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A Big Month For Apple:
The Future of iPhone & iAd

In a special ‘developer preview’ session recently, Apple unveiled its plans for the future of the iPhone.

The iPhone OS 4 will be the biggest revision to the iPhone since it was launched, offering many innovative new features.

One of the most important of these is iAd, the mobile advertising ad platform intended to put Apple in control of in-app advertising.

In this article we’ll look at the special features of iPhone 4 and what they will bring to consumers, plus how iAd is likely to effect advertisers, publishers, consumers, as well as the overall mobile advertising and marketing industry.

(note: this is the second of a two-part article on Apple’s recent announcements – in part one we took an in-depth look at the iPad.)

iPhone OS 4 Features

Apple says that iPhone OS 4 will include over 100 new features for users and 1,500 new API’s for developers. While this is a huge number, Apple has focused their discussion on the seven key areas detailed below.

  • Multitasking – so multiple apps work at the same time
  • Folders – to better organize the apps on an iPhone
  • Enhanced Mail – for better email support
  • iBooks – an ebook reader and store
  • Enterprise features – to make iPhone work better for companies
  • Game center – especially for social network based games
  • iAd – Apple’s new mobile advertising platform.

These features are all described in more detail in the box at the end of this article. Together, they should make an already great user experience more powerful and at the same time more user friendly. iPhone OS 4 will be available this summer for iPhone and iPod Touch devices, and in the fall for the iPad.

iAd – Apple’s objective

Apple’s stated reason for launching iAd is to help developers monetize their applications. Since most apps are either free of very low priced, developers are turning more and more to advertising to generate a return. As Apple CEO Steve Jobs said in his presentation, iAd is to “help developers make money through advertising so they can keep their free apps free.”

jobs-quote1.gifiAd will focus solely on in-app advertising, not mobile search or mobile browsing. Apple sees consumers spending a large amount of time using apps, and feels this is an area where they can best improve the advertising experience.

Finally, iAd is designed to enable mobile advertising that will have the personal interactivity of typical online ads, but will also be able to generate the emotional impact of traditional TV advertising. According to Apple, up to now brands have had to make a choice between interactivity and emotion, but iAd is targeted to deliver both.


iAds – how it works

All of the details are still not available yet, as Apple has not released the SDK that will allow external parties to develop iAd ads. However, based on the launch material and the demos, we can see quite a bit of what iAd will be like.

Basically, developers will use iAd to insert small banner ads – static or animated – into their mobile applications. When a user clicks on the banner, it will launch what is in essence another application which is the advertisement. And since they are basically apps, the advertisements can provide very rich and engaging experiences for customers.

Here are some of the key features of iAd:

  • iAd will keep the customer “in the app”. In other words, after clicking on a banner and seeing the ad, they will find it very easy to go straight back to the app they were in, and at exactly the same place. So a consumer does not risk getting lost by clicking on an ad. Apple feels that this will be make customers much more relaxed about clicking on ads, and therefore will generate higher CTR’s.

  • iAd is built-into the iPhone OS, so it is very easy for developers to implement. Apple claims in many cases it will take just a few hours.
  • the ads themselves can be very interactive, with lots of streaming video. The ads are all based on HTML5, the new internet language that supports rich internet applications (rather than, for example, Adobe Flash).
  • the iAd will be able to take good advantage of specific phone features to make a richer, more engaging user experience, e.g. location aware for showing store locations, using the “shake” interface, and the ability to sell and set new iPhone wallpapers from within the app.

buying-in-app.jpgAnother very interesting feature that Apple demonstrated is the ability for consumers to buy additional products directly from within the app without having to visit the iTunes/App Store.

It is well known that making purchasing easier and reducing the number of steps required can have a large impact on conversion rates, so this feature should be very good at encouraging impulse purchases directly from within the app.

iAd – commercial aspects

Apple has also provided some information on the business side. Apple has said that they will sell and host all the ads, and they will split the revenue from the advertising on a 60/40 basis (the developer gets 60%, Apple gets 40%).

Although the pricing is not officially announced, reports from the Wall Street Journal and Moconews indicate that Apple plan to charge on both a CPM and a CPA basis: 1 cent per impression ($10 CPM) plus $2 per click. Most ad networks charge one of the other, but Apple plans to charge both, making this potentially a very expensive channel. And Apple is said to be implementing a $1million minimum annual spend limit.


iAd – what it means

While clearly it is too early to understand fully what iAds will mean to the mobile marketplace, a few things already seem clear. Let’s see how it might impact each of the key parties involved:

>> For customers: From a customer perspective, iAds should be great. It will enable some very rich, compelling mobile advertising, and let customers engage more deeply with their favorite brands. And with the direct links to mobile commerce, it could make for a really good overall customer experience.

