Today for the first time Apple is venturing into the search advertising business, by starting to show ads related to users' searches in its App Store.
The app ecosystem would seem to be ripe with opportunity. Although consumers spend 87% of their time in apps, they are downloading on average zero to one apps per month, according to ComScore. Developers are desperate to try anything that might help get their apps installed on consumers' phones.
But Apple's move may actually also foreshadow a larger play.
"The app world is Apple's way of putting its toe in the water," said Jason Hartley, VP of U.S. search practice lead at 360i. "It is a small part of a bigger story. If I were to audition or try out the search world, that is where I would try first."
According to the Interactive Advertising Bureau, mobile web-search advertising generated nearly $9 billion in 2015, up 34% from the previous year. It also represented 43% of the the $20.8 billion spent on mobile advertising last year.
For now major brands should take notice of Apple's app-only offering.
"If an app is important to your business you need to be all over this," Mr. Hartley added. "We have clients where the app is vital to what they do. If someone can be the top listing, and it is super relevant to what you are doing, you want to be on top. The question will be if you're not going to protect that No. 1 spot, assuming you have been getting it, you should at least measure it and see what the cost is going to be."
App Annie, whose clients include 94 of the top 100 apps in the App Store, said Facebook is currently leading the charge in app user acquisition, but added that the price to acquire those users is very high.
Previously, the best way to improve search ranking in the App Store was for developers to give their app a very lengthy title that hit a number of keywords. Obviously, this created a poor user experience, so Apple moved to limit the amount of characters that can be used in app titles following its recent iOS 10 update.
"Apple is now seeing an opportunity with search ads that can target a specific audience on their age, gender, specific interests, location with the keywords," said Fabien-Pierre Nicolas, VP of marketing communications at App Annie. "You can't hack your way around very long titles. It really corresponds to the need of going beyond Facebook that the marketplace currently has in terms of paid user acquisition."
Mr. Nicolas said 25% of app installs come from organic search and if the app is very niche, half of app downloads come from being listed at the top of organic search results.
"Being No. 1 or the top two or three apps, is incredibly important for app publishers, especially retail," he said. "Capturing thousands of free installs through organic search is critical when the cost per user acquisition is $5 to $10."
Despite the potential for large revenue gains, Apple seems committed to its beliefs regarding consumer privacy and doesn't appear to want to directly compete with others in the space like Google or Facebook, Mr. Hartley said.
"The targeting they have is extremely limited," Mr. Hartley said. "There is nothing that says, 'I want to target someone that has shopped at Target in the last six weeks.' If Apple really wanted to do that people would be rushing to sign up, but it's not willing to give that information. Google and Facebook, are."
According to App Annie, iOS apps generate four times more revenue per download than Android apps. Mr. Nicolas said he expects that many brands will spend between $5,000 to $10,000 in the fourth quarter to see what kind of return they will get for advertising in Apple's App Store. Depending on the outcome, brands will either tighten their belts in the following quarter or double down.
"Every time there is a new platform at scale, especially when there is a big logo like Apple behind it, they will always test," he added. "With gaming, which represents 85% of in app ad spend, everyone is ready to go. They are flying and building the campaign as we speak."
"But other verticals, like retail, are very cautious to committing budget," Mr. Nicolas said. "They will wait to see what the return on investment is before scaling right away."