Could This Be a New Growth Opportunity for Apple?

Are investors underestimating this new growth business for Apple?

Daniel Sparks
Daniel Sparks
Apr 4, 2014 at 10:30AM
Technology and Telecom

Image source: Apple.

Apple (NASDAQ:AAPL) has certainly never been known as an advertising platform. Online advertising is a Google thing, right? This may have been the overarching storyline in the past, but Apple has subtly been rebuilding its online advertising efforts since it launched iRadio. And with its most recent move to open up its advertising platform to small marketers, it looks like the company may soon start treating the business as one of its core segments. For investors, this is excellent news; Apple's efforts to beef up its iAd platform may expose Apple to a new, fast-growing market.

Reviving a failing business
When Apple first launched its iAd platform, it initially required a $1 million buy-in from advertisers. Failing to take a meaning slice of the soaring mobile ad market, it cut the required buy-in several times in the coming years. In February 2011, it cut the required amount to $500,000. In July 2011, the figure fell to $300,000. Finally, in 2012, the buy-in amount fell to $100,000. 

Clearly, Apple's iAd business was suffering from lack of marketer demand. But iAd's business performance requires some context. Sure, ad revenue is up from $38 million in 2011 to $260 million in 2013 (thanks largely to the launch of iRadio), but Apple has missed out on much of the mobile online ad market's soaring growth. Given Apple's dominant mobile presence, its share of mobile advertising is relatively tiny. Its 2013 mobile ad revenue of $260 million pales in comparison to the combined $12 billion that eMarketer estimates Facebook and Google raked in last year.

But Apple's latest plan to combat weak marketer demand for its iAd platform demand takes a new and fresh approach, an approach practiced by Google -- the master of all online advertising platforms. Apple announced on April 1 that it is opening up its ad platform to anyone with an Apple ID, with no buy-in at all.

iAd workbench. Source: Apple.

Ad Age explains the importance of Apple's strategic shift in its online advertising platform:

At the onset of its mobile-ad business, Apple extended olive branches to a select group of brands, promising premier reach. But advertisers pushed back against its pricey offerings. Now, it appears Apple has concluded money in mobile ads comes from a wide net; in short, it'll look more like Google.

Among other changes, the April 1 update to Apple's iAd Workbench also finally debuted video ads, irrefutably one of the hottest and most lucrative mobile ad products today.

Investors should welcome Apple's new strategy. It extends open arms to a booming market. eMarketer estimates total mobile Internet ad spending will grow 75% this year. And since Apple is just now ramping up its mobile strategy, the company will likely see outsized year-over-year growth compared to the industry during the quarter.