Is It Worth $1M in Media to Be a First Adopter With Apple's IAd?

Mobile-Ad Platform Will Have Marketers Paying Twice and Rob Agencies of Production Fees -- at First

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NEW YORK (AdAge.com) -- When Apple introduces a shiny new object, a faithful group of early adopters pony up top dollar to be the first to play with it. Turns out it's counting on the same behavior with mobile marketing.

To be first on the new iAd platform, marketers may have to shell out as much as $1 million in media spending, according to figures first reported by the Wall Street Journal and confirmed by Ad Age. They'll pay not only a $10 cost-per-thousand, but also a $2 fee every time a person interacts with the ad. And they'll have to give up creative autonomy. Like all those early adopters every time Apple drops a device, marketers are asking, is it worth it?

"It's a big commitment and price structure for what you want to achieve," said Eric Bader, worldwide strategy officer for Initiative, a unit of Interpublic Group of Cos. "It's a massive leap between what most brands are doing and seven figures."

Apple is reinventing mobile ad pricing -- and not in a good way. They're essentially double-dipping by simultaneously charging a rate for 1,000 impressions (CPM) and a rate for click-throughs (CPC). That's different from other mobile ad networks that usually charge one or the other, not both.

For a campaign with a 1% click-through rate, that works out to about a $30 CPM, rich for a mobile ad campaign but in line with mobile video, where inventory is tightly constrained.

In it for PR
Mr. Bader wouldn't say if any Initiative clients, which include Hyundai, The Home Depot or MillerCoors, would take part, but he also said there's no downside to waiting, unless you're in it for the PR effect, which he suspects is a prime motivator for the earliest iAd advertisers.

"There is no advertising upside; there is a PR upside, so if you want to look like an early adopter or an innovator, the iAd is for you," he said.

To compare, AdMob -- awaiting FTC approval for its acquisition by Google -- charges on average a $10 to $15 CPM, but doesn't add costs per click. If advertisers buy CPC campaigns, rates are 15 cents to 30 cents per click. Medialets, a tech platform for publishers to sell and serve ads for their own apps, sees $25 to $45 CPMs for rich-media campaigns on top-tier publishers. But those rates support premium targeting.

"You're going to have a small list of advertisers that are going to be able to invest at that level from day one," said Maria Mandel, executive director of Ogilvy Digital Labs, of the iAd. "You're going to have others that will want to see more proof points, dip a toe in the water, wait and see, and then invest at that level."

Macy's is watching the iAd closely, and will probably dip a toe in this year, but that will mean investing in new creative, such as 3D photography. "It's much richer than anything we do in display," said Macy's media director Katie McCormick. "If you do a fashion ad, we could do a 360-degree view of a fall outfit or a pair of shoes. It's a significant increase in production dollars, adding more time to a photo shoot we could do normally."

Targeting
IAd targeting is based on app context -- nothing new in mobile advertising -- and also on behaviors gleaned from iTunes app and music-download history. New functionality means users will be able to one-click download apps from ads, where before those clicks would jump to the App Store.

Ms. McCormick of Macy's said she could, for example, target people who frequent a five-mile radius of a mall where a Macy's is located.

Advertisers using Medialets know exactly which apps their ads will run on, vs. ad networks, like Apple's Quattro, that don't sell inventory in specific apps, but against verticals. In Apple's model, all targeting comes at the flat rate, while, usually, higher-level targeting means high fees.

Where it gets interesting, Mr. Bader said, is when Apple can extend the reach across all Apple mobile devices internationally, a difficult feat today with the morass of carriers and platforms.

Right now, any agency or marketer producing an iAd is going to need a lot of help from Apple. Apple hasn't yet released a developer kit for iAds, meaning agencies have no other means to create them.

That also means that, at least at first, agencies will have to sacrifice production fees to Apple until it releases an iAd development kit for agencies to create ads. For advertisers spending less than $1 million, that production will also come at a premium: Apple is charging $50,000 to $100,000 to produce iAds, according to agency executives. How does that $100,000 rate compare to mobile ad production today?

In man hours, it costs $10,000 to $12,000 to encode an ad in HTML5, according to one executive. Those raw costs would translate to agency fees of $20,000 to $50,000 for advertisers, or about half Apple's fee.

Though, buyers beware, now that Apple has raised the bar for mobile ad production fees, shops could hike up prices to follow suit.

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