The Failure Of iAd

Or at least for the moment, iAd has been one of the few recent product failures for Apple (AAPL). As a long time Apple investor, this honestly doesn't move the needle for them so it isn't much of a concern. Actually, I'd prefer that the company stay out of the ad market all together. Focus on the phone, tablet, and possibly tv markets.

As we've written over on Seeking Alpha in 2 articles (I, II) about the Millennial Media (MM) IPO, device makers just aren't going to be successful creating systems such as ad networks that only target just the users of those devices. Clearly Samsung has learned nothing from Apple's failure.

On a bigger picture, this speaks to some of the issues Apple originally had in the PC market. It had the better PCs and operating system, but the ability of Windows based systems to create cheaper machines and more software eventually over took what Apple could do in a controlled environment.

Will history repeat itself again in the phone and tablet markets? For now, the answer is no. Developers prefer the iOS platform as users spend more money. Not to mention, all the apps created for Android and iOS systems are equal. The cheaper phones and volume hasn't led to a developer and software advantage at least yet either. When that happens, the time to evacuate the stock might be at hand.

Conversely, the iAd system faces those challenges. Shawn Scheuer wrote this article for Forbes highlighting the 5 reasons for failure of iAd. He is the CEO of Moolah Media so his perspective is very telling.

1. It's (still) too expensive for too many advertisers. (requires $100K minimum)
2. It forces advertisers to take a big gamble before seeing real results.
3. It limits consumer reach dramatically.
4. The better app experience, the worse the ad engagement.
5. iAd's self-serve tool can't keep up. 

Shawn brought up some interesting points such as the more sensitive screen leading to more accidental clicks and that iOS users can't wait to go back to their more engaging apps. Basically the success of the iPhone leads to less interest in viewing ads. Guess android users get bored and look for something else to do on the phone?

Anyway, some of the major points are what we've been harping about that gives Millennial Media and Velti (VELT) advantages in this market. With a $100K minimum, Apple still forces marketers to either just focus on the iOS users or be willing to spend some $200K+ in order to reach Android users as well. 

Being that mobile ads are a new medium and the vast difference between a phone screen and a computer screen, it seems inconceivable that Apple originally started with the requirements of a $1M budget. Not sure why Apple would eliminate $20K budgets if the customer is creating the ad. 

As mentioned in the Seeking Alpha articles, Google (GOOG) might prevail with the background in working in the ad network sector. Though the market would suggest that marketers especially in the tech sector will want to avoid using them. Its just natural to want to avoid market domination by one company especially in a business to business environment.  

As an example, new public companies such as TripAdvisor (TRIP) and Yelp (YELP) face direct competition from Google while also relying on it for delivering search results. Do you think these companies want to enrich Google with more revenue? Not to mention such an ad might provide Google with valuable competitive information. 

This all provides some comfort that Millennial Media and Velti will be able to overcome the normally difficult task of competing with multi billion dollar companies. Unfortunately, Millennial came out with an expensive IPO only leaving mobile marketer Velti as a reasonable investment at this point. 

Disclosure: Long AAPL and VELT. Please review the disclaimer page for more details.