The internet has been losing its mind this week over a report from Bloomberg that indicates Apple may expand its advertising business. This will include new ad placements in first-party apps like Books and Podcasts. If true, this would align with Apple’s ongoing revenue diversification play.
Before getting into Apple’s motivations and potential revenue impact, what are the finer points of the rumored expansion? If Bloomberg’s reporting is to be believed, Apple is planning to extend its current ads program (more on that below) to include additional placement in apps, most notably Apple Maps.
The way this would work is through a bid model for search ads, similar to what it currently does in the App Store. Extending the model to Maps would not only create ad inventory but broaden the addressable market of advertisers. App Store ads are all about app publishers… mapping is about local businesses.
And that clearly has implications for the local search landscape. Will Apple Maps join the list of options for SMBs and multi-location brands in their advertising mix? Meanwhile, additional (non-local) opportunity exists in Apple TV+ which could follow Netflix in launching cheaper ad-supported tiers.
Love-Hate Relationship
Its worth noting here, for the sake of comparison, what Apple’s ad business currently looks like. It serves ads mostly within the App Store, as it believes they’re in context in a commercial zone (it is a store after all). These are mostly app-install ads in search results, where app publishers will bid for sponsored slots.
Going back further, Apple has a love-hate relationship with ads. As this analyst predicted many years ago, it had an ad network up its sleeve which ended up being iAd. This utilized Apple’s position as a platform and app marketplace to provision ads throughout third-party apps (an ad network model).
iAd turned out to be too much of a departure – in focus and competency – from Apple’s core business, so it scaled back. But though an ad network turned out to be onerous, it decided to pluck low-hanging fruit which was ads in first-party apps like News and Stocks, and within the App Store as noted.
These efforts make Apple’s ads program a $4 billion business. This total says a great deal about Apple’s scale. In other words, $4 billion is the scaled-back version of its ad efforts. But now that the iPhone is reaching global saturation and maturity, it appears to be revisiting ways to scale ad revenue back up.
Maturing Cash Cow
And that brings us back to revenue diversification. It’s no secret that the iPhone is a maturing cash cow – correlated to broader global market saturation for smartphones. For Apple, this means it has to counterbalance declining growth in other areas, which so far includes services and wearables.
Ads are a natural addition to that list, given all the consumer touchpoints that Apple owns. We’re talking everything from Apple TV’s home screen to all those iOS first-party apps. But this is also risky territory for Apple, given that its core revenue streams (though decelerating) are consumer hardware.
That hardware is sold on a certain persona that involves slick and elegant UX design. So the question is if ads detract from that. Furthermore, Apple has positioned itself as a bastion of privacy. As one of the only tech giants not dependent on ad revenue, it can afford to eschew data collection.
So does an elevated (though not new) ad program spoil that messaging and consumer trust? And if so, will it impact Apple’s core device-sales business? These are questions that will all be answered in time, along with the question of the veracity of Bloomberg’s reporting. Until then, it’s a good thought exercise.
