iAd Struggles

By Richard Menta 7/8/11

The business press is reporting that Apple has cut iAd rates by up to 70% to curtail the exodus of its best clients to rival ad platforms. According to Bloomberg both Citigroup and J.C. Penney Co, two companies that were running million dollar campaigns on iAd, have departed leaving Apple to sharply lower its entry level advertising package on iAd to $300,000.

Pricing adjustments for iAd should not come as anything unusual for a service that only appeared a year ago. But Bloomberg points out that some advertising agencies are still balking at iAd’s cost, citing the fact that promotions only reach Apple users. Of course, with well over 100 million iOS devices out there Apple certainly has a sizeable cross-section of the US market. But Android products are grabbing more marketshare and advertisers are saying they don't want to be limited to a single platform.

Apple was able to command healthy iAd investments from the start, because of the Apple glow that highlighted its dramatic success in a myriad of endeavors from digital audio players to music to tablet PCs. With iAd Apple was attempting to create a platform that raised ad rates by raising the effectiveness, and therefore value, of ad campaigns.

Richard Menta

The only reason for Citigroup and J.C. Penney to leave iAd is because iAd was not providing enough of a value improvement to justify its higher costs. Once the glow wore off, clients had a year of hard ad numbers to analyze. As Young & Rubicam Sr VP Thom Kennon told Bloomberg “Apple’s closed ecosystem may have been interesting in the short run for advertisers, but in the long run they priced themselves out.”

This doesn't mean iAd is a failure. Apple still dominates in the mobile arena and iAd's clean design is well liked by advertisers. More important, iAd succeeded in igniting a market for mobile ad spins. "Apple legitimized the idea of spending large sums on mobile ads", Mobclix co-founder Krishna Subramanian told Bloomberg. “You can go to an automotive company and pitch a $500,000 to $1 million campaign, and it’s realistic.”

The fact is there is competition in the ad world and iAd's competitors are simply showing success in playing off iAd's limitations. Now it is Apple's turn to adjust and the price changes are a first step.