Appvertainment from Jobs-Apple and the iAd

The announcement of iPhone OS4 changes the Smartphone  world – yet again.  As Steve Jobs described the 7 tent poles of the new iPhone/iTouch/Ipad OS, it was clear that the tent was not quite large enough for everyone. The center pole of this tent is clearly– iAds.

The raison-d’etre  for the much heralded multi-tasking feature is Appvertainment.  (e.g. iAds).    Do not be distracted by the fact that he introduced multi-tasking first and iAds last.  They are intimately linked.

Apple is pursuing their app centric  vs. search (Apple vs. Google) strategy for smartphones  through the introduction of their own OS integrated  ad serving technology.  Multi-tasking is the key component in this ad strategy to permit a user to return to an app after an ADHD moment is fulfilled by playing with a cool appvertainment.  Without multitasking you lose your application state/status and have to start over again.  Jobs is trying to change user behavior and reward users for clicking on an ad with an engaging experience, instead of punishing them by having them have to re-start their app.

Appvertainment targeting was not discussed. The social  and geolocation information that the host apps maintain on users will most likely be used for targeting purposes.  The Apple social game network API will no doubt  be used for providing this targeting information for game hosted appvertainments .    Apple is betting that App hosted ads will be valuable than Internet style search ads.

Jobs boosted that the Apple platforms would be capable of serving 1 billion app-ads per day by the summer of 2010.  Even if we cut that number in half and apply a modest $10/CPM ad rate – that represents daily gross appvertainment revenue of  $5M.  Apple’s vig on the ad revenue is 40%.  This is easily approaching a $1B+ annual revenue opportunity for Apple.

Click for full commercial

Another interesting aspect of this strategy is that Apple is clearly focusing on large brands and advertising agencies – in other words, the folks with the largest budgets.   This clearly makes sense.  The cost of an appvertainment production can easily be in excess of $250K+.  The inclusion of integrated and compelling video with engaging interactivity is not the domain of amateurs, but rather professional digital agencies.  The examples that Jobs demonstrated during his presentation (Nike, Disney and Target) are all major national brands with large budgets and big Madison Avenue agencies.

As I watched the presentation another thought came to mind –  “Is this legal?”  What would happen if Microsoft integrated a proprietary ad serving system in their OS and demanded 40% of the revenue of every ad served on a Windows machine?  This topic will clearly be discussed in the blogosphere and perhaps courtrooms in the future.

Did anyone hear a mention of sharing ad revenue with Mobile Carriers?

Another  “pole” of significance is the enhanced suite of enterprise features. Corporate CIOs have had a set of killer issues that prohibited the iPhone from significant corporate sanctioned and supported utilization.  Apple is trying to remove these roadblocks with OS4.  In addition to the enhanced  security and email capabilities is device management.  Device management includes the feature of permitting corporations to load their own private apps on the iPhone.    The execs at RIM should be concerned about their Blackberry franchise.

Apple would not be investing in enterprise features while maintaining an exclusive relationship with AT&T.  OS4 changes Apple from the Trojan Horse of a sexy consumer device on AT&T to a machine poised for world domination.

The competition between Google and their Android platform and Apple will only get fiercer.  Nokia is the only other global player who can play at this level.   Palm, RIM and even Microsoft will fight for the leftover niches.  It is a battle of the controlled and planed eco-system of Apple vs. the Open-Source world of Android.

The Apple tent has room for enterprise applications, has a new revenue source for app developers, and embraces big brands, ad agencies and publishers.  Adobe (no Flash support) and Google are outside the tent of OS4.  Microsoft got the biggest slight in this announcement as their mobile efforts were ignored as though not relevant.  And what about the mobile carriers?  Do they exist in the Apple world?

Piracy of the High C’s (Carriers)

The news is filled daring raids by pirates from the Gulf of Aden to a new breed of Pirates of the Caribbean.  While the World’s Naval powers grapple with a response, the blundering, ransoming and mayhem continues.  For the businesses in the digital content and application world, piracy is a constant companion.  Without the benefit of Nuclear Carriers, executives from the Music and Video industries have tried many different techniques to make digital pirates walk the plank, And to date, with equal success to the world’s efforts vs. Somalian  pirates. The Pirates are now setting their sites on mobile services.

I view digital piracy as a form of guerilla warfare.   If we examine it in these terms, perhaps some useful analogies can be drawn and some lessons derived. 

Real-World asymmetric guerilla warfare examples are the Vietcong and the U.S., the Mujahideen in Afghanistan fighting the Soviet Union, Iraqi “insurgents” fighting the U.S. and most recently Hamas and Israel.  In each of these cases the smaller force used unconventional warfare to fight a technologically and numerical superior power.  The superior force could prevail in any one engagement, but could only achieve at best a status quo stalemate (or worse) in a prolonged conflict.  Also, in each of these cases the so-called weaker party had a major (symmetric) support system.

Support Systems: For the Vietcong it was the Soviet Union and China, the Majatin had the U.S., Iraqi Insurgent and Hamas have Iran.   The supporter of the asymmetric force has a political motivation to destabilize or defeat the more power nation.

Back to the worlds of digital piracy:  The individual downloader’s are the guerilla fighters.  Each download of an mp3, ringtone, or video is a small razor slice to the content revenue streams of the IP owners. The support systems are the peer-to-peer networks, the pirate websites and to a lesser degree the ISP networks.  The question is what is the motivation of those providing the support to the download guerillas?  The answer has to be profit.  I am a firm believer in the strategy of “ follow the money”.

What sustains the supporters of Piracy?  The companies that provide Peer-to-Peer networks must have some profit motivation.  They want to either sell you authorized version of the content, charge you for downloading a copy (vs. streaming) or provide advertising.

The music industry (the analogous superpower) has been fighting a losing battle with piracy for years.  For a time their strategy was to legally intimidate and prosecute individual downloader’s.  This is equivalent to fighting insurgency with a few “public hangings” as a message to the others.  The cost of presecution far outweighed the damage actually created by any one downloading pirate.   Suing your customers does not seem like a great business model.

 Like in actual warfare, if you attack each grass hut with a $20M cruise missile, you will blow up a lot of huts at a great cost, and you find that huts are replaced faster than you can blow them up!  If the Music Industry had studied warfare they would not have made the same mistake.

To end an insurgency you have to satisfy and end the core motivation of the guerilla force to fight.  Intimidation threats, “blowing up huts” are as useful as mowing a lawn.  It might look good for a while, but the grass will continue to grow and you will need to mow it again in a week.

The television industry has taken a lesson from what has not worked in Music.  Instead of relaying solely on legal measures, each network has provided a full portfolio of free- ad supported- programming on the web.  The successful HULU portal provides greater viewer program discoverability by aggregating network content.

The ease of finding high quality, high definition, and high-bandwidth video entertainment through legitimate means has reduced the desire, and the need, to be a video programming pirate.  Why search through pirate Chinese websites when you can just go to NBC.com to watch “The Office?”    Why download a version of your favorite program if it is available online with a few short commercials?

It would surprise me if the Movie industry did not follow the TV industry example and provided branded portals with ad-supported movies.  These movies would have to timed to be after the lucrative HBO and DVD distribution windows,

In both video cases, the legitimate channels of distribution can have a profound impact on the traffic of the P-P networks and pirate websites. 

The next question is what does all this mean for the emerging threat of Mobile Piracy?  This will have to wait for my next article.