Apple has iAd commitments for 2010 totalling US$60m

8 Jun 2010

Technology giant Apple has revealed that its iAd platform, which will debut on 1 July, has already secured mobile ad campaign commitments from brands like Citi, AT&T, Walt Disney and Unilever worth US$60m – 50pc of mobile ad commitments in North America for H2 2010.

It seems that everything Apple CEO Steve Jobs touches lately turns into gold. From a teenager who with friends built a personal computer in 1976 to today achieving a market capitalisation of US$234bn and a cash reserve of US$23bn for a company that will transform information, communications and media, his is a tough act to follow.

The latest development in a saga that has seen Jobs sell 2 million iPads in recent months, achieve more than 10 million app downloads and ship 8.8 million iPhones is the fact Apple is now in the advertising business and has secured US$60m in advertising commitments ahead of product launch.

This represents almost 50pc of the total forecasted US mobile ad spend for the second half of 2010.

Apple will debut its iAd mobile advertising network on 1 July on iPhone and iPod touch devices running its iOS 4 software platform.

iAd will kick off with mobile ad campaigns from leading global brands including AT&T, Best Buy, Campbell Soup Company, Chanel, Citi, DirecTV, GEICO, GE, JCPenney, Liberty Mutual Group, Nissan, Sears, State Farm, Target, Turner Broadcasting System, Unilever and The Walt Disney Studios.

“iAd offers advertisers the emotion of TV with the interactivity of the web, and offers users a new way to explore ads without being hijacked out of their favourite apps,” said Jobs..

“iAds will reach millions of iPhone and iPod touch users — a highly desirable demographic for advertisers — and provide developers a new way to earn money so they can continue developing free and low-cost applications.”

Commenting on the unstoppable juggernaut that is Apple, iSuppli principal analyst Steve Mather said the stars have aligned for Apple.

“Apple’s introduction of its iPhone 4G perfectly illustrates the company’s route to corporate dominance: generating huge profit by selling high-margin, high-value-added hardware, with the iPhone’s average selling price at a whopping US$600,” Mather said.

“The company makes the majority of its profit on sales of hardware. This approach defies the often-cited route to success used by many technology companies of selling hardware at low margins and cashing in on revenue generated by high-profit software.”

As shown by iSuppli’s Teardown Analysis service, Apple commands hardware gross margins in the range of 50pc on the iPhone, in comparison to 20pc to 40pc for competitive products. “These high margins are the product of the company’s unique approach to product design and Intellectual Property (IP),” Mather said.

The benefits of Apple’s high-margin hardware strategy recently have manifested themselves in the company’s titanic market capitalisation. At a level of US$234bn, Apple’s capitalisation exceeded that of Microsoft, making Apple the largest technology company in the world based on this measure. In fact, among all types of companies worldwide, Apple’s market capitalisation is second only to oil giant Exxon Mobil.

Meanwhile, Apple now holds a cash reserve of $23bn, giving the company a massive war chest. “To put this into perspective, Apple could buy more than half of Nokia or all of Motorola just with its cash reserves — not that we actually expect the company to consider that,” Mather said.

While many companies have developed smartphones to compete with the iPhone based on assembling increasingly expensive subsystems, Apple has taken a unique approach.  

“Apple’s path to differentiation involves purchasing building blocks, and then adding its system IP,” Mather said.

For instance, Apple employs a touch controller Integrated Circuit (IC) from Broadcom Corp., but combines it with its own touch system architecture. In another example, Apple’s fingerprints are all over the new A4 processor used in the iPad. However, the A4 started with building blocks made by Samsung Electronics. A third example is that Apple chose to build around Infineon Technologies’ baseband IC, rather than choosing a more encompassing Snapdragon solution from Qualcomm.

Apple’s lucky star

“The stars have aligned for Apple,” Mather said. “The company’s hardware and design vision perfectly matches the demand for improving utility of the internet.”

Mather said the only company capable of directly challenging Apple’s prominence is Google Inc. Nonetheless, with the vast size of the market opportunity in the mobile world, iSuppli expects the two companies to profitably coexist.

“iSuppli expects Apple’s lead to extend,” Mather added. “There are a variety of initiatives under way that convince us Apple will offensively extend the gap relative to its peers, rather than simply defensively extend the time until others catch up.”

Returning to the iAd campaign which surely must rankle with Google which is attempting to surpass Apple with Google Android-powered devices from a multitude of manufacturers, the forthcoming service is being praised by media buyers.

“iAd will allow Citi to reach millions of people on their iPhone and iPod touch,” said Lisa Caputo, executive vice-president and CMO, Citigroup. “iAd gives us a remarkable level of creativity for creating ads to connect with our current and future customers in a more interactive style than ever before.”

“iAd is going to revolutionise mobile advertising,” said Rob Master, North American media director, Unilever. “With iAd, we’ve been able to create some of our most powerful and compelling ads ever. iAd is the perfect mobile format to reach and engage with our customers.”

iAd, which is built into iOS 4, allows users to stay within their app while engaging with the ad, even while watching a video, playing a game or using in-ad purchase to download an app or buy iTunes content.

Developers who join the iAd Network will be able to incorporate a variety of advertising formats into their apps. Apple will then sell and serve the ads, and developers will receive an industry-standard 60pc of the iAd Network revenue, which is paid via iTunes Connect.

By John Kennedy

Photo: Apple CEO Steve Jobs

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years