Apple to Charge a Premium to Put Ads in Mobile Apps
Setting a high bar for its debut in the advertising business, Apple Inc. aims to charge close to $1 million for ads on its mobile devices this year and perhaps even more to be among the first, ad executives say.
Apple is hitting the road to showcase its new mobile-device advertising capability, dubbed iAd, and has indicated it could charge as much as $10 million to be part of a handful of marketers at the launch, according to a person familiar with the matter.
Ad executives say they are used to paying between $100,000 and $200,000 for similar mobile deals.
Earlier this month, Apple unveiled iAd, a software system to offer ads in the applications available in its App Store. Ads are likely to start appearing in applications on its iPhone and iPod Touch devices in June, and its iPad later in the year, according to the person familiar with the matter.
Apple is making waves on Madison Avenue with its price tag, which comes with initial demands for greater control over advertisers’ marketing campaigns.
“It’s a hefty sum,” says Phuc Truong, managing director at Mobext, a mobile marketing business owned by Havas SA whose clients include Sears, Choice Hotels, Amtrak and Volvo. “What Apple is trying to do is certainly above and beyond what’s been done in the past.”
An Apple spokeswoman said the company will sell and serve the ads and declined further comment, except to reiterate that app developers will receive 60% of the revenue. Apple gets the other 40%.
Apple on Wednesday said it has scheduled a developers’ conference for June 7-11, where it is expected to unveil its next iPhone. It would be up to developers whether they want to include ads in their apps, although the financial incentive is there.
A handful of other companies sell ads that appear in Apple device applications, including AdMob Inc., which Google Inc. announced it would acquire last year for $750 million. AdMob says Apple’s entry into ad selling is going to boost competition and development in the space, says Jason Spero, vice president of AdMob North America.
Zaw Thet, chief executive of mobile ad firm 4INFO Inc., said Apple’s move is likely to spur other mobile ad startups to shift the focus of their developments away from the iPhone to other mobile systems, such as Google’s Android.
Despite the high price, ad executives at agencies from Boston to New York and San Francisco to Los Angeles have crowded into conference rooms in recent weeks to listen to the tech company’s pitch for iAd.
Discussions over possible deals are ongoing but several ad executives said they are beginning to prepare creative ideas for campaigns.
One example Apple has been showing advertisers is an ad for Nike’s Air Jordan basketball shoe, says Baba Shetty, chief media officer at Boston-based ad agency Hill Holiday, owned by Interpublic Group. When a user is in an application, an animated banner ad appears on the border of the screen, along with an iAd logo. If the user taps on the ad, it expands across the screen, displaying a video, an interactive store locator and exclusive offers at local stores, among other features.
“It was very easy to think about the several minutes of interaction time consumers can spend with the ad. It’s incredibly attractive,” Mr. Shetty says.
Apple is planning to charge advertisers a penny each time a consumer sees a banner ad, ad executives say. When a user taps on the banner and the ad pops up, Apple will charge $2. Under large ad buys, such as the $1 million package, costs would rack up to reach $1 million with the various views and taps.
The audience is sizable: Apple has sold 85 million iPhone and iPod Touches so far and estimates that users spend about 30 minutes a day using applications.
Marketers will be able to target ads to groups of users based on consumers’ download preferences from its iTunes store, according to ad executives. For instance, a marketer could choose to show its ads to people who have downloaded financial applications or reggaeton music, horror movies or comedy TV shows.
Marketers also will be able to target ads to users in a general location like a city, although they cannot target ads to individual consumers or access personal details.
Apple is seeking high quality ads from big-name marketers for the launch, ad executives say. The ads will go through an approval process, and Apple will build the ads itself during the first couple of months to make sure they work well and attain a certain aesthetic and functionality, ad executives say. Eventually, Apple plans to create a developer kit so that agencies will be able to design and create the ads themselves.
The process is causing tension among some ad directors, who are hesitant to give up control.
“As a creative director, I can completely understand that they created this new baby and they want to make sure it gets born looking gorgeous. But as a creative director, I don’t feel completely comfortable letting Apple do the creative,” says Lars Bastholm, chief digital creative officer at WPP’s Ogilvy.
Marketers have been much slower to buy mobile ads than expected, largely because consumers had yet to visit mobile Web sites in meaningful numbers and the process of creating mobile ad campaigns was a technical and logistical feat.
Apple isn’t making that any easier, with requirements that advertisers use special technologies for its system, says Jordan Rohan, an Internet analyst with Thomas Weisel Partners.
But, ad executives say that if Apple nails its pitch, it could open up the gates for mobile advertising.
“I think the tipping point has come,” says Mark Read, chief executive of WPP Digital. “The absolute revenues now are tiny, but you can see how these things are starting to fit together.”
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