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Why the iAd was a failure

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It's just over a year now since Apple launched its unique mobile ad platform, iAd. At the time I wrote an article looking at the prospects for iAd that was pretty negative. I got a huge amount of feedback (for which I thank my readers), 90 percent of which was negative to the point of outraged that I could question the wisdom of Apple and the great Mr. Jobs. My skepticism about the future of iAd had very little to do with the format itself or the potential for interactive, sticky mobile ads as apps within apps. My criticism was based more on Apple's strategy of creating closed ecosystems for all its products.


The thrust of my criticism was that if Apple creates aspirational and innovative new products, but then restricts access to them, it forces others to create competing systems. By refusing hardware manufacturers such as Samsung and Nokia access to the iOS system, Apple forced them into the arms of Google and Microsoft. I argued that, just as the Mac had gone from 30 percent market share at its peak to less than 3 percent today, so would the iPhone go in the mobile market. It didn't matter if the iPhone was cool or reliable, or if Apple was good at convincing consumers they were somehow superior beings for owning Apple products. The point is Apple runs a restricted, tightly controlled environment in a world that loves the free market. History has shown us, over and over again, that free markets always win out over closed ones.


This article will examine the last year of iAd and the iOS platform to see how the potential has stacked up against reality. Before we deal with the iAd itself, we need to place it in context of the mobile operating system wars. When I wrote my previous article, I predicted that Apple's mobile market share would inevitably decline, just as it had seen with the Mac and iPod, so it's worth looking at the stats to see how the iPhone performed against its competitors from June 2010 to July 2011. Globally, the world's leading mobile operating system is Symbian, with a rock-steady 33 percent, which has not changed in the last year.


By contrast, iOS global market share has fallen from 26 percent to 20 percent, while Android has grown from 8 percent to 19 percent. In Europe, iOS has fallen from 45 percent to 40 percent, while Android has grown from 8 percent to 23 percent. The situation is slightly better for Apple in the U.S., where iOS has retained a steady 38 percent share for the last year. However, in that same time, Android's share of the U.S. market has grown from 16 percent to exceed Apple by now holding a 40 percent share.


The Apple is shrinking. Apple is now clutching at straws, seeking court rulings banning "copy-cat" designs such as Samsung's latest (Android) tablet, by claiming Apple invented the design of a black rectangle with rounded corners and that any tablet with such features is a breach of copyright. Seeking to maintain market share by getting the courts to ban competing products is a well-tried, inevitably doomed strategy. Even success is meaningless. Apple won several similar cases against Microsoft Windows, which still went on to totally dominate the market.


There were a number of key features about iAd when it was first announced that distinguished it from all other mobile advertising opportunities. Firstly, and most notably, was the price tag. The minimum entry for iAd was $1 million. Another distinguishing feature of iAd was that you weren't allowed to produce your own ads. You could design the creative, but Apple would produce the iAd itself.


Finally -- and for most advertisers, most importantly -- was the fact that Apple chose who the ad would be presented to, and controlled all the metrics relating to ad activity. You could choose who you didn't want it presented to, but that was about the limit of your control. Initially, Steve Jobs said he wanted advertisers to treat all iPhone users as a single homogenous demographic. That idea was so divorced from the reality of digital advertising that it didn't even survive to the launch.


So let's just sum up what the initial iAd offering was: You paid $1 million, you didn't get to create the ad yourself, you had limited metrics about its performance, and you didn't really get much choice over who the ads were presented to them. Wow -- what an attractive offering in a competitive and expanding marketplace!


So what happened? To start with, fewer than 20 advertisers signed up. Of those, only two managed to make the launch date. One completely dropped out of the program during the launch preparation phase. Very soon people complained that Apple lacked the skills and efficiency to create the iAd itself in a timely fashion. It was said that using Apple added two or three weeks to the campaign rollout process. After six months of Apple's insisting that only its own staff were capable of producing iAds of sufficient quality not to offend the users (an insult to the entire digital creative community), Apple started giving away an iAd production kit so anyone could make iAds. Next, the minimum price started to fall. The current official minimum to get into the iAd game is now $500,000, but Bloomberg reports that Apple is offering deals for $300,000.


What about the effectiveness of iAds? There is fairly clear evidence that iAds, providing all the potential interactivity of apps, do gain more eyeball time, and do have a higher response rate, and do earn advertisers more money per exposure than less complicated formats. However, this is not unique to the iAd, but true of any rich media ad created with HTML5 or Flash. If you can do it in the iAd format, you can do the same thing on any platform running HTML5. As a result, there is a growing industry developing rich interactive ads, very much like iAds, but which can be deployed on a cross-platform basis across both Android and iOS systems.


After all, why pay to develop different interactive ads for much different mobile systems when you can just as easily make a single ad spanning all platforms? Some companies like J.C. Penney and Citigroup, which were using iAd at the beginning, have moved to a cross-platform alternative. One of the main beneficiaries of this desire for a cross-platform alternative is Greystripe. Dane Holewinski, head of marketing at Greystripe, claimed 80 percent of its campaigns are now designed for cross-platform exposure.


"Advertisers don't care about platform. They care about audience, performance, and engagement," Holewinski said.

When I first looked at iAd, I interviewed Roy de Souza of ZEDO, one of the largest digital marketing agencies in the mobile field. He was open-minded about the future of iAd, though he was concerned about the lack of decent metrics. I asked him how his experience of iAd has panned out since launch:


"I wish I could tell you more about iAds, but I can't. ZEDO serves tens of billions of ads a month for thousands of publishers and advertisers. Yet no one seems to buy or even see any iAds. So either Apple is keeping the ads top secret and not showing them to anyone -- which would be unusual in advertising -- or advertisers just aren't buying them."


