Guest post written by Shawn Scheuer
Shawn Scheuer is CEO of Moolah Media, a mobile marketing company.
Apple’s profits more than doubled in the December quarter, thanks in large part to the sale of 37 million iPhones. The company is dominating the mobile device market. But it is floundering in at least one key area: mobile advertising.
It’s hard to ignore the signs of trouble with Apple’s mobile advertising platform, iAd: the company recently lowered minimum ad spend (again), this time from $400,000 to $100,000, making the current cost a far cry from the original price tag of $1 million per campaign when it launched in 2010.
With its wild success in seemingly every other aspect of mobile, what’s holding Apple back from a popular and lucrative mobile ad platform? Here are some possible explanations:
- It’s (still) too expensive for too many advertisers.
Despite lowering the minimum fee and simplifying their CPM and performance-based pricing, iAd’s new minimum cost is still out of reach for the majority of advertisers. Performance marketing makes up about 80 percent of total mobile display advertising spend, with campaigns ranging from 50 cents to $1 CPM or five to 15 cents cost-per-click, so iAd’s lofty campaign price alienates a sizeable chunk of potential advertising customers.
Major brands, like early iAd sign-up Campbell’s Soup, have no issue spending millions to experiment with mobile ads - but performance advertisers are looking for tangible results that will generate real income. For example, a college hoping to reach potential applicants through mobile ads should expect to pay no more than $2 for a short form lead, but the cost of an iAd campaign would increase that cost to anywhere between $10 and $20.
- It forces advertisers to take a big gamble before seeing real results.
With their dependence on data-driven and tangible feedback - actions taken beyond the click - performance advertisers need to know that they can generate revenue from consumers interacting with their ads rather than accidentally clicking and quickly navigating away.
iAd works for big brands like Campbell’s that already have an instantly recognizable logo - brands that can rely on visual impressions to translate into potential business farther down the road. But in order for cost-per-action advertisers to make money, they need just that: an action.
Maybe an impression creates greater awareness, and click-through-rate is a proxy for consumer interest, but performance advertisers are looking for an immediate indication that their ads are generating ROI. And they get this direct response through a call, form submit, e-mail registration or some other recordable interaction, closely followed by a sale.
iAd’s minimum ad spend requires a big commitment before ever seeing results, and performance advertisers are more likely to profit by using transparent ad networks that offer real-time tracking and the ability to switch ad placement and targeting on a moment’s notice, depending on how it is performing. Tangibility and flexibility are two key components absent from iAd’s platform, and these missing pieces make performance advertisers wary.
- It limits consumer reach dramatically.
The iAd platform only allows advertisers to serve ads to users on the iPhone, iPad or iPod Touch. While it might sound obvious that this means a smaller audience pool for advertisers, it also means that their ads reach fewer demographics. This is a big turnoff for advertisers attempting to deliver targeted ads to a specific group of consumers - say, 18-to-24 year olds living in a specific region. And with such a reliance on performance, these advertisers need to make sure that the right people see the right ads.
Additionally, iOS users are more likely to click mobile ads, but far less likely to take an action than Android users, making customer acquisition of iOS users far more expensive on either a CPC or CPM basis – regardless of whether the campaign is run through iAd or elsewhere.
Some stats collected through Moolah’s network from dozens of campaigns, tens of millions of impressions, and hundreds of web and app publishers, shows that for a given CPC or CPM, the cost of an iOS conversion is significantly higher than one on Android. When compared on a CPM basis, all other platforms outperform iOS.
And choosing iAd also means missing out on this more responsive (and growing) portion of the smartphone market: there are now 300 million Android devices on the market, with 850,000 more being activated every day.
Not only is Google booming in terms of devices sold, but they’re also boosting mobile ad sales, accounting for 51.7 percent of all revenue for 2011. By comparison, iAd drew a much smaller - 6.4 percent - chunk of U.S. mobile ad spend. Millennial Media came in a close third at 6.3 percent. To get the widest reach, performance advertisers are going to choose ad networks that serve across platforms and devices.
- The better the app experience, the worse the ad engagement.
By all accounts, iOS devices offer a far more refined experience than their Android counterparts. With their more sensitive screens and far loftier price tag, the comparison hardly seems fair. It’s also common sense that people won’t leave a good, engaging app to check out an ad. And for iOS, this translates into further mobile ad underperformance.
To illustrate this point, we isolated campaigns run on iOS and Android versions of several popular apps (such as Pinger).
The CTR is higher for each platform, and the conversion rate is lower; however, the magnitude difference was far greater for iOS than Android, making iOS the performance loser again, especially for CPC campaigns.
While it is hard to know exactly the reason for this, we see only two possible explanations: One possibility is that iOS’s extremely sensitive touch screen generates disproportionately higher inadvertent clicks. The other is that iOS users can’t wait to go back to their more engaging apps.
Either way, iOS’s superior user experience translates into poor advertiser engagement.
iAd’s position is weakened even further by the fact that they don’t support mobile search ads, an area that has taken off in a huge way for Google. The Android giant’s mobile search ad numbers more than doubled in the past year, and their overall mobile ad revenue is expected to do the same in 2012.
- iAd’s self-serve tool can’t keep up.
iAd started out as a strictly Apple-controlled project, with ads being created and implemented entirely in-house. Apple didn’t offer advertisers a self-serve option until nearly a year after iAd kicked off.
iAd Producer lets advertisers create their own ads but is still subject to Apple’s sometimes lengthy approval process. And this DIY model came well after advertisers were building their own ads for Android devices, keeping them perpetually behind in that race.
In addition, iAds use click through rates as their key performance metric for advertisers. CTRs have repeatedly shown huge flaws, with research indicating that high click through rates are often accidental. For brand advertisers, this means that a lot of their analytics are inaccurate – they may have seen a lot of clicks one month, but that doesn’t necessarily mean higher interest from the consumers. And this data is totally useless for performance marketers, with clicks failing to equal actions.
The writing is on the wall: a study by research firm IDC revealed that Google took 24 percent of the mobile display ads market last year, with Apple struggling to compete at 15 percent—a downturn from Apple’s 19 percent grab the year before.
And with mobile ad spend reaching nearly $1.5 billion in 2011 - with predictions to skyrocket in 2012 - it’s likely that Apple will be rethinking their mobile advertising strategy this year.
