advertising

Microsoft executives told Goldberg during a recent visit to company headquarters that the company, carriers, and manufacturing partners, would spend "billions" of dollars in the first year on marketing and development of Windows Phone 7. Another source estimated a $1 billion price tag for the launch, with half of it going to marketing.

via AppleInsider | Microsoft to spend over $500m to catch up to iPhone, Android.

Note the scale of spending here.  The number quoted is twice Apple's yearly ad budget, for all its products.

$500 million is roughly the equivalent of Apple's entire advertising budget for its 2009 fiscal year. In its 2009 Form 10-K filing to the SEC, the Cupertino, Calif., company listed $501 million in advertising expenses. Microsoft's fiscal 2009 advertising budget was $1.4 billion.

But beside the unrepentant destruction of Microsoft's shareholder wealth, one other thing jumps out at me: why are the operators and vendors going along with this?

Fragmentation increases the cost of development, marketing, operations and hinders the creation of cohesive ecosystems.

Most companies are very aggressive in consolidating around internal platforms and standards. Supporting R&D teams and marketing teams around each platform is costly and dilutive to one's brand.

With hundreds of Android devices and RIM and Apple increasing distribution, why would operators be willing to spend hundreds on a venture to promote a new platform? This decision is even more puzzling when realizing that the vendor of the new platform left nothing but business model carcasses behind the last time they got involved in the industry.

In addition the positioning of this product is suspiciously awkward. One could argue that as a vendor or operator, having an unaddressed or underserved market (say, business users) might mean this platform could expand the distribution of your product or service. But Windows Phone is being positioned as a consumer brand and that's a crowded space where every other platform is also targeted. See the survey data below (unconfirmed source: US Army)

So again, why would operators and licensees spend hundreds of millions to introduce yet another platform in the market?

Maybe they are just taking Microsoft for a ride.

Revised language for section 3.3.9 of Apple’s developer agreement, concerning the use of data collection:

The collection, use or disclosure is for the purpose of serving advertising to Your Application; is provided to an independent advertising service provider whose primary business is serving mobile ads (for example, an advertising service provider owned by or affiliated with a developer or distributor of mobile devices, mobile operating systems or development environments other than Apple would not qualify as independent

via Apple Makes Good on Steve Jobs’s Promise, Invites Other Advertisers. But What About Google’s AdMob? | Peter Kafka | MediaMemo | AllThingsD.

Apple is stating that user data must be handled by organizations that are strictly independent.  If the ad service provider is part of an organization that either competes with Apple's devices or platform, it's not independent.

AdMob would have been allowed to operate unhindered on iOS but AdMob as part of Google is not.

Conversely, if Google were to abandon Android, the path to riches would be open again.  As shown several times already, by pursuing a mobile device platform Google strategically abandoned some significant revenue opportunities in exchange for some extraordinarily high costs.

Readers of this blog should not be surprised.

JP Morgan is cited as sizing the US mobile display ad market at $250 million.  This gives Apple 48% market share of the mobile ad market for second half of 2010.

Steve Jobs On iAds:

[It's to] make developers more money.... People are using apps way more than they are using search. So if you want to make developers more money, you’ve got to get the ads into apps. But the mobile ads we’ve got today rip you out of the app..." Apple has figured out a better way.

This is pretty much the same as his statement on the iPhone 4.0 launch: asymco | On a mobile device Search hasn't happened.

Daniel Eran Dilger in fine form after Apple became the world's largest technology company by market capitalization.

These days, Apple’s primary competitors have all fallen down on their knees while clutching their gutted bellies...

Who is left? Google, the paid search giant that backers hope will beat Apple in hardware and software platforms… despite Google being neither a hardware vendor (nor marketer nor retailer nor support provider) nor having any real experience in managing a software platform for consumers. Fans of Google suggest that the company will take on Apple by acquiring a competing version of everything Apple has built over the last decade: iTunes, a mobile platform, hardware expertise, user interface design savvy, development tools, and a user base.

The problem is, they don’t also foresee that Apple could compete against Google in its own home territory of ads.

via How Apple could slay Google at WWDC 2010 — RoughlyDrafted Magazine.

The key assumption in the "Google can buy anything Apple already has" is that of the three things that make up a company (resources, processes and priorities) the only thing cash can buy is resources, and, in the tech world, even those are fragile things with legs that can walk out the front door.

