3 Fails of the Proposed iAd Charging Model

An article in AdAge is suggesting that Apple are going to charge a flat fee for their forthcoming mobile advertising platform, iAd, announced last month.

The figures being proposed are a combined $10 per thousand impressions (CPM) in addition to $2 per click!  This two bites of the cherry approach and the frankly very high pricing, is raising eyebrows, but to me is the least suprising part of the proposed model.  The model fails on the three counts below.

iAd presentation

Fail 1: Flat Pricing

Not all advert impressions are created equal. Fixing the cost of all inventory inevitably results in:

  1. Unsold inventory where the value is lower
  2. Failure to realise full value on inventory worth more than the fixed price.

The open auction model that Google AdWords borrowed from GoTo.com (which subsequently became Yahoo! Search Marketing) ensures that Google gets the maximum value for each advert impression. Where there is more money to be made by an advertiser, the model ensures the advertiser is happy to pay more.  When there’s less money to be made, Google still makes money.

GoTo/Yahoo consistently got this wrong by increasing the required minimum bid resulting in them getting no income from some inventory when they had been getting a bit previously. Meanwhile Google dropped their minimum bid to $0.01 allowing them to monetise many more searches.

The other downside of fixed pricing is there is a need to decide who gets to buy the inventory when more than one advertiser wants to buy it.

Do you operate on a first come first served basis? Do you pander to your biggest advertisers?

Perhaps, though I feel this may not be the case, they’ll find some way to automatically assess advert quality. Which brings me to…

Fail 2: No Reward for Quality

AdWords’ great innovation was the introduction of quality score – the idea of rewarding advertisers for making their adverts relevant. Advertisers are essentially forced to make ads that users like.  That’s good for advertisers, good for the viewers of adverts and good for Google.

If we look at other potentially exciting new online advertising platforms such as Twitter’s proposals, Stumbleupon and even Facebook, a reward for quality is a key part of the business model.

The iAd proposal on the other hand makes no mention of any quality incentive. I’m surprised. To say the least.

Fail 3: Minimum Orders

The minimum investment being talked about is $1,000,000! Now this is for the intial launch of the program and I am sure will lower with time but Apple seem to be firmly setting its sights on traditional brand advertisers with very deep pockets.

AdWords on the other hand has become the great success it has become at least in part due to the fact that the system drives value for advertisers spending a pound a month as well as those with millions to spend.  It seems that Apple see no need to exploit this “long tail” of advertisers.  A mistake in my view.

(Had a great discussion this morning with Richard Marshall, founder of Rapid Mobile.  One of the many insights was that seeking to court the exclusive advertisers only for mobile advertising has been trialled and failed in the past.  Clearly Apple are happy to do things others have failed at but he shared my scepticism about Apple’s approach)

How Badly Wrong Have They Got It?

In my view the proposed structure is badly flawed, at least if they view the proposed model as one for the long term.  It seems inevitable that the model will have to change in due course.

As one inspired comment I read on Twitter said (roughly!) “those that try and fail tend to do better than those that sit and watch others failing”,  I am sure that Apple will have no hesitation to adapt the model and come out stronger for it.  Let’s not forget that the first AdWords pricing models were wrong too.

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2 thoughts on “3 Fails of the Proposed iAd Charging Model”

  1. Anonymous says:

    It sounds like an incredibly low-tech and backwards ad network, but I think Apple will be able to use the environment as leverage and pull it off. Once the value of the being on an iPad wears off and engagement/ brand awareness slips away, Apple will need to optimise their offering to advertisers. it’s not a long-term strategy by any means, but appropriate for the platform at it’s current stage, and quite shrewd in giving Apple a lot of room to manouvere in the future.

    • Tim Barlow says:

      “the environment” – that’s the key isn’t it. If the inventory produces results for advertisers, the charging structure can always be improved.

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