Why iAds will fail

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Apple's new iAd proposition has been generating a great deal of discussion lately, most of it positive, and most of it remarkably short-sighted. It seems most people, including Steve Jobs, have forgotten the basic lessons of computing and the internet. People who forget history are doomed to repeat it. The iAd has no future, and neither does the iPhone/iPad. I will show why iAds must inevitably die, and how Steve Job's strategy for iPhone and iPad will inevitably lead Apple into becoming at best a marginal niche player, at worst an ex-business.

Layered model
We need to start by remembering what the smartphone platform is. First, let's forget the archaic concept of a "mobile phone." The iPhone is no more of a phone than a PC running Skype. The majority of iPhone time, money, and resources lies in apps. iPhones, just like smartphones running Google's Android or Microsoft's WinOS, are not phones but small computers that happen to have telephone capabilities. They may have started as phones, but they outgrew that classification a couple of years back. The only serious difference between a smartphone and a computer is size and the fact that smartphones are inherently location-aware. You will notice that the creators of smartphone operating systems are all computer companies.

As computers, smartphones are subject to the multi-layered business model common to all computers. Technology manufacturers, such as Nokia and Samsung, build the physical hardware. Above them we have the providers of operating systems, of whom the major players are Apple, Google, and Microsoft. Other companies provide apps and services. Some services are delivered directly through the operating system, such as SMS and phone calls, while others are delivered within applications themselves. Under this model, advertising falls into the category of services, while widgets combine apps with services.

Understanding the dynamics of this marketplace requires recognizing where the power lies, and how it shifts as technology evolves.

The smartphone marketplace
Hardware manufacturers make their money by selling new phones. They have no interest in making phones that last forever, or that can be upgraded via software. Just like PC manufacturers, their only chance of continuous revenue is by continually developing new models. The best way to sell a new model is to provide new capabilities, but opportunities for new capabilities are limited if the operating system does not provide access to them. Since operating systems are more difficult to develop than applications and services, and cannot upgrade as quickly, the emphasis on exploiting new capabilities inevitably falls on the app developer and service provider community. Thus the success of smartphone hardware providers is inextricably linked with the development of an active mobile app marketplace and a dynamic service provider community.

Irrespective of the capabilities of the hardware, both apps and services are limited by the capabilities of the operating system. If the operating system does not permit access to a new hardware capability, then that capability cannot be exploited. If the operating system does not provide an efficient development environment, then it may be difficult to exploit the new capability in a cost-effective manner. Thus hardware manufacturers, application developers, and service providers are all dependent on the operating system. 

Operating system vendors can make money from both sides of the equation. They can license the operating system to the hardware manufacturer, and they can charge licensing for apps built on their platform, or for developer kits and support. 

Operating systems are only attractive to hardware manufacturers to the degree that they offer future-proof access to new capabilities the manufacturer may one day create, and to the degree that the operating system is attractive to application developers and service providers.

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Comments

Henry D
Henry D June 3, 2010 at 2:34 PM

Now that AT&T just changed it's data plans to ban unlimited data does that mean that users are now paying for the file size load of these ads from their allowed data cap? It seems that every time you use your apps the phone/ipad will need to load a small text ad in addition to content if you click on it. That's like sending millions of text messages to phones all day long via the AT&T network (obviously coming from the mobile company that Apple bought). Why isn't Apple sharing a portion of the revenue with AT&T if it's their network that is going to get bogged down?

Miguel Buckenmeyer
Miguel Buckenmeyer May 23, 2010 at 5:36 AM

Some of these comments are way too harsh.

I don't necessarily agree with the conclusion but I agree that "closedness" as opposed to openness could marginalize Apple's platform over the long run if developers slowly gravitate to other platforms.

For those of you that don't agree you should read both Wikinomics by Don Tapscott and Anthony D. Williams and the book The keystone advantage: what the new dynamics of business ecosystems mean for strategy, innovation, and sustainability by Marco Iansiti and Roy Levien.

The reason that I will side with Apple on this one is that I think consumers will "satisfice". We ultimately realize that we don't need access to infinite information or apps. As long as we have just enough to do what we want to do then we are happy.

The world was a lot different back then and there were very few "apps" or programs and Windows seemed to offer the most possibilities. The world is a lot different now. I can't see myself leaving iPhone because I don't have access to latest pointless app that makes my screen appear to cloud up.

Too many possibilities is also a turn off from a usability perspective and this is what the success of Apple lately is demonstrating. Keeping a consumer tech product simple is a good business strategy.

Josh Gordon
Josh Gordon May 23, 2010 at 1:28 AM

I read this article through. I still don't understand why Brandt Dainow thinks advertising on the IPad will fail. There is a lot of tech talk that has noting to do with the advertising function. Technology is only an advertising enabler. It almost never determines the success or failure of an ad medium.

John Dennis
John Dennis May 22, 2010 at 7:34 PM

Did not even read this crap. Here's what I will say just based on the headline. Put your money where you mouth is. Bet your life savings against Apple. You will be standing in line with a bunch of other myopic quasi tech journalist who said the Apple's purchase of NeXt was dumb, the original iMac would fail, the iPod was just another expensive MP3 player that would fail, that Apple did not know anything about phone and the iPhone would fail, that the iPad would be a flop ......

Apple under Steve Jobs has been 2 -3 steps ahead of everyone else.

