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Why? Apple is trying to figure out new ways to make money off its iPhone app platform — and potentially from future devices, like the highly anticipated Apple tablet.
Mobile advertising is one obvious way for Apple to do that: It’s popular among publishers offering free apps, and AdMob is the early leader in the iPhone app ad market. One industry source estimates AdMob at commanding about 80% of the nascent iPhone ad market.
But Apple’s interest is not limited to AdMob: “Apple’s talking to everyone” in mobile advertising about potential deals, we keep hearing.
So what happened with AdMob?
Apple met with AdMob about a month ago, according to a source briefed on the situation. We first noted these talks last week, when we covered Google’s announcement that it had purchased AdMob. Bloomberg ran a similar story over the weekend, noting that “Apple contacted AdMob a few weeks before Google made its bid.”
This wasn’t the first time the companies had met. About a year ago, the companies also talked about a potential deal, according to a source familiar with the talks. Apple was interested in AdMob’s technology and early success with the iPhone platform, but likely balked at the price. The same thing probably happened this time, too.
We imagine the talks this time went like this:
Apple: Hey, AdMob. Heard you guys were raising a round. Want to meet and maybe consider joining us?
Apple: So, how about $400 million?
AdMob: LOLZ! Let me go call Google.
Google: Knock knock.
AdMob: Hey, Google! Apple is trying to buy us! Show them who’s boss!
Google: How’s $600 million?
AdMob: But… it’s Apple. They really want us! Make Sequoia proud!
Google: OK, fine. $750 million.
So why is Apple meeting with mobile ad companies? This is Apple we’re talking about.
Because everyone meets with everyone. And Apple has $30 billion of cash.
While the idea of Apple running an advertising business (especially a sales force) is a strange one for us to contemplate, it’s not the dumbest idea we’ve ever heard.
Apple — as a for-profit entity — wants to make sure it can make as much money from its products as possible. And because iPhone users heavily favour free apps over paid apps — something like 9-to-1, we’ve heard — Apple wants to think about ways it can make money off free apps, too.
This is a big reason, we think, why Apple recently started to allow in-app payments in free apps, despite earlier reservations. (Apple gets a 30% cut from in-app commerce, just as it gets a 30% cut from paid app sales. See our separate feature about iPhone app virtual goods and in-app payments.)
Yes, it is weird to picture Apple running a sales force.
That’s not something it’s ever been able to do, except recently in its retail stores. So it seems that Apple’s interests in mobile advertising are about technology — at least, at first. We understand that Apple is interested in purchasing intellectual property, products, and people — and less the idea that it’s already purchasing an already-functional ad network.
So how might this work?
- Apple could purchase a mobile company specializing in iPhone ad technology.
- It could develop ad units and formats that it thinks are way better than the tiny banner ads already on the mobile Web.
- It could build them into the official iPhone SDK, let any developer add these ads, let any ad network or sales force in the world sell ads for them, and take a cut. (Maybe 10%? Or a little more?)
- It could also put ad inventory into the iPhone app store, and let app makers pay to be featured. (Heck, Google does it for search results.)
- It could let publishers build these ad units into their mobile Web sites targeting iPhone users, allowing access to phone features that other ad types might not have — perhaps location, or phonebook data, or app data, etc.
- It could do the same thing for the Apple tablet, supposedly launching next year. Or maybe the Apple TV set-top box. Or anything.
- Because the iPhone does not run Adobe’s Flash — and who knows, maybe the Apple tablet won’t either — Apple could make itself the easiest (and/or best) multimedia ad play in town.
Will this ever happen?
It depends how hungry Apple is to get into the ad market. They’ve clearly put some thought into it, as they’ve been filing patent applications for ad technology. We wouldn’t be surprised to see Apple pick up some ad technology firms with its huge cash reserves — but only if the price is right.
Why was the price wrong for Apple to buy AdMob?
AdMob has great technology, and a nice, growing ad business that fits right into Google’s plans. That’s why Google was able to justify paying such a high multiple.
But because only one-fourth of AdMob’s ad requests — and therefore, likely, a similar percentage of its revenue — was coming from Apple devices, Apple would value the company on a different basis. This obviously wasn’t enough for AdMob. (And frankly, it’s probably a better, more obvious fit with Google.)