10 June 2010

Apple is brilliant!

Having just read today today’s WSJ Article- Google Blasts Apple on iAd Rules, a few random thoughts started to coalesce (which doesn’t happen as often as it used to) into a new ‘‘investment perspective’ on mobile advertising.

Yesterday Magna estimated that online advertising will climb 12.4% in 2010 to $61.0B and surpass $100B by 2013. For perspective, AFP reports that advertisers will spend $59.6B on TV ads and around $600M on mobile advertising (eMarkerter, $1.3B by 2013). The growth here is just astounding, there is little wonder for the transactions over the last 3 years:

• MSFT aQuantive $6B (May 2007)
• Google DoubleClick $3.2B (April 2007)
• Google AdMob $650M (May 2010)
• Apple Quattro Wireless (Jan 2010)

In my experiences as global buyer, online was by far the most cost effective way to acquire a customer (with SEM the most cost effective). From my perspective, Online Advertising brought a solution to the challenge faced by marketers for decades: data. Finally I could relate marketing spend to customer acquisition. Marketing went from throwing a blanket.. to a shotgun.. In 2005-2007 this shotgun was very hard to use.. particularly outside of the US. Although most agencies were well versed in spending through Ad Networks for display ads, few had any experience in SEM across search providers. Those Agencies that did still did not provide tools for my teams (buyers) to calculate CPA (determining which ads resulted in customer acquisition). Hence, large companies had to develop their own internal expertise or manage their spend directly with a chosen few suppliers (eg. GOOGLE). Internal marketing thus took on the form shown below.

The Ad industry recognizes that the ability to track a customer is key to measuring effectiveness, target ads and thereby key to greater marketing spend. There are a number of technical solutions which have developed over the last 3-4 years, tagging customers with cookies is all something we are familiar with.  Apple’s strategy in defining standard for “tracking” is challenging Google’s unique position as the “starting point” of a customer’s online activity. It moves the starting point to the iPhone device. This is a brilliant move by Apple given its 50M iPhones (and 30M iTouches), particularly when you look at the demographic of the owners and the media capabilities of this killer mobile appliance.

Apple’s plans to take ownership of the iPhone’s “Ad Ecosystem” will not end with these standards. In the online advertising model, the objective was an online acquisition. In the mobile ad model the objective is for either an acquisition online or at a physical point of sale (POS). The mobile device is in a unique position as a point of convergence between the virtual and physical world. In this model the iAD/mobile market expands from mobile advertising (as a sub category of online advertising) to generating store traffic at the POS. The challenge for a iAD at POS is similar to the “customer tracking” challenge described above.. how do I know the customer went to the store? Answers: coupons, payment, geolocation, …

Expect Apple and the MNOs to become very active in linking mobile advertising to these activities (ex Apple’s NFC patent, MNO prepaid consortium). The linking of card data to mobile advertising (consumer behavior and preferences) also provides a tremendous opportunity Banks/Issuers to monetize consumer information (see Googlization of Financial Services).

We may be seeing the beginning of a seismic change in advertising spend, and the way consumers are tracked and targeted. The “addressable market” for mobile advertising should not be viewed as a subset of online spend, both because of POS opportunities and the media richness (and now multi-tasking) of the iPhone. Apple’s strategy is brilliant, I would imagine them taking a regulatory position that all ad networks are welcome to work through their standard…. Apple is protecting customers’ privacy.

Related Content

April 2010 online ad spending report

Thoughts appreciated