A source at another agency, which does do iAds, wanted to remain anonymous. He claimed Apple can be vindictive with those who say negative things about the company, though I've no doubt this is an exaggeration -- Apple is well-known for its friendly attitude to rivals and critics. My source complained that iAd effectiveness is failing fast, with a return on iAds falling to a quarter the level of when they first launched.


There does seem to be a general consensus that iAd changed the perception of mobile advertising in general. The prominence iAd gained has opened the door for mobile advertising agencies to talk in terms of mobile campaigns around the million-dollar mark, something that few companies were prepared to seriously contemplate before.


However, as predicted by myself and others who are opposed to Apple's closed ecosystem, the response has not been to rush to Apple, but to seek cross-platform alternatives that maximize ROI by deploying rich media advertisements across the widest platform range for the least investment. Once again, Apple has shown the world how to do it but created such a hyper-controlled and restricted environment that the world would rather seek alternatives than restrict themselves to Apple.


It's interesting to consider the slow, but steady, decline in responsiveness for iAds. This suggests to me that part of the high response rate in the beginning was due to novelty. There was a time when you could create almost any digital advertisement and people would click on it simply because it was there. That era didn't last long. Consumers soon learned that most ads were of limited value to them and began ignoring them. It appears the same thing is happening with rich media advertising on the mobile platform, and iAd is no exception.


In seeking to present a balanced view in this article, I sought out interviews with Apple and GetJar. Apple declined to talk, but the interview with Ilja Laurs, the founder and CEO of GetJar, was interesting. GetJar has been distributing mobile apps via its "App Store" (as it is called) for many years. Its model is to give away retail apps and make its money elsewhere. GetJar is currently embroiled in a legal dispute with Apple over the name "App Store."


A while ago Apple tried to trademark "App Store." It was refused on the basis that this was a common term that pre-dated its own use of it. The company applied a second time and were told it could have trademark provided nobody objected, but a lot of people objected, so it didn't get trademark. Despite this, it has launched a legal case against GetJar over its use of the term "App Store." While he offered no proof there was a connection, Laurs did note that Apple's cease-and-desist letter came a few days after GetJar released free Android versions of popular retail iPhone apps.


Laurs was originally an economist, and I was impressed with his analysis of Apple's closed-ecosystem strategy, so I'll let him speak for himself:


"Apple has the right to choose their strategy. Personally, I don't think closed models ever succeed. I come from the former Soviet Union so I've seen closed political models fail. I just don't think any closed models can ever succeed," he said.


"Closed systems restrict innovation, restrict optimal solutions, because one way is always too limited," he added. "In open systems, innovation means there are always experiments with dozens of alternative solutions to every problem. With a closed environment, you get one solution for billing, tech, user interface, etc. To want a closed system, you have to assume your solution is better than anything anyone else could ever come up with -- ever. It's arrogant to assume you are always better than everyone else for everything. Free markets allow the best to rise to the surface, which is inevitably better for everyone."


Laurs likened Apple's strategy to something he knew from the days of Soviet retailing -- "the package." In the Soviet Union, unwanted retail products -- old food in rusty cans and the like -- would be bundled with a few desirable products. If you needed the good stuff, you had to buy "the package," two-thirds of which would be stuff you didn't want. In his view, when Apple tries to provide everything -- creative, hosting, delivery, metrics, and billing -- it is offering you the mobile equivalent of the old Soviet "package."


Closed, centrally controlled markets benefited no one in the Soviet Union. Even the leaders who thought they benefited from central control eventually lost out to the competition. The decision for Apple is about whose closed model it wants to follow. It can go the way of the Soviet Union, maintaining an iron grip until it fades away, or it can follow the Chinese model and open its system up and reap the benefits of free market innovation.


Brandt Dainow is an independent web analyst. He works with data-driven companies to develop, monetize, and tune their web intelligence.


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Brandt is an independent web analyst, researcher and academic.  As a web analyst, he specialises in building bespoke (or customised) web analytic reporting systems.  This can range from building a customised report format to creating an...

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Comments

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Commenter: Wenhan Zhou

2011, August 22

Sure, Apple might not have managed iAd properly because of their prefectionist policy but Steve did a great job of opening the door for Rich Media ads. and being from that industry, I am not one to complain.

iAds are effective and Apple just needs to loosen their grip and allow more advertisers to push in their own creative. Agencies won't build a iAd if they think it will get rejected and Apple needs to show that they won't reject ads.

It's the same with Apps a year ago where there was a lot of hoo ha about Apple rejecting apps. Now that the wave has died down people have gone back to making apps and not worrying about if they will be rejected.

Wenhan | http://mobdis.com - Mobile marketing made simple!

Commenter: Mike Gaertner

2011, August 18

While I can't argue against your thoughts on iAds (I too thought it was a bit doomed from the start), I do disagree with your characterization of the mobile market and Apple's behavior. "The Apple is shrinking" is by no means the truth. The market is simply exploding and the Apple growing massively, albeit at a slower rate than Android. Additionally, "grasping at straws" seems to be a misguided assessment of their patent litigation. While I do agree that the whole patent litigation system is a broken mess, I don't think a company with the market share that Apple has, the return rates that Android manufacturers are experiencing and the fragmentation amongst the ecosystem have painted Apple into a corner that would force "grasping at straws." Call it unfair or even a little shady, but desperate? No way.