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Apple Stages a Fire Sale on iAd Pricing, but Will Mobile Advertisers Respond?

Intended to compete with Google’s AdMob, iAd has yet to measure up despite the iPhone's popularity


With its stock reaching record highs, a market cap that made it the world’s most valuable company a few weeks ago, nearly $100 billion in cash reserves, and both media and customers clamoring for news on its upcoming new products —the iPad 3, iPhone 5, and rumored iTV— you’d think everything was going Apple‘s (NASDAQ:AAPL) way. However, there are a few flies in the ointment these days. The issue about working conditions at Foxconn and other manufacturers that assemble the company’s products come to mind.

And then there’s iAd.

Launched in June 2010 along with the iPhone 4, iAd is Apple’s answer to Google‘s (NASDAQ:GOOG) AdMob when it comes to mobile advertising. The service allows advertisers to include banner ads, video, coupons, and other promotional material within an iOS app and provides detailed metrics to measure a campaign’s effectiveness. According to Adage, the mobile ad business was worth $630 million in the U.S. in 2011 and Google took 24% of that. Apple’s iAd took a respectable chunk at 15%, but that was a decline from 19% the previous year.

When the total number of connected iOS devices (including iPads) are compared to the total number of Android connected devices in the U.S., Apple had a solid lead in 2011. By October, Comscore was showing iOS devices at 43.1% of mobile device share and Android devices with 34.1%.

No containing the AdMob?

That highlights the disconnect between the potential market for mobile advertising and the performance of iAd. AdMob would appear to be taking some iOS customers from Apple’s mobile advertising division. Apple tried blocking AdMob through changes to its iOS developer agreement when iAd launched, but then backed down. And iOS developers are clearly now using AdMob—more than Apple would like.

Apple seems to be betting that cost has been the limiting factor. It sells iAd space as a package and also charges a percentage of revenue generated from the ads. At launch, the minimum iAd package was $1 million, with Apple keeping 40% of revenue generated, a price tag that excluded smaller customers. That minimum rate was halved last year and, in recent news, Apple has announced that it will be dropping the minimum commitment to $100,000 while upping the revenue split in favor of developers, giving them 70% of advertising revenue generated.

Will slashing the cost of entry and handing over more of the advertising revenue to its customers turn the tide and give Apple’s iAd the boost it needs to regain its lost mobile ad market share, or even take the lead? It’s not like $630 million means much to Apple, but the company hates to be beaten by Google at anything. Add the price cuts to a pair of hotly anticipated mobile devices due to be released this year and Apple may well see the surge in iAd adoption it wants.

Article printed from InvestorPlace Media,

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