Johnny HasABrain
Johnny HasABrain May 21, 2010 at 2:30 PM

Brandt Dainow, you need to rethink your life. Consider what has brought you to this point: writing an article that is no more than a troll post, with better aim than to sell some advertising. You've just wasted my time and many others' time. Do something worthwhile, if you can, you troll.

matt del vecchio
matt del vecchio May 21, 2010 at 2:14 PM

hard to take a website seriously when it doesnt know when to use a JPEG and when to use a GIF! 6 colors, dude.

Gretchen Hyman
Gretchen Hyman May 21, 2010 at 12:26 PM

As a trade publication, iMedia Connection represents as many diverse voices and opinions as possible. I encourage all of you to get in touch with me to talk about blogging or writing for iMedia on this same subject. We are always looking for new perspectives, and infact ran a piece a few weeks ago titled: How iAds will revolutionize the industry. I encourage you to check it out as well: http://tinyurl.com/28ougd3 .

If you would like to discuss this further, please contact me at: Gretchen@imediaconnection.com.

A Pope
A Pope May 21, 2010 at 11:29 AM

If you have such little respect for your readers as to split articles into pages to artificially boost your page views, I guess it's no surprise you'd be prepared to stoop to the level of linkbait.

elder norm
elder norm May 21, 2010 at 10:46 AM

Sorry,, but this article just smells of..... "What ever I like and use must be the wave of the future... even if its based on the past..."

Time and again he makes comments that are wrong then procceeds to base his comments on wrong "facts".

Its almost like he hates Apple and is sure the iPod will die, the iPhone will die, the iPad will die, Macs will die.. only companies that do things the old ways will survive.

Er.... wrong... just wrong. Way to many wrong comments to deal with. Just wrong. In fact I have to wonder why imedia allowed the article to be posted.

Just a thought,
en

Dru Richman
Dru Richman May 21, 2010 at 10:42 AM

So many words, so little understanding.

The good news is that Mr. Dainow joins the company of such notable crackpots as John C. Dvorak, Rob Enderle, Matthew Lynn, Paul Thurrott, and others of their ilk who have been predicting the imminent demise of Apple and it's products since 1984. They weren't right then and Mr. Dainow isn't right now.

To quote Mr. Gershwin:
"They all laughed at Christopher Columbus
When he said the world was round
They all laughed when Edison recorded sound
They all laughed at Wilbur and his brother
When they said that man could fly
They told Marconi
Wireless was a phony
It's the same old cry

They all laughed at Rockefeller Center
Now they're fighting to get in
They all laughed at Whitney and his cotton gin
They all laughed Fulton and his steamboat
Hershey and his chocolate bar
Ford and his Lizzie
Kept the laughers busy
That's how people are

Ha, ha, ha!
Who's got the last laugh now?"

In answer to Mr. Gershwin's question - that would be Apple.

Dwight Homer
Dwight Homer May 21, 2010 at 10:39 AM

Long long article short on substance. Hard not to believe this is disinterested analysis. For an genuine (and neutral) alt view see today's note on the controversy by Tony Bradley of PC World http://www.pcworld.com/businesscenter/article/196870/adobe_faces_tough_fight_for_flash_survival.html TB is in no sense a Mac fancier, but he understands how technology develops. If you think html5 is vaporware check with Google on its role in their development plans.

Martin Anderson-Clutz
Martin Anderson-Clutz May 21, 2010 at 10:00 AM

I wish I had a dollars for every "analyst" that had predicted the demise of Apple over the years.

Then again, I wish I had put $1000 into Apple stock just before the return of Steve Jobs. Enough said.

Has Apple succeeded in everything it has tried? Definitely not?

But let's review the markets Apple entered where everyone said their approach was doomed to failure: Music, Retail, Mobile Phones.

If I had money to bet, I know which side I'd be betting on.

Adam R
Adam R May 21, 2010 at 9:42 AM

Disabling comments is a sure sign that you probably are wrong.

John Musci
John Musci May 21, 2010 at 5:18 AM

Mr. Dainow is right that iAd won't be waltzing to the bank -- few advertisers will pony up the $10M entry fee. Moreover, after some deep-tissue massaging of the iAd knot, we worked out how Apple's ad platform will kink the economics and innovation of advertising -- ultimately more concerning than failure to live up to hyperbole: http://bit.ly/acQBYA

John
Blogads

Gary Makin
Gary Makin May 21, 2010 at 4:15 AM

Wow! Just Wow! That article is the worst I have read in a LONG time. This site should just delete it now to save themselves any further embarrassment.

There are so many mistakes, big mistakes. To show how big, I'll pick just one.

"When Steve Jobs announced MS Office for the Mac to a stunned audience in 1997..." Word was on the Mac in 1984. Excel started on the Mac. Office was on the Mac before Windows. What Steve announced in 1997 was that MS was going to continue to develop Office for the Mac, and this was seen as a very good thing.

Rubbish article. Pure rubbish.

Player 16
Player 16 May 21, 2010 at 3:08 AM

Linkbait. Yep. I got as far as the 1st page then I started reading the Comments. This bloke is just spewing crap that isn't in anyones business. I may read the rest later but some cartoons are about to come on the telly that makes MUCH more sense than this guy.

Bill CSAP Psy
Bill CSAP Psy May 21, 2010 at 2:06 AM

Linkbait!!!!!!