NEW YORK (AdAge.com) -- With the iPhone, Apple changed the face of mobile devices. Can it do the same for mobile advertising?
CEO Steve Jobs is reported to have said, "Mobile ads suck," and in the wake of its purchase of mobile ad network Quattro, all signs point to Apple exerting its considerable clout on the mobile web to make the ads, well, better. "Static banners aren't very Apple," said Krishna Subramanian, co-founder of mobile ad exchange Mobclix.
But one question is reverberating around the industry: Will Apple use its dominance to squeeze out other so-called premium ad providers?
Last week Apple showed it won't be shy about setting new standards. In a blog post, the company warned developers that it will reject apps that serve users location-targeted ads. "If your app uses location-based information primarily to enable mobile advertisers to deliver targeted ads based on a user's location, your app will be returned to you by the App Store Review Team for modification before it can be posted to the App Store," the post said.
Location-based ads are often the most attractive for advertisers looking to drive foot traffic into stores. "If I'm looking at my phone, I want to see an ad for the restaurant around the corner, not for something without context," said Michael Becker, Mobile Marketing Association's managing director, North America. "Situational relevance for mobile users -- and for marketers -- is essential."
Apple claims the controversial post was only intended to protect user experience. Regardless, to some, this move looks like a preview of what Apple has planned for its new ad network. It has been building out a global sales team, and Quattro CEO Andy Miller is Apple's first VP-mobile advertising, reporting directly to Mr. Jobs. It's the first time Apple has been in the ad business, and this move indicates how seriously the Cupertino, Calif.-based company takes it.
"Clearly, Apple is going to do everything it can to redefine mobile advertising," said Eric Litman, chairman-CEO of ad network Medialets, who also said he sees merit in Apple's defense of users in its location-based ad restriction. "Obviously they're going to want to leverage unique capabilities of their device as an advantage to them and not their competitors."
How would that happen? Since all applications must go through a stringent approval process before hitting the App Store, Apple could reject apps with non-Quattro ad network code. But restricting outside ad networks would also mean cutting into developers' profits, because many already partner with multiple networks to monetize their apps.
It is also likely that Apple will integrate Quattro into its software development kit, giving developers a default ad network that's built into the app toolbox. With an already embedded ad network, developers would have an automatic revenue stream on approved apps, and would then have to contract networks beyond, or instead of, Quattro.
The iPhone claims about 25% U.S. smartphone market share as of December, according to ComScore. An Apple spokeswoman declined to speak directly about plans for Quattro or Apple's position on mobile advertising.
Apple has cast the deal as a way to make money for the developers whose apps have made the iPhone popular. Right now, Apple reaps 30% from music and paid app downloads and, like the existing mobile ad network model, could take a fee for passing ad sales on to developers.
Redefining mobile ads
Developers could also stand to benefit from Apple meddling in mobile ad formats -- better ads could mean better results, happier clients and, eventually, more money. With Apple's characteristic design and usability expertise, it could reinvigorate the ad category so mobile doesn't get stuck in the same banner doldrums as its interactive predecessor, online advertising.
"There's no doubt that Apple will add functionality around advertising," said Mike Sanford, president-CEO FlipSide 5, a developer whose apps, including Touch Hockey, have been downloaded 26 million times.
Mr. Sanford said the current purchasing experience on iPhones is clunky. But with a mobile ad network backed up to the phone's operating system and the almighty iTunes, Apple could work some of those kinks could out. Imagine ads that click-to-buy to iTunes, a purchase platform consumers already use and trust with their credit card information.
"People might be hesitant to tap credit card information into their phone," said Mobclix co-founder Sunil Verma, citing the ESPN's app. "But they're already used to buying games on iTunes."