mobile app market.

Our Take: Apple's advantage with the iPad and iPhone is the depth of its App Store. Developers are going to find that as the App business matures, their most profitable revenue stream will come from ads, not subscriptions—just like traditional media newspapers and magazines, who deeply discount subscription prices to inflate numbers. As entrepreneur Tony Wright points out, "the paid side of the App Store is not where the real money is being made."

Apple has to have a deep advertiser network so developers can monetize their apps. There have been calls for Apple to acquire ad networks with technology, media-savvy and advertiser depth so it does not have to rely on Google for App monetization.

Advertising is not just about hardware and software know-how. It’s also about relationships, and Apple doesn’t have them. Partnering with companies that do will bring its advertising business up to par so it can continue to hold onto its App developers.

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