>> For brands/advertisers: The story is not as clear for brands. On the plus side, iAd will support very engaging advertisements and should lead to a great, interactive customer experience. Plus, the iPhone owner demographic is likely to be a very desirable target for many brands.

On the other hand are the issues of reach and cost. Although Apple doesn’t report sales figures, in April 2010 Steve Jobs stated that they had sold about 75 million iPhone OS devices. As the iPhone continues to sell well and with the addition of the iPad, we can expect that sometime this year the total will pass 100 million. Although this is a large number, it is spread across the world, and once you take into account the reduction from targeting by interest or location, it will actually represent a limited market.

Regarding cost, it is likely to be much higher than other mobile ad channels. Using the figures from above, a 1% CTR would give a $30 average CPM, and a 3% CTR would give a $70 average CPM. This may be worth it for some initial advertisers who will also benefit from the general PR that will inevitably will surround initial iAd campaigns, but in the long term this may be a barrier for many brands.

>> For developers/publishers: Apple seems to have spent a lot of effort to make things very easy for developers. Especially small and medium sized developers might be very happy to simply implement a few ad tags and receive 60% of the ad sales.

On the other hand, a large publisher – for example a global news brand releasing an app – might not be too happy with the idea of giving up 40% of the ad revenue earned on their site. And the requirement that all the ads will be sold by an external party – namely Apple – may limit the publisher’s options to sell special cross media promotional opportunities.

In summary, it is clear that Apple has once again taken a big step forward. By managing to control both the hardware, the software, and some parts of the service offering, Apple can offer a user experience that is differentiated from everyone else.

In particular, the iPhone OS 4 will definitely enrich the user experience and keep the iPhone out in front of the competition for some time. Regarding iAd, it looks as though consumers as well as many developers will benefit, but what is not clear yet is how well iAd will fit the needs of major brands and publishers from a business perspective.


For more information about iPhone OS4, iAd and the advertising implications, check out the following:

• Video of Steve Jobs’ introduction speech
  (45 minutes, but definitely worth it)

• Moconews article

• Wall Street Journal article

More detail on iPhone OS 4 features:

Here are the seven key features of the new iPhone OS 4:

1 – Multitasking is the ability to run more than one application at a single time. Currently the iPhone can only do one thing at a time – when you switch to a new app the previous one stops.

Running more than one application simultaneously would clearly be a major improvement for consumers, but Apple wanted to offer it while still keeping good battery life, still keeping good performance for the foreground application, and with a good user interface.

To accomplish this, Apple decided to offer 7 key multitasking features that developers can use:

• playing audio in the background (eg Pandora personal radio keeps playing while you browse the mobile internet)

• voice over IP (eg Skype call stays connected even if you go to another app )

• background location – this can be either using the GPS positioning (e.g. a turn-by-turn application like Tom Tom), or there is a new, very low powered positioning option based on cell tower location that is more appropriate for providing ongoing location to, for example, a social network application such as Loopt.

• push notifications – outside services can “push” a message to a user using the Apple push service ((10 billion messages were pushed to iPhone users in the past 9 months)

• local notifications – this allows an app that is running in the background to push a message to the user

• task completion – this feature allows an app to finish a task even after you leave the app (e.g. a photo upload)

• fast app switching – underpinning all of this is the ability to switch rapidly and seamlessly between apps, while preserves the state of an open app so that the user can switch back to it and will be in the same place as before.

2 – Folders will help people organize and access the apps that they are downloading. The user interface is very simple, and users can now hold over 2,000 apps on their iPhone!

3 – Enhanced Mail improves the email experience, for example by providing a “unified inbox” which takes multiple email accounts into one inbox for easier reading.

4 – iBooks – the ebook reader and bookstore that were rolled out in the iPad will now be available on the iPhone and iPod Touch. One nice touch is that you can buy a book just once and then read it on both devices, and also it will synch your current page + bookmarks to make switching from one to the other more seamless.

5 – Enterprise features built into OS 4 include better data protection, mobile device management, improved VPN’s, and the ability to download an app over a wifi network (previously apps could only be downloaded from the Apple App Store).

6 – Game center will support mobile gaming which Apple believes is one of the biggest iPhone customer usage areas, with over 50,000 game and entertainment titles on the App Store. Built-in social network gaming features will include inviting friends into a game, a “matchmaking” service to find additional players for a game, leaderboards, etc.

7 – iAd The final of the seven key features is iAd, the new mobile advertising platform that will be built into iPhone OS 4. Clearly this is one of the most significant parts of the OS 4 announcement, more on this in the article above.
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