Why Apple May Be Giving The Ad Business Another Shot

Apple (NASDAQ:AAPL) could be looking to launch its own ad network which would distribute ads across apps, according to a recent report from the Wall Street Journal, as the company looks to shift to digital services-led growth strategy at a time when its hardware shipments have slowed down. While Apple could face some challenges in the space, considering its recent narrative of protecting user privacy and its mixed track record of delivering compelling ad products, the company also has a couple of advantages in the fast growing market.

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A Network For Ads Within Apps

Apple has dabbled in the digital ad business in the past, with mixed results. The company’s iAd service, which was launched in 2010, sold advertisements within apps but failed to gain meaningful traction due to its higher prices and limited data sets, causing Apple to shut it down in 2016. The company currently has a small but relatively lucrative business (revenues ~ $1 billion in 2017) of selling promotional ads based on search terms in its App Store. Now, per recent reports, Apple has met with Internet companies including Snap and Pinterest about participating in an Apple network that would distribute ads across their apps, with a possibility that Apple could eventually work on syndicating ads across the 2 million apps available in the app store.

The Privacy Conundrum

Apple could have a couple of factors working in its favor if it decides to focus on the ad market. For instance, the company has an affluent and engaged user base, as well as a high level of control over its mobile software platform, which could enable it to deliver quality ads. However, data and privacy could be an issue, as delivering well-targeted ads requires rich consumer data sets. While Apple has access to a wealth of user information, ranging from basic demographics to location data, deploying it for its advertising purposes could prove tricky. Apple has been talking up the privacy and security features of its devices, and CEO Tim Cook has also been quite outspoken about the topic, calling out companies such as Facebook (NASDAQ:FB) and Google for their use of consumer information to drive ad sales.

Context-Based Ads

To circumvent privacy issues, Apple is likely to focus on context and search-based ad targeting, rather than behavioral targeting. With context-based targeting, ads are placed based on the content on a particular screen. Search ads are typically delivered based on a search term entered by users. These forms of ads could be viewed as less intrusive compared to behavioral targeting used by Internet giants such as Google and Facebook, which build profiles of users based on their online history. That said, Apple will still need to tread a fine line if it wants to make its ad business a success without hurting its privacy narrative.