Apple has entered the online advertising business for the first time with its purchase of Quattro Wireless. They are now also competing head-to-head against Google in the mobile advertising market.
Mobile ads will be displayed to users either in a web browser or in a mobile application. Thanks to the iPhone and now Android, web browsing on mobile devices is becoming just like web browsing on the desktop. Sites are often running the same HTML – and the same ads – whether the browser is on the desktop or mobile web. Thus, if an ad network supplies ads to the nytimes desktop version, they’ll also supply ads to the nytimes mobile version. The battle for web publishers on mobile browser-based ads would seem to be the same battle already happening on the desktop web. This battle is dominated by Google, Yahoo, Microsoft etc. and I can’t imagine Apple is trying to seriously enter the battle at this late stage.
Thus, Apple’s interest in Quattro must be about ads in mobile applications. Apple is currently in a very strong position with respect to app developers, given their tight control over the dominant app platform. How could Google supplant them there? For one thing, Android and other platforms could gain significant market share. But Google could threaten Apple even on ads in iPhone apps. Unless Apple forced developers to use their ad network, iPhone app developers would select the ad network that provided the highest payouts, which – as with all ad networks – would depend heavily on which had the most advertisers.
So the Quattro purchase seems to be mostly about Apple getting a base of mobile advertisers (not publishers) that will allow them to offer competitive payouts on mobile app ads (not mobile browser-based ads).
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If you're Apple, why wouldn't you require developers to use your ad network?
i see it the same way but with also 2 new aspects: first i think Apple need to inject some Ad DNA in iTunes and acquiring an Ad network is a way to learn how to do that well
The second thing is that most publishers are or will have an app as alternative to browser based versions. This is where Apple might have a chance to catch up
Finally i think there is a war on data. By acquiring Admob Google acquired a lots of intelligence on the iPhone that will be leveraged on their own platform. Apple can t let that happen and need to come with something
Yeah they could, or make it the default at least. But if their payouts are a fraction of Google's (because they have far fewer advertisers), you have to imagine that would significantly dampen developer enthusiasm for iPhone versus Android and other platforms. (I am imagining all this in a world where most mobile revenues are coming from ads, not direct user payments, something I've argued for here http://cdixon.org/2009/12/27/are-people-more-wi...)
Yes, but you don't pay $275M to hire talent. You pay $25M to hire talent. At this price they must be buying something more than DNA (people). Maybe the data is worth something but I don't really know what that data is or how its valuable (would love to hear more specifics). I think the premium they are paying is for the mobile advertiser relationships.
Agree with all of your conclusions as well as those in the comments. This is also a way for Apple to easily monetize a ton of the free apps that they host and distribute for no cost to the developer or user. When uploading a free app, Apple could simply ask the developer if they'd like to implement advertising, and poof. Most people wouldn't turn down that chance to make a little dough.
let's go to the end of the reasoning:
1) Apple will force all iPhones apps to use its own Mob Ad network
2) Mob Ads will not be the same as Desktop Ads on same site
3) Apple will find ways to increase mob Advertisers ROI to compensate for lack of competition.
i did not say it was the primary reason. i think it comes 2nd and 3rd after your point
I think you're right on that having some control and leverage over Mobile App rates is a large part of Apple's motivation.
I wouldn't count out the Mobile Web just yet: while iPhone and Android phones can display normal HTML sites, many publishers have created Mobile versions which offer better readability and usability on mobile devices and their smaller screens. As an iPhone user, I'm always pleased when I browse to a site which has been optimized for mobile and doesn't require as much zooming in and out.
And for publishers/content sites, the Mobile Web offers more or less uniform portability across all Mobile devices, while Mobile Apps have to each be developed for a specific platform and/or phone.
Right now, Mobile Web ads are largely being served by different ad servers. Ad units and specs are still different on the mobile web too. There's also a lot of innovation happening in terms of ad products which leverage a phone's unique capabilities. Capabilities which desktop-based ads could not have. Things like shakable ads and, of course, location-based ad serving.
And Apple surely knows that it won't hold a controlling share of the smart-phone market for long with Android and other platforms coming strong. While the search battle is lost, this is also a way for Apple to get a share of the expected Mobile growth, regardless of whether it's on Apple products or not.
