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Dozens of questions remain about Apple’s plans to get into the mobile advertising business, from how much a campaign will cost to which applications will they run on.
Based on information Apple (NSDQ: AAPL) is telling advertising agencies, we were able to get answers for at least one: how much a campaign could potentially cost on the iAd platform—and the results are startling. According to our number crunching, CPMs will be highly variable but in some some cases could wind up being triple what marketers are used to paying for banners, and double the price of a video ad on mobile. In another scenario—a very successful campaign that generates an unusual number of clicks—a marketer’s ad spend could easily wind up being more than seven times what it had anticipated.
There are plenty of skeptics who say that iAd’s high prices and other restrictions may drive interested marketers away. But if Apple gets its way, iAd could mean a financial landslide for the mobile advertising industry, which was been bouncing along the bottom for years, totaling only $416 million in 2009, according to eMarketer.
For starters, Apple is setting the minimum annual spend at $1 million, but the price could go much higher if the ad generates a lot of clicks. For comparison sake, luxury brands Jaguar and Land Rover last year budgeted a combined $1.6 million for mobile marketing. With Apple asking for that much on just its platform, advertisers will have to weigh the attractiveness of the company’s user demographics and premium ad experience with how much they are really willing to lay out for mobile advertising.
For Apple, the key lies in iAd’s model of charging marketers based on a hybrid of CPMs and click-through rates, rather than one or the other, as is standard. Apple is said to be charging 1 cent per impression and $2 per click, reports the WSJ. Using those figures, we tried to determine how pricey a campaign would be, assuming a few different scenarios. The biggest variable is the click-through rate. Today, the mobile industry commonly sees anything between 1 and 3 percent, but iAd could easily be higher because of its novelty factor. Using this information, and assuming a marketer spends no more than $1 million, we calculated the CPM, which is the industry standard for cost per thousand impressions (see chart).
On the low-end (assuming a 1 percent click-through rate), the CPM would be $15. On the high-end (with a 3 percent click-through), it would jump to $70.
Jumptap’s Chief Marketing Officer Paran Johar says mobile banners today garner between $6 and $30, while mobile video on the high end falls between $20 and $40. “I have talked to a dozen or so agencies and there’s going to be a lot of push back. They’ll probably be some that engage for the sexiness, but not for the ROI,” he said.
While our calculations demonstrate what occurs when the budget is fixed and the ad impressions fluctuate, Johar said that’s not typically how a deal is done. Rather, he said advertisers dictate the budget and how many impressions they want. In that scenario, the same outcome exists: Costs will increase dramatically as the campaign becomes more successful.
Once again, if we do the math: The CPM will be fixed at $10 if the advertiser has a $1 million budget and is buying 100 million impressions at a penny each. But in addition, the advertiser will have to pay for the clicks—at $2 each. If 100 million impressions draw a 3 percent click-through rate, the advertiser will have to pay around $6 million more. The $1 million year-long iPhone campaign becomes a $7 million campaign (many more times Land Rover’s and Jaguar’s combined 2009 budget).
Johar says the fluctuating cost structure discourages advertisers from producing a very engaging campaign when there’s a $2 fee associated with each click. He figures you are better off providing a branded message that doesn’t encourage a call to action. But that’s contradictory to what iAd is proposing, which is a very engaging advertising experience that includes videos and games. “If you are incentivzing people to click, but then disincentivizing people from a cost structure perspective, they don’t work well…The cost structure could get very expensive, very quickly.”
Neil Strother, an analyst with ABI Research, says the typical mobile campaign is $100,000 to $200,000 over a two-month period, putting Apple’s million-dollar asking price in the right range. However, the WSJ reports that Apple even has its sights set on some $10 million campaigns. “Clearly, they are pushing the dollar amount up.” Strother agrees that the CPMs sound high, “but if you are getting a highly creative ad that’s interactive and you are the first ones to move, you will probably be written up on every blog from here to Hong Kong,” he says.
Interesting Article from PaidContent over the new iAd platform and the potential costs.
The platform will definatly be High end what I suppose will increase the likehood of quality ads...
Looking forward to have some more information about this though..