Kenny Hemphill
With mobile devices set to overtake computers as the way most of us access the web, is Apple getting ready to start developing mobile ads?
Earlier this month, when most of us were still recovering from New Year hangovers and the excesses of the Christmas season, it emerged that Apple had bought a company called Quattro Wireless. Even those of us who were paying attention gave the reports little more than a cursory skim: there was, after all, much more excitement to be had among the rumour and speculation regarding this week’s announcements in San Francisco.
This acquisition could, however, turn out to be Apple’s most significant since it bought NeXT in 1997. Quattro Wireless specialises in mobile advertising. It allows advertisers to target their ads to a specific audience and enables publishers to earn revenue on their content in much the same way as Google’s AdSense does on the web.
One of the markets that Quattro has been focusing on in recent months is iPhone apps. There are tens of thousands of iPhone developers who give away their apps for free on the App Store but who would jump at the opportunity to make decent revenue from displaying adverts. Those that have tried, according to Business Week, have ‘profited by embedding ads in their apps, but the payments tend to be insignificant since the ads are usually smaller, less-effective versions of their web banner forms’. In that Business Week report, it attributes to ‘a source familiar with [Steve Jobs'] thinking’ the observation that the Apple CEO believes that ‘mobile ads suck’.
It seems Apple believes that there’s a significant amount of money to be had if it can make mobile ads not suck, and instead appeal to advertisers, publishers and customers alike. It might well be right.
Mobile devices are set to overtake computers as the primary means by which most of us access the Internet – inside five years, according to Morgan Stanley – and Apple has a huge advantage in that it makes both hardware and an operating system that are perfectly suited to take advantage of the shift from computer to handheld device. If it can use Quattro’s targeted advertising to develop the kind of system that’s helpful enough to users to make them want to click, then it will very quickly have both advertisers and publishers queuing up to join.
The key to making those ads useful is personal data. Google learned that a long time ago and has been furiously collecting data on us ever since. Apple, too, has a great deal of data on those of us who buy downloads from the iTunes Store, sign up for MobileMe or use an iPhone. By tying in that data with the location services in its mobile devices, it would be relatively easy to display personalised adverts. So, for example, if you use Urban Spoon to find a local restaurant, it could, instead of just displaying the restaurant details, show an ad with a promotional offer. Walk into the restaurant with the offer displayed on your handheld and you get a discount on dinner. The restaurant gets a new customer, and the app developer and Apple share the advertising revenue.
Of course, app developers aren’t the only ones who stand to benefit. Newspaper and magazine publishers, in the wake of sharp dips in printed circulation, are focusing more than ever on generating revenue from online publications. Those efforts have thus far yielded disappointing results, which is one of the reasons Rupert Murdoch and others object so strongly to Google syndicating their content for free in Google News. Most publishers see handheld devices as a much better fit for their content than either desktop or laptop computers, and are determined to make them profitable.
An Apple-run ad network may just provide them with the opportunity to do that. Some, no doubt, will resent having to rely on Apple to service adverts as well as sanction the applications through with their content is published, and produce the hardware and software used to view it. Others will accept that, while competition for their business would be preferable, the benefits of using all that data to target adverts, not to mention the customer user experience, which we can safely assume will be far better than that offered by most ad networks, outweighs the lack of choice.
Google, whose market capitalisation, at $184 billion (about £112 billion), is very close to Apple’s, currently generates nearly all its revenue from advertising. It too recognises the importance of the mobile devices market, which is why it developed Android and has launched the Nexus One. It had the field to itself when Internet advertising was in its infancy, thanks largely to Yahoo and Microsoft’s failure to compete with it. This time around it will have a better prepared, better placed and significantly more formidable competitor in Apple.
If Morgan Stanley is right and more than half of online activity takes place on mobile devices in five years, and Apple can compete strongly with Google for advertising revenue, the rewards could dwarf anything it has done so far.