While Mobile Apps look like they'll be a huge part of the mobile eco-system, I wouldn't count out the Mobile Web just yet.
oh, then i agree.
Yes, how does that explain needing to own the company instead of partnering with an existing ad network?
Could this be a preemptive strike to support the media on the whatever it is tablet?
Apple has already pretty good data via itunes on the Demographics of their users.
Google:
Business Value = Eyeballs * Intent
Old media
Business Value = Subscribers * Demographics
New Apple:
A combination of both Business Models? Could possible make more money, per ad (better data [Demographics + Intent in some cases]), than Google. Specially if combined with location (used for Intent).
If you're Apple, why wouldn't you require developers to use your ad network?
i see it the same way but with also 2 new aspects: first i think Apple need to inject some Ad DNA in iTunes and acquiring an Ad network is a way to learn how to do that well
The second thing is that most publishers are or will have an app as alternative to browser based versions. This is where Apple might have a chance to catch up
Finally i think there is a war on data. By acquiring Admob Google acquired a lots of intelligence on the iPhone that will be leveraged on their own platform. Apple can t let that happen and need to come with something
Yeah they could, or make it the default at least. But if their payouts are a fraction of Google's (because they have far fewer advertisers), you have to imagine that would significantly dampen developer enthusiasm for iPhone versus Android and other platforms. (I am imagining all this in a world where most mobile revenues are coming from ads, not direct user payments, something I've argued for here http://cdixon.org/2009/12/27/are-people-more-wi...)
Yes, but you don't pay $275M to hire talent. You pay $25M to hire talent. At this price they must be buying something more than DNA (people). Maybe the data is worth something but I don't really know what that data is or how its valuable (would love to hear more specifics). I think the premium they are paying is for the mobile advertiser relationships.
Agree with all of your conclusions as well as those in the comments. This is also a way for Apple to easily monetize a ton of the free apps that they host and distribute for no cost to the developer or user. When uploading a free app, Apple could simply ask the developer if they'd like to implement advertising, and poof. Most people wouldn't turn down that chance to make a little dough.
let's go to the end of the reasoning:
1) Apple will force all iPhones apps to use its own Mob Ad network
2) Mob Ads will not be the same as Desktop Ads on same site
3) Apple will find ways to increase mob Advertisers ROI to compensate for lack of competition.
i did not say it was the primary reason. i think it comes 2nd and 3rd after your point
I think you're right on that having some control and leverage over Mobile App rates is a large part of Apple's motivation.
I wouldn't count out the Mobile Web just yet: while iPhone and Android phones can display normal HTML sites, many publishers have created Mobile versions which offer better readability and usability on mobile devices and their smaller screens. As an iPhone user, I'm always pleased when I browse to a site which has been optimized for mobile and doesn't require as much zooming in and out.
And for publishers/content sites, the Mobile Web offers more or less uniform portability across all Mobile devices, while Mobile Apps have to each be developed for a specific platform and/or phone.
Right now, Mobile Web ads are largely being served by different ad servers. Ad units and specs are still different on the mobile web too. There's also a lot of innovation happening in terms of ad products which leverage a phone's unique capabilities. Capabilities which desktop-based ads could not have. Things like shakable ads and, of course, location-based ad serving.
And Apple surely knows that it won't hold a controlling share of the smart-phone market for long with Android and other platforms coming strong. While the search battle is lost, this is also a way for Apple to get a share of the expected Mobile growth, regardless of whether it's on Apple products or not.
While Mobile Apps look like they'll be a huge part of the mobile eco-system, I wouldn't count out the Mobile Web just yet.
oh, then i agree.
Yes, how does that explain needing to own the company instead of partnering with an existing ad network?
Could this be a preemptive strike to support the media on the whatever it is tablet?
Apple has already pretty good data via itunes on the Demographics of their users.
Google:
Business Value = Eyeballs * Intent
Old media
Business Value = Subscribers * Demographics
New Apple:
A combination of both Business Models? Could possible make more money, per ad (better data [Demographics + Intent in some cases]), than Google. Specially if combined with location (used for Intent).
