Peter Kafka

Recent Posts by Peter Kafka

iAds Could Be Big for Apple, Huge for Developers

Steve Jobs promises that his new iAd platform won’t “suck.” It may also generate more than $800 million a year for Apple.

This estimate comes from Bernstein Research’s Toni Sacconaghi, who also thinks Apple (AAPL) will do more than $58 billion in sales this year. So that number is nice, if not needle-moving.

But the analyst also points out the real benefit of iAds to Apple: It will generate more than $800 million a year for developers, giving them even more incentive to build programs for iPhones and iPads.

Sacconaghi thinks iAd could throw off $550 million this fiscal year (and double that in 2011); Apple will keep 40 percent of that. And he thinks Apple could keep another $250 million from more conventional advertising that runs on media ads/apps on the iPad.

All told, the analyst figures Apple’s new ad business will end up generating $18 in gross revenue for every iPad/iPhone/iPod touch in the market, which compares quite nicely with the estimated $21 in gross revenue per PC that Google gets. But Google (GOOG) keeps most of that money–$16 per PC–and Sacconaghi thinks Apple will only net about $7 per device.

From his report:

This makes intuitive sense to us–the gross iAd revenue number per device is close to what Google generates since both should be able to serve highly targeted advertisements; however, the net iAd revenue number is lower since Apple would effectively pay 60% “traffic acquisition costs” across all its revenue vs. Google for whom the cost is only incurred on about a third (AdSense) of its revenue.While Apple users’ demographics are undoubtedly more attractive than Google’s, we believe that is counterbalanced by the relatively infancy of the mobile advertising market currently.

But while it is moving into the ad business for the first time, Apple is not really trying to displace Google there. What the company is trying to do is make sure that developers have every incentive to build for Apple. That’s the real intent of iAds, and Scacconaghi thinks it will be effective.

He figures iAds could throw off $825 million to developers, who he had previously estimated would generate $1 billion to $1.8 billion year. That’s a boost of 46 percent to 83 percent.

That’s a pretty good carrot for Apple developers, no?

But there’s a stick, too, of course, in part from restrictions that make it hard to write apps for both Apple’s platforms and its rivals–otherwise known as the Adobe (ADBE) Flash ban–and in part from restrictions that cripple the ability of other mobile ad networks to compete on Apple’s platform. And that’s the stuff that is raising eyebrows in Washington.

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I think the NSA has a job to do and we need the NSA. But as (physicist) Robert Oppenheimer said, “When you see something that is technically sweet, you go ahead and do it and argue about what to do about it only after you’ve had your technical success. That is the way it was with the atomic bomb.”

— Phil Zimmerman, PGP inventor and Silent Circle co-founder, in an interview with Om Malik