Apple slashes iAd pricing as developer revenues dwindle

Jason Ankenyeditor's corner

Consumers have now downloaded more than 18 billion iOS applications from Apple's (NASDAQ:AAPL) App Store, the computing giant announced Monday. That's about 8 billion more app installs than Google's (NASDAQ:GOOG) Android Market, which crossed the 10 billion download milestone last week. In terms of monthly app downloads, however, iOS and Android are now running neck-and-neck--both Apple and Google say consumers install about a billion new apps every 30 days. Last week, Google executive chairman Eric Schmidt even predicted that in the near future, Android will pull ahead of iOS as developers' primary focus, crediting device activation growth, lower prices and the new Android 4.0 (a.k.a. "Ice Cream Sandwich") for fueling interest in the platform.

"Ultimately, application vendors are driven by volume, and volume is favored by the open approach Google is taking," Schmidt told the audience at LeWeb in Paris, CNet reports. "There are so many manufacturers working so hard to distribute Android phones globally that whether you like ICS or not--and again, I like it a great deal--you will want to develop for that platform, and perhaps even first." After an audience member expressed frustration that so many applications roll out on iOS before expanding to Android, Schmidt responded "My prediction is that six months from now you'll say the opposite."

What Schmidt didn't mention is that Google has opened up a wide lead over Apple in the race to dominate the mobile advertising segment. A year ago, the companies shared the lead in the mobile display ad market, with Google's AdMob and Apple's iAd each capturing 19 percent of the market, according to IDC data. Apple has since slipped to third overall, falling behind Google (at 24 percent) and independent mobile ad network Millennial Media (17 percent) to grab 15 percent of the market. Frustrated by Apple's high prices, inflexible contract options and demands for creative control--not to mention rich media formats optimized solely for iOS devices--advertisers are sidestepping iAd in favor of rival networks, a move that not only saves them money but also promotes their brand across all corners of the mobile ecosystem.

So Apple is softening its stance on iAd, offering Madison Avenue more flexible and favorable contract options in an effort to boost flagging sales. Once Apple charged a minimum of $1 million per iAd campaign, later slashing that number by half--now, The Wall Street Journal reports that Apple is discussing deals priced as low as $400,000. The company also is agreeing to install a cap on CPM costs after advertisers complained the current system exhausted their budgets. In partnership with media buying agency OMD, Apple is even installing a training program to teach advertisers the nuances of the mobile marketing platform.

While the iAd moves are intended to placate advertisers, The Wall Street Journal adds Apple also is looking to improve developer revenues in an effort to foster loyalty to iOS. "Hordes of developers have activated iAd, but they say that Apple hasn't sold enough to make any meaningful revenue for them," the report states. "David Barnard, founder of mobile app company App Cubby, says he earned $320 from iAd in the past 30 days and that the service is only filling roughly 13 percent of his apps requests."

But iAd campaigns were created expressly to run across iOS devices, and as long as they remain restricted to the platform, marketers--and developers--will continue to explore their options. "Apple we believe will, over time, fade into the background," IDC analyst Karsten Weide tells the Journal. "It was attempted to make sure that even consumers advertising experience on Apple devices was perfect, but it hasn't really worked." Android is simply too big for marketers to ignore, virtually guaranteeing that iAd will continue to lag behind the likes of AdMob and Millennial Media--and wherever ad budgets go, developers will follow. -Jason