[...] total VC fund-raising to nearly $30 million since 2007. Entrepreneur and angel investor Chris Dixon suspects Apple’s interest in Quattro is geared toward ads in mobile applications, not mobile [...]
Apple should've bought Admob, given the huge reach on iPhone / iPods. Massive fail.
Also, completely agree with OurielOhayon's points.
Apps typically need to be designed with an ad unit in mind from the beginning. Otherwise, the ad is going to hide some of the App's content. If they are already building with ad unit(s) in mind then, as Chris says, they could choose any number of ad networks. Forcing users into a particular ad network strikes me as anti-competitive, although I don't have the legal background to say whether or not it could cause any regulatory scrutiny.
Chris –
Love your blog. Not sure I agree with your logic and conclusions on this particular point. I think the iPhone and App ecosystem is a massive threat to the web-based Google model of acquiring and monetizing customers online (I wrote about this here: http://www.appolicious.com/articles/1004-why-ap... ).
In order for the Apple vision and App ecosystem to succeed, every company in the world is going to see a huge ROI from developing their own App to reach and monetize customers…as is already happening. Yes, I've read the comments about the mobile web – but fundamentally I think Apps are going to get better and better for the consumer.
For Companies to drive tremendous value from their App investment, they're going to need to not just drive transactions but also monetize their Apps as best they can – promoting other services, new products, etc., and yes even selling advertising within their App.
Apple has limited in-app expertise right now about how to leverage the billions of actions happening to drive upside to app developers.
The Quattro purchase allows Apple to start to deliver this value and upside to App developers. The more money Apple makes App developers, the greater their ecosystem grows, and the more hardware they sell.
So I think this is much bigger than just trying to drive competitive payouts on advertisers.
Furthermore, if you read through my post from several weeks ago I linked to above, I talk about Apple's ability to offer an AdWords type program for developers to drive adoption of their Apps. This purchase also supports this notion as a way to extend out adoption inventory into the App.
Sounds like a good move from Apple to penetrate the mobile advertising market – the iPhone is just getting more popular, even with more and more Android users.
I think for them it's all about control.
The comments are basing too much on mobile=iphone.
Mobile is/will be a suite of iSlate, iPhone, iTunes, me.com and whatever they dream up next. We are beginning to realize the shrinking of the OS – not the smaller code base to work on smaller devices, but the paradigm shift to browser based life. Listen to all the grumblings about the app store and their is a shift in mentality to making more web apps. This is where the play is. Why invest in making an iphone app when 1/2 the world will be on android?
These mobile apps, and their slim OS, can collect a ton of data about user behavior. Being able to collect, extend and capitalize on all this data is where the $ is. This acquisition is about getting the talent, the infrastructure, sure – but most importantly its about gaining the rights & control over this treasure trove of user behavior. Then leveraging it as they seem fit.
Alan,
Your perspective and understanding of the app ecosystem is truly fascinating. Chris is right in saying the the conversation from his post are always insightful…looking forward to his response.
Cheers,
Ryan
Perhaps I'm just a bit dim, but I have trouble seeing how users will be as tolerant of mobile banner adds.
Surely, the smaller the screen size, the more annoying.
One thing apple could easily do is use their hefty 30% revshare margins as a (monopolistic) advantage to capture app developers advertising market share. Just reduce their margins to 20% for every app that uses their ad network.
Getting a base of mobile advertisers? I'm not so sure.
Isn't the switching cost for advertisers to move from one ad network to another pretty low?
If I'm Apple, I would acquire Quattro only if 1) Quattro has industry-leading targeting capabilities and 2) it has a strong ad operation infrastructure I could leverage.
Very interesting insights.
This competitive dynamics reminds me of the Apple OS vs. Microsoft Windows battle in 80's and 90's.
I hope both Apple and Google succeed, but I'm a little bit concerned that Apple might repeat its past mistakes. I like google's chance with his open platform.
Late to market? Yes. But if they control the platform and have a loved brand they can get around that.
Sorta a longshot, but what if Apple were to create a search engine? They would instantly have 10% marketshare, and that marketshare would be from people who tend to be vocal / idea spreaders.
As Google continues to push to monetize the second search (and fills their search results with vertical data – often leading back to Google) they create a market opportunity for another pure search offering.
[...] From cdixon.org [...]