By Tripp Mickle and Georgia Wells
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (June 2, 2018).
Apple Inc. prides itself on selling devices rather than relying
on ads.
Now the iPhone maker is looking to expand its
digital-advertising business, people familiar with the matter said,
as it shifts its growth strategy beyond selling devices toward
pushing services on them.
Over the past year, Apple has met with Snap Inc., Pinterest Inc.
and other companies about participating in an Apple network that
would distribute ads across their collective apps, the people said.
Apple would share revenue with the apps displaying the ads, with
the split varying from app to app, they said.
The move would expand on Apple's current small-but-growing
business selling promotional ads for search terms in its App Store,
which delivered nearly $1 billion in revenue last year, they
said.
Under the concept discussed internally and raised with potential
partners, users searching in Pinterest's app for "drapes" might
turn up an ad distributed by Apple for an interior-design app, or
Snap users searching for "NFL" might see an ad for a
ticket-reseller app, one of the people said.
It's unclear where Apple's planning for the possible ad network
stands. Representatives for Apple, Snap and Pinterest declined to
comment.
The digital ad effort, if it proceeds, would push Apple into
territory dominated by Alphabet Inc.'s Google, which claims 35% of
the mobile ad market, and Facebook Inc., which has 25%, according
to research firm eMarketer.
Tech giants increasingly are elbowing into each other's turf
seeking new sources of growth. Google launched its high-end Pixel
smartphone in 2016 to compete with the iPhone. And Facebook is
pushing into hardware with plans for a smart speaker that would
compete with Apple's HomePod, Google Home and Amazon.com Inc.'s
suite of Alexa-powered Echo speakers, according to a person
familiar with the project.
Google tools such as AdMob, AdWords and DoubleClick Ad Exchange
let marketers promote their products or services across a network
of mobile apps, as well as online. Google typically takes about 30%
of ad sales and the rest goes to the publisher, the company
says.
With smartphone sales broadly stagnating and iPhone growth
slowing, Apple has begun looking to its services business -- which
includes App Store sales, music-streaming subscriptions and mobile
payments -- to drive growth. Its App Store ad business was a small
fraction of its total services revenue of $29.98 billion, or about
13% of Apple's total sales, in the fiscal year ended September
2017. Apple aims to grow services revenue to about $50 billion by
2020.
Competing with Google and Facebook wouldn't be easy, in part
because they build detailed user profiles that marketers can use to
more effectively target ads. Apple has criticized that extensive
use of data for advertising, saying it effectively turns the
customer into the product.
"The truth is we could make a ton of money if we monetized our
customer, " Chief Executive Tim Cook said in a television interview
on MSNBC in March. "We've elected not to do that."
For its App Store advertising, Apple says it collects
information such as name, address, age, gender, device use, app
activity and music, video or book downloads. It uses that data to
create groups of people for targeted ads, such as 18- to
34-year-old men using an iPhone. It doesn't collect personal data
from tools like Maps and Siri to use for advertising.
Apple is "the most constrained when it comes to collecting and
using user data," said Karsten Weide, a digital-advertising analyst
with researcher International Data Corp. "If they got back in the
ad business for good, they would be super-handicapped compared with
Google and Facebook."
Apple failed in its last advertising push. Its iAd service,
launched in 2010, sold ads within mobile apps on iPhones and iPads
but failed to catch on because it charged higher prices than
competitors and restricted the types of ads marketers ran.
Apple shut iAd in 2016. Todd Teresi, who oversees the ad
business, refocused on the App Store ad business. While the
business is small, its wide profit margins and strong performance
have drawn attention from Mr. Cook and Senior Vice President Eddy
Cue, a person close to Mr. Teresi said.
Syndicating ads across many of the more than two million apps
available in the App Store is a natural progression, the people
said. Apple recently rehired one of the architects of its
syndicated iAd network, Winston Crawford, whose LinkedIn page says
he now runs global business development for Apple's ad platforms.
He was most recently at Drawbridge Inc., which helps companies
target ads at consumers across multiple devices.
"It's a difficult race for them to catch up on, but they have to
start somewhere," said Raj Aggarwal, co-founder of Localytics, a
mobile-app analytics company. "It can add billions in revenue and
add to their valuation as they try to transform themselves into
more of a services business."
Eliot Brown contributed to this article.
Write to Tripp Mickle at Tripp.Mickle@wsj.com and Georgia Wells
at Georgia.Wells@wsj.com
(END) Dow Jones Newswires
June 02, 2018 02:47 ET (06:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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