Apple Slashes iAd Pricing Again as Mobile Ad Share Declines

Moves Are Reaction to Competition From Google and Realities of Mobile-Ad Market

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Apple is once again slashing the minimum amount it charges advertisers to run a campaign on its iAd mobile ad system and boosting the amount it pays mobile app developers, Ad Age has learned.

Advertisers will now have to spend just $100,000 for Apple mobile campaigns running in iPhone and iPad apps, down from a previous $500,000 threshold and a significant reduction from the initial starting price of $1 million in 2010, when Steve Jobs unveiled Apple's first ad product.

In addition, app developers will receive 70% of ad revenues from iAds running on their apps, vs. their previous 60% cut. The extra money will compensate for lower ad rates and serve as added incentive for developers to build businesses on Apple devices, even though they may grab a bigger audience or more ad revenue creating apps for Google's Android devices, which now outnumber Apple smartphones in the U.S.

Apple also plans to change the way it charges for ads, which irked some advertisers and agencies. Since iAd launched, Apple has charged advertisers twice: a fixed rate for every 1,000 ad impressions plus an additional fee every time a user clicked on the ad. Apple will now charge only the cost-per-thousand rate.

The changes are the biggest reset for the offering since Mr. Jobs launched it in typical Apple fanfare two years ago. Dozens of advertisers lined up to be the first brands to go into business with iAd, despite the hefty cost. Many big marketers stuck with iAd; some hoped Apple could reinvent the nascent mobile-ad market, which they saw heading down the troubled path of online display, beset with bad creative, ineffective ads and low rates.

As the novelty wore off, demand waned and the million-dollar minimum far outstripped the realities of advertisers' mobile budgets. Apple cut the threshold to $500,000 last year, and then to a $300,000 minimum for advertisers willing to guarantee ad spending up front.

In the meantime, Apple has been losing share in the mobile-ad market, threatening the business and app developers' ability to make money from advertising.

Google took 24% of the $630 million market for mobile display ads in the U.S. last year, up from 19% in 2010, according to research firm IDC. No. 2 Millennial Media had 17% compared with Apple's 15%. Apple's share declined from 19% in 2010, according to the firm.

There are now 550,000 apps and 315 million devices running Apple mobile software iOS, according to the company's most recent earnings report, but Google is gaining fast. In its latest earnings report, Google reported 250 million Android devices activated worldwide. In the U.S., there are already more Android smartphones than Apple.

Apple, which declined to comment, has begun communicating the coming changes to developers and advertisers. The new pricing comes after Apple appointed former Adobe exec Todd Teresi to lead its iAd unit to start the year. Mr. Teresi replaced Andy Miller, CEO of Quattro Wireless, the mobile-ad network Apple acquired for $275 million to build its ad business.

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