Why the iPhone 4.0 Update Is a Very Big Deal (Hint: Apple v. Google)

OPINION: Steve Jobs saved the most important part of his iPhone 4.0 announcement today till last — the new in-app advertising system, called iAds.

The iAds system is important because it allows the App Store to create a completely self-sustaining app economy that is sealed off from the wider Web.

Tech guru Tim O’Reilly says the App Store is already becoming a rival to the web itself. The App Store, he says, is “the first real rival to the Web as today’s dominant consumer application platform.” Consumers will have no need to visit the web on their iPhones and iPads if they get everything they need from apps, which is bad news for companies like Google.

“This is a new phenomenon,” Jobs said about apps at today’s presentation. This is the first time this kind of thing has ever existed. We never had that on the desktop, so search was the only way to find a lot of things.”

The App Store economy is already pretty well developed. There is the app purchase mechanism itself through iTunes, and in-app purchases, which allow consumers to buy stuff from inside apps themselves. But there was a big hole: advertising. Ads are already a big part of the app economy, but clicking on them typically takes consumers out of the app and into the browser, an experience Steve Jobs describes as jolting.

But now Apple has built a sophisticated ad-serving mechaninsm right into the iPhone (and iPad, natch), which will make the App ecosystem like AOL in the early days — a walled garden. And one that has it’s own economy: in-app purchases, and now in-app advertising. There will be no need to go to the wider web anymore — and that cuts out Google.

“What’s happening is that people are spending a lot of time in apps,” Jobs said today. “They’re using apps to get to data on the internet, rather than a generalized search.”

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No wonder Apple and Google are at war. Google swooped in a bought AdMob just to keep it out of Apple’s hands (so Apple snapped up Quattro instead). Of course, Google isn’t on the ropes yet. Android is Google’s attempt to keep it relevant in mobile, and so far it’s holding its own against the iPhone.

But if early numbers are any indication, the iPad is going to be an iPhone-sized hit. Combine the iPad, iPhone and iPod touch, and that’s a lot of mobile devices in Apple’s walled garden.

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About the author

Leander Kahney is the editor and publisher of Cult of Mac, and author of three books about technology culture: Inside Steve’s Brain, the New York Times bestseller about Steve Jobs; Cult of Mac; and Cult of iPod. Leander has written for Wired, MacWeek, Scientific American, and The Guardian in London. Follow Leander on Twitter @lkahney and Facebook.

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Posted in Advertising, Apple, Apple Tablet, iPad, iTunes, News, Opinions, Steve Jobs |

MrCrispy
I’m always a bit skeptical when someone says “this will be the end of _____” or “there will be no more need for _____”.
The ipad will not mean the end of computers because you will still need a computer to write software. Same for cloud computing. Every time a new feature to world of warcraft the forums are filled with people saying “blizz, you’ve ruined the game” but it’s strangely still the number 1 MMO.
So when this guy says the itunes store will make it unnecessary to browse the web I say “I think there is a small flaw in your logic”. First and foremost: until every development site out there has an app interface and every local news site has an app there will always be a need for the web. Most importantly: people can’t get porn through itunes. Crude, yes, but when a large percentage of internet traffic is porn related it still creates a need for web access. Even AOL had porn available. Not every restaurant has an app that lets me see their menu, times and order (through they should).
Gary
…so far it’s holding its *own*.
But back to the subject, the parallels with the AOL of old are quite fascinating to observe.
Rastablood
“Consumers will have no need to visit the web on their iPhones and iPads if they get everything they need from apps, which is bad news for companies like Google.”
I very much doubt Google will be quaking in their boots by this.
http://jonathanbaldwin.co.uk Jonathan
I think you’re getting it wrong by seeing this as a “walled” anything.
The model Apple are developing is more like how advertising worked on radio, TV and in print whereby advertisers paid to be shown among the content being consumed, and where the cost of that content was funded entirely, or at least heavily subsidised, by the ads.
Google shifted this, as did the web as a whole (probably a better way of seeing it) because the model of consumption changed, so the model of selling ads changed.
This had a huge effect on traditional media as they could no longer sell their content to advertisers in the way they were used to. That’s why “search” became the way of selling ads – search terms, not content.
Apple’s move is actually rather clever because it’s aiming to move things back again. Advertisers seek out content providers and target their ads to suit. In some ways it goes back even further as some content may be produced purely to court an advertiser (Apple’s examples today showed exactly that model) – it’s like the early days of US TV with programmes sponsored by particular brands or products.
Apple may also be shifting the agency model of advertising back to where it was. At first I thought they were directly challenging ad agencies who would create ads, identify slots for them, and negotiate terms, by becoming an ad agency in their own right. The examples Jobs showed today suggested they’d established some sort of creative group within Apple who would produce the ads, but that can’t be, and one of the questions afterwards pretty much confirmed that Apple will release some sort of spec for the HTML5 ads (bye bye Flash, incidentally!) and adopt a light touch which, in the UK at least, could actually be left to the ASA which already fulfils that function here, checking for accuracy, taste, decency etc.
So I see advertising becoming a creative medium again rather than an attention-grabbing one. No more ‘click on me!’ ads vying for time among the content, instead a ‘psst, wanna see more?’ approach. Ads as content rather than ads as a distraction from content.
That doesn’t mean crap ads won’t still be around – they always have been. But for the big players, advertising just got interesting again and, working with agencies, they’ll be excited about the potential.
I share the concerns about being bombarded with ads but my hope is that the best ones will be subtle and even entertaining, like ads used to be in my memory.
This model will appeal to agencies who can now sell creativity instead of “hits” (and they’ve known for a long time that the effectiveness of advertising is not measured in hits), it will appeal to content producers such as TV and press, who now have a model for advertising they can get their heads round, and it will appeal to advertisers themselves who want to differentiate themselves from the crap – and remember the main purpose of most advertising is to differentiate your product or service from the rest.
I think this is a big big move for Apple and it moves them well and truly in to a whole new area for them. And cleverly, it doesn’t directly compete with existing players such as Google because they’re not going after search-based advertising. It simply competes for spend. Very, very, clever.
Tommy
Jonathan, you’re on the money.
This move will return value to advertising. Ad agencies and their clients have never really gotten comfortable with page views and click throughs as a model for buying ad space because nobody has been able to quantify the true value of those counters to profit.
In the ‘old days’ of print ads being the true revenue of newspapers and magazines, the value was obvious: customers had paid a fee to read the paper, which was a trusted brand to them, and advertisers could buy association to that chosen and trusted brand. This value is absolutely lacking in the google model.
I do not think (or hope) that this is the end of google by a long shot, but an alternate ad media landscape where customers have specifically chosen to use an app, will become a highly valuable commodity. Especially so if ads aren’t a jarring, distracting and unpleasant experience.