||Apple Bets on Internet Radio to Drive its Ad Revenues
Apple hopes it can ramp up a mobile advertising strategy that has not exactly taken marketers by storm with a new focus on ads designed to reach Internet radio users.
It is widely assumed that Apple will soon launch an Internet radio service for the iPhone that will compete with Pandora, Spotify and others. Several recent reports state that Apple will also shift the focus of its mobile advertising business iAd at the same time, with an eye toward attracting major brands to run ads on the new music service.
"The mobile advertising market has to evolve beyond traditional, interruptive banner formats toward contextual, valuable interactions, consistent with the role our phones play in our lives," said Rich Guest, president of U.S. at Tribal Worldwide, New York. "At the end of the day who wants a banner ad, even one as interactive as iAd, embedded onto their second brain?
"Intuitively, especially given historical consumer acceptance, ad supported 'radio' makes more sense than ad supported apps," he said. "The Apple platform should allow advertisers to begin to build smart, contextual and valuable interactions."
Quickly growing opportunity
Until now, iAd has acted as an ad network for placing ads in applications in the Apple App Store.
While iAd has attracted some big brands -- P&G, Macy's and Taco Bell, for example -- the offering is a relatively small player overall.
IAd has a 6.3 percent share of mobile display ad revenue in the U.S., according to a recent report from eMarketer. This puts it in fifth place following Facebook, with a 28.6 percent share, Google, with a 19.6 percent share, Pandora, with an 11 percent share, and Twitter with a 7.9 percent share.
Overall, Apple is expected to bring in $212.9 million in mobile ad revenues this year which pales in comparison to Google's expected $4 billion.
IAd's biggest contribution has been in raising the bar for what quality mobile ads should look like and in helping iOS app developers drive revenues.
"With the understanding that iAd was intended to help build the iTunes App Store ecosystem by further monetizing developer's apps, iAd is not a failure for Apple,” said Kurt Hawks, general manager of Greystripe, San Francisco.
"iAd was able to raise conversations about mobile advertising through its demonstration of mobile as a valuable advertising vehicle," he said.
Some of the issues with iAd named by marketers include that it is too expensive -- Apple has lowered the price on iAd couple of times -- brands do not have as much control as they would like over where their ads appear and distribution is limited, as ads appear only on Apple devices.
The focus on mobile radio makes sense for Apple as it looks to build a bigger presence in mobile advertising.
The company already does big business with iTunes, which recently turned 10 years old and is responsible for 63 percent of all digital music sales, according to NPD estimates.
Apple hopes to expand its share of the digital music space with an Internet radio service that helps users discover new music and is also tightly integrated with iTunes so users can easily purchase songs they like. The company has reportedly been in talks with major labels to shore up the rights for its own Internet radio service.
The new Internet radio service is expected to be available later this year with the release of the iOS7. It will be free to users.
If Apple can successfully reach music lovers with the new service, this will go a long way towards attracting advertisers.
The strategy could even be expanded to other media categories.
"If they can adopt a consumer passion centric ad experience, that adds value to, instead of distracting from, a much loved activity, they can perfect the contextual recipe and then scale to any consumer passion pillar: movies, shopping, books, etc.," said Christine Peterson, group media director at MRY, New York. "Therefore delivering a higher quality consumer experience and a better value to advertisers."
While Apple is a latecomer to the Internet radio space and faces some significant competition from the likes of Pandora and Spotify, one of the benefits it offers advertisers is that it has already built up a significant targeting database for iAd.
The new music service will only help Apple further strengthen its targeting capabilities.
"This move allows Apple to monetize high affinity time on mobile devices that in-app advertising alone isn't able to fill today," said Wade Rifkin, vice president and media director at Digitas New York.
"With data also being a perpetually valuable and in-demand commodity, this allows Apple to fuel its already strong iAd targeting database while simultaneously providing both a new revenue stream and increased user time with the Apple brand," he said.
Despite the significant opportunities here, the strategy does not address one of Apple's biggest challenges, which is enabling advertisers to deliver ads across platforms.
Increasingly, consumers are accessing a variety of content throughout their day via numerous different devices from TVs and desktop computers to smartphones and tablets. And, they expect a seamless experience across all of them.
"A new music streaming service solely for iOS devices provides additional touch points for iAd, but doesn't address the core issue iAd is facing -- reaching users beyond a single operating system," Greystripe's Mr. Hawks said.
"Consumers use multiple connected devices and transition from one device to another to complete an activity. Mobile plays a large role in the consumer's digital life," he said.
"It provides behavioral context associated with a user and marketers need to, therefore, consider a complete picture of a digital user's life, which includes different devices, different operating systems throughout the day."
(Source: Mobile Marketer, 06/06/13)