Google's "copy-paste" competitive approach vis-a-vis Apple falls down when you realize that Apple has been successful mostly because of its processes and priorities. It's well known that all of its vanquished competitors could (and did) recruit legions of Apple employees, elevating them to positions of responsibility, with naught to show for it. Grafting engineers and IP onto Google (or Nokia or Microsoft) cannot make it into an Apple.

Conversely, through a risky, long and arduous path, Apple could become a Google. Success with ad-based search requires resources (mostly CapEx), algorithms and distribution. With the $42 billion (soon to be $100 billion) in the bank and eye-watering free cash flow, there are few no resources that Apple cannot buy.

With iAd the world will witness an Apple that can make loads of money in Google's home turf, while Google burns cash and bridges with Android trying to defend its soft platform underbelly.  The irony is that Apple can knee-cap Google without even trying to do search. After all, Jobs said plainly enough: On a mobile device Search hasn't happened.

Judging by the stock prices of the two companies, I suspect investors know this already.

This is one of the most thought provoking things I've ever heard.  Some of the implications are unfathomable.  Before we dive into the implications of iAd, here is the exact quote from the Apple Special Event, April 2010 (iPhone 4.0 launch) around 45 minutes in.

When you look at a mobile phone, it's not like the desktop.

On the desktop, Search is where it's at.  That's where the money is.

But on a mobile device Search hasn't happened. Search is not where it's at. People aren't searching on a mobile device like they are on a desktop.

What's happening is that they're spending all their time in apps.

When people are looking for a place they want to go out to dinner they're not searching. They're going into Yelp. They're using apps to get the data on the internet rather than a generalized search.

And this is where the opportunity to deliver advertising is.

Not as part of search but as part of apps.

Jobs is making a set of huge claims:

1. There is no search on devices.
2. There is no money in search on devices.
3. Apps create an inventory of billions of ad impressions every day
4. Apps are better at delivering the data from the internet than a browser
5. Apps are therefore the new browsers and eyeball aggregators

This is heavy stuff.  I believe what gives Apple the confidence to make these claims is the vast amount of data on user behavior that the app store collects. It's possible they're wrong, but it's more likely they're right.

If they're right, what are the implications?  First, obviously, iAd adds up to a lot of cash « Asymco.  Second, this has dire consequences for Google.  Jobs could not be more blunt: search is not where the money is at.

I can chip in some personal experiences that confirm this preference for apps over browser interfaces, but I leave it as an exercise to the reader.

"The average user spends over 30 minutes every day using apps on their phone. If we said we wanted to put an ad up every 3 minutes, that's 10 ads per device per day. That would be 1b ad opportunities per day."

This is going to take some time to sink in over at the Googleplex.  By pushing Android, Google removed themselves from this opportunity.  Jobs continues:

"We do not have any plans to become a worldwide ad agency. We tried to buy a company called AdMob, and Google came in and snatched them from us. We bought Quattro instead. They're teaching us and we're learning as fast as we can."

Not to put too fine a point on it, but I did suggest iAd was coming on Dec. 30 of last year:

I think it’s a certainty that Apple will introduce an ad serving platform for the iPhone (and any tablet) in 2010. This will amount to a checkbox that developers will check when submitting their app to the store. Doing so will allow Apple to place ads on the app in return for a check in the mail to the developer for the impressions.

Well, at least part of the answer appears to be that Google is sharing advertising revenues with carriers that use Android, according to multiple sources who are familiar with the deals.

via Android’s Secret Sauce? Google’s Advertising Rev-Share Deals With Carriers | mocoNews.

This must be why AT&T replaced Google search with Bing on its Android phone and gutted all Google services as well.

I think it's a certainty that Apple will introduce an ad serving platform for the iPhone (and any tablet) in 2010. This will amount to a checkbox that developers will check when submitting their app to the store. Doing so will allow Apple to place ads on the app in return for a check in the mail to the developer for the impressions.

"In fact, as a percentage of revenue, Apple has actually been decreasing its ad spending every year for the past eight, from nearly 5% in 2001 to 1.37% today. That's about half the 3.6% Research in Motion's spends advertising BlackBerries."

http://brainstormtech.blogs.fortune.cnn.com/2009/10/28/apples-2009-ad-budget-half-a-billion/