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Apple, Inc. Has Lost Interest in Its Advertising Business

By Evan Niu, CFA - Jan 14, 2016 at 3:00PM

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The iDevice maker is doing something rather uncharacteristic: giving up control.

Let's be clear about something: Apple (AAPL 1.25%) has never really cared about its small mobile advertising business. iAd was launched way back in 2010, but its primary purpose has always been a way for developers to make money -- not for Apple to make money.

Improving app monetization is crucial for developers considering how competitive the app market is. Apple is well aware of how important its army of third-party developers is, as evidenced by the fact that Apple acquired mobile advertising firm Quattro for $275 million in 2010 in order to build iAd solely for the benefit of its developers.

Well, iAd hasn't made a particularly huge dent in the mobile advertising market, in part due to Apple's controlling ways but also because the company initially had had requirements to participate. Apple is now transitioning iAd away from a human sales team in favor of an automated platform, according to a recent report from BuzzFeed News.

Letting go of control
Advertising is never something that Apple has ever been particularly interested in, and it shows. One source even reportedly conceded to BuzzFeed News managing editor John Paczkowski (formerly of AllThingsD), "It's just not something we're good at." Instead, the Mac maker is turning control over to the publishers that will be able to sell ads directly, and importantly, retain 100% of the revenue. Apple is essentially extricating itself from the the process, which will make way for more direct communication between publishers and advertisers by removing a middleman.

Last year, iAd grabbed just 5.1% of the mobile display advertising market, compared to Facebook's (NASDAQ: FB) domineering 37.9% and Alphabet's (NASDAQ: GOOG)(NASDAQ: GOOGL) 9.5%, according to eMarketer. Needless to say, Facebook and Google are quite interested and good at mobile advertising.

Taking a philosophical stand
However small Apple's advertising business might be in the context of its overall financials, the minor step away is cohesive with CEO Tim Cook's broader crusade on privacy. The executive has taken a hard stance on privacy, mostly as a way to differentiate Apple products from Android and Google's various suite of online services (even if Facebook sometimes gets caught in the crossfire).

Even within iAd, Apple has made it quite clear that respecting user privacy is of paramount importance.

Image source: Apple.

Balancing ad relevance with user privacy is generally a tricky task, but removing itself from the process should make it a little bit easier.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Apple and Facebook. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, and Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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