The buzz today surrounds tomorrow’s announcement by Apple unveiling the next version of Apple’s mobile operating system, iPhone OS 4.0. As is typical for Apple, the release will first be distributed in beta format to developers with a public launch sometime in the June/July timeframe. 
While may people speculate about new features and functionality being introduced to not only enhance existing devices such as the iPhone 3GS and iPad, many are overlooking the possibility of Apple’s first major foray into the world of mobile advertising.
As some will remember, Apple acquired Quattro Wireless in January shortly after Google announced their own acquisition of AdMob. The AdMob purchase is still pending regulatory approval. Google’s business model is to directly control the flow of data on the web. By doing so, they have created a network of millions of advertisers and created an industry around managing both PPC and organic internet advertising.
Enter Apple. For the past decade, Apple has been building up a large database of active iTunes customer accounts. Various websites have this number estimated the iTunes Music Store (ITMS) customer base at approximately 150 million accounts containing active credit card data. This figure does not include free iTunes accounts which are basically iTunes accounts where credit card data has not been entered.
To expand upon those numbers, in AdMob’s Mobile Metrics Report for February 2010 numbers, the iPhone OS accounted for 50% of all worldwide smartphone internet traffic requests. When expanded to all handset data, AdMob shows Apple accounting for 40.1% of worldwide internet requests.
iPhone OS Worldwide Share
Apple now finds themselves in a position to capitalize on a number of different strategic options. Apple could offer their iTunes Checkout functionality to third party websites much in the same way Google Checkout and PayPal currently operate. They already have 150 million users with active credit cards that can use their iTunes accounts to purchase products and services online. Second, instead of allowing Google to control advertisements in Apple’s iTunes Music and Video Store, App Store and now the iBookstore, Apple can not only control the quality and format of how those ads are displayed but they can also profit from providing those search experiences. Before you complain, keep in mind that Google is profiting currently from mobile ads. Why would Apple let Google take away millions of dollars in profit? No other company would allow another company to steal away significant revenue. It’s why Google is copying the iPhone/iPad platforms in the first place. And as long as they don’t infringe on any patents or break any laws, then good for them! Competition is healthy.
The excitement around Apple’s mobile advertising initiative is two-fold. It allows developers another method of revenue other than the cost of the App or through in-App purchases. The developer can use that revenue a number of ways. First, they could use it to subsidize their existing software development. This could allow them to lower the cost of their App or even sell it for free. Second, they could use those funds to put towards development of future Apps. Third, they could use it towards development of upgrades or enhancements to their existing Apps. Fourth, they could simply pocket the extra revenue.
The second piece of the excitement surrounding Apple’s mobile advertising is that, on a larger scale, Apple could gain the ability to increase free content to its’ user base. Ads inserted into video, music or movies could mean that if users are willing to sit through advertisements, they could watch TV at either a subsidized cost or for free. Could the TV networks prevent Apple from doing this? Possibly but they would see a substantial increase in revenue and any action against Apple may be viewed as an anti-trust measure.
Free content would simply be consumed at a far greater rate by the masses on Apple’s ever expanding mobile ecosystem. As users and content consumed increases, so does Apple’s “iAd” revenue.
Google will try to leverage Android in much the same way. Unfortunately, the Android market is already so fragmented and the user experience far less satisfying that the iPhone OS experience. It will be more of a challenge for Google to replicate.
I fully believe that the main competitor to the iPhone OS platform will be Microsoft but I will get into my logic and reasoning in a future article.
Related posts:
About Dan Brodie
It would be disappointing if Apple channeled Quattro’s efforts into just servicing ads into applications on Apple platforms. While the Apple platforms are much hyped (helped by misleading charts like the AdMob one used here), they are still a pretty small part of the mobile device market and down-loadable applications from largely unknown publishers won’t have the same attraction to brand advertisers. Quattro had built up a good network of premium mobile publishers that served ads to all mobile devices – and was beginning to get traction among brand advertisers – it would be a shame to let that go to the wall, in order to focus solely on Apple’s proprietary mobile platforms. If you want to know more about Quattro or any of the other leading mobile ad networks, please see this guide: http://mobithinking.com/mobile-ad-network-guide
Nice article Dan. I do hope they announce it today!
Thanks Jazzo!
Thanks mobiThinking,
I do have doubts that Apple will support other mobile platforms. Also, with their acquisition of Siri today, it appears that Apple may be exploring the combination of their own mobile search and advertising system integrated at the OS level. I’ll try to find the specific article that suggests the ad market on iPhone OS devices may be around $8B in 5 years.
This article comes across as EXTREMELY ignorant of Android, but wait to see your logic trumping up the constantly name changing mobile OS from Microsoft.
I spoke directly to Steve Ballmer on Mobile Phone 7 after it debuted and I am not nearly as convinced as apparently yourself on it (caveat being unless Microsoft ends up purchasing RIM/Blackberry)
I do like what Apple is doing with iAd but can see Google trumping it with the AdMob purchase (upon the FTC approval which is more likely due to iAd) as it will become the DoubleClick of mobile.
Hi Michael. Thanks for the comments. While MS is slow to bring about WP7, they are following the iPhone model and App store almost identically.
I am not ignorant of Android and what it can do. I just have a strong opinion that the Microsoft Operating System model will not translate to mobile phones. That model allows to install software from anywhere. While that is appealing to the tech crowd, it translates poorly into success on other platforms.
People want something elegant and simplistic to use. By allowing apps to be installed from potentially limitless sources, the Android could become easily susceptible to security attacks. It’s also confusing for the average user to manage. It creates a bit of mayhem to update apps/OS.
MS is requiring devices that carry it to all adhere to a common physical UI which will allow MS to have much better control on the user experience. Also, they will only allow apps to be installed from their app store. They are said to not allow Flash. While they will always be behind Apple, I do believe they will overcome Android fairly quickly by leveraging their Office, Zune and XBox brands.
I do not personally believe that an open source solution like Linux or Android can claim more than 15% of a given mature and saturated market. I understand that statement will upset many people. In a lot of ways I hope I am wrong as there are many friends and people I like that have both feet fully in open source solutions and projects.
The iPhone Ui is simple and easy to do most things. When my parents and even grand parents can quickly learn and navigate the iPhone OS and install apps, you begin to understand the appeal of the iPhone and its model.
I have nothing personal against Android but I do not see its model working well in the long run. People are buying it now because phones like Palm and even RIM are not doing well on the browser experience. The Android UI is doing well because it more closely resembles the iPhone. As well on any other carriers but AT&T, the Android doesn’t compete with the iPhone. However, on networks that carry the iPhone, the iPhone is dominating sales.