Why iAd Won’t Meet Steve Jobs’ Expectations

Apple’s (s aapl) much-hyped iAd is slated to debut tomorrow on iPhones and iPod touches, and there’s no shortage of advertisers willing to dig deep into their pockets to be a part of the platform. As I discuss in my new report over at GigaOM Pro on in-app advertising (sub. req’d), iAd will surely give the market a boost thanks to the emergence of the iPad, whose size and display quality make it an ideal device for using apps and viewing ads. But here’s why iAd won’t capture the 48 percent of the market that Steve Jobs is gunning for:

  • It’s expensive. Apple is charging advertisers $1 million just to be a part of iAd, which is five to 10 times more than what competing ad networks charge, according to the Wall Street Journal. Some are paying Apple as much as $10 million to be the exclusive advertiser in their respective industries. What’s more, Apple’s prices of $10 per thousand impressions for banners and $2 per-click on actionable ads are the highest in mobile. That’s a lot of money to spend to align yourself with Apple when other alternatives are available.
  • You don’t have to use iAd to advertise on the iPhone and iPad. While Apple’s initial developer agreement for iOS prevented rival ad networks from being able to track the performance of ads delivered through the operating system — essentially forcing advertisers to use iAd to advertise on iPhones — the company revised its terms earlier this month after getting pushback from the mobile ad industry. The new rules restrict the use of analytics data to independent companies “whose primary business is serving mobile ads,” which is a not-so-subtle swipe at Google (s goog) and AdMob. Those terms drew a quick rebuke from AdMob CEO Omar Hamoui, who said they punish both developers and consumers, and they have justifiably drawn the attention of federal regulators. But the terms also give advertisers and publishers freedom to partner with any of the countless independent players in the mobile advertising space, including well-known companies like Millennial Media and Greystripe, instead of using iAd.
  • Big publishers want to sell their own inventory. In its role as an ad network, Apple will place ads on all sorts of inventory on the mobile web and in applications. But as Medialets CEO Eric Litman told me earlier this week, established publishers are already capable of dealing with advertisers directly. “Publishers that have meaningful sales capabilities want to own those relationships with brands,” Litman said. “They don’t want to be sold blind.” And while publishers usually like to package their inventory across platforms — including iPhone and Android apps and web sites for PC and mobile users — iAd forces them to invest time and money to deliver ads through only one platform.
  • Apple’s insistence on being involved is already slowing deployment times. As AdAge noted earlier this week, Apple is handling the technical production of iAds and telling agencies it may take two months to build an ad after creative is complete. We’re sure to see some knockout iAds with top-notch production values thanks to Apple’s input — especially once iAd extends to the iPad in November — but there are much quicker ways to bring your ads to the iPhone.
  • Android has arrived. Apple still dominates the mobile-app world and, with it, in-app advertising. But Google’s mobile operating system continues to close the gap on iOS, garnering 26 percent of all AdMob ad impressions in May. That gap will continue to close as manufacturers churn out a wide variety of supporting handsets and as Android-based tablets come to market.

The emergence of iAd will have some long-term repercussions — especially if ad businesses from Google, Microsoft (s msft), Nokia (s nok) and others remain blocked from accessing analytics. It’s likely Apple will raise the bar for mobile advertising as a whole too. Indeed, iAd is luring some high-profile companies like Campbell Soup, DirecTV and Sears to invest heavily in mobile advertising for the first time, and Citi and Nissan are paying top dollar for exclusive deals on the platform. Apple’s efforts will surely help drive a U.S. mobile ad industry that will explode from $416 million last year to $1.56 billion by 2013, according to eMarketer. But there are far too many established, innovative players for Cupertino to capture nearly half the space by the end of the year.

Image courtesy Flickr user Daveness 98.

Related content from GigaOM Pro (sub. req’d):

The In-App Advertising Landscape