The tech press has been so caught up talking about multitasking and the blocking of Flash compilers in iPhone OS 4 that it is largely failing to understand the significance of Apple’s most important announcement last Thursday: iAd.
iAd isn’t just Apple’s first foray into the world of advertising. It is the beginning of the end for Google’s long-running dominance in the web advertising business.
Just about every piece I’ve read so far has overlooked the most significant statements Jobs made as he was announcing iAd. While on the desktop, people find ads via search, on the phone they simply don’t search. In other words, we are not tied to our browsers on our mobile phones the way we are on our desktops. We use apps instead. Small, specialized applications that get us to the information we need faster and more efficiently.
This is devastating to Google’s business model. Everything Google has ever done has been done to keep us in our browsers. GMail, Wave, Buzz, Google Docs—all of these web applications are designed to keep users in browsers, where they will continue to use Google search and therefore click on Google Ads.
What Apple has realized, before Google seems to have, is that Advertising on a mobile device is not as simple as placing links to browser-based ads within applications. Users want to stay in their applications, not be “dragged out to their browser”, as Jobs put it. So the ad has to be in the app itself, or provide a super-simple way to get right back to the app, at least.
So that’s what iAd does. It gives developers a drop-dead simple way to put ads right there in the app, where users are more likely to click on it. And it gives developers almost no motivation to add ads from anyone else. Why would you, when it’s this easy to use Apple’s solution?
The only way Google is going to sell ads in iPhone apps now is by cutting its margins. Apple gives the developer 60% of the profit on ads that are far more likely to be clicked. Google is going to have to offer 90% or more of the ad share if it hopes to hold on to any of its market on the iPhone. What does that mean? Well, it means that Google is going to have to bank on the success of Android for not only killing Microsoft mobile devices, but also killing the iPhone outright, which, frankly, is not going to be easy. And for all of those who see red in this announcement, suddenly thinking that they are going to be plagued with ads everywhere in their favorite iPhone apps, remember: The market won’t bear ads in most paid apps. These ads are merely a replacement for the crappy ads you are already seeing in your free apps. You have the option of using the paid version of the app with no ads (as I always do), or using someone else’s app that doesn’t use ads. This is a true win-win for Apple and developers. Not to mention ad agencies, who will make a killing designing these things, and companies who will raise awareness of their products relatively cheaply. And it’s likely to further widen Apple’s lead in the mobile space at the expense of Google, who was looking for a minute there to be Apple’s only real competitor, other than RIM.I’ve said it before. I think Google needs to find a new way to make money. As the Internet increasingly goes mobile, Google is going to have a hard time making search work as a single source of profit.
