Apple’s iAd Falls Behind Google in Mobile Advertising; Apple Looks to Shape Up

Apple has recognized that Google is winning the mobile ad war, and has decided to loosen its grip on the iAd service and compromise with marketers.

Apple’s iAd service is a mobile advertising platform for the iPhone, iPad and iPod touch only. It launched in July 2010 and allowed third-party developers to embed advertisements into their applications.

Some current iAd-using marketers are happy with the service, such as Unilever, which is responsible for ads like Dove soap and Ben & Jerry’s ice cream. Unilever purchased 13 iAd campaigns and has called the service “amazing” because users typically spend an average of 68 seconds on the ads.

Despite this bit of success, Apple is far from being numero uno in mobile ads. According to a recent analysis by the International Data Corporation (IDC), Google snatched the No. 1 spot in estimated share of U.S. mobile display ad revenue for 2011 with 24 percent ($151 million). Apple sits at 15 percent ($95 million) of the $630 million market, even being beat out by Millennial Media at 17 percent ($107 million).

Google’s AdMob service, which the search giant acquired in November 2009 for $750 million, is likely more successful than iAd because of its fair prices and its ability to span a variety of devices. Apple’s iAd, on the other hand, has a stiff price like most Apple products and as mentioned, iAd is only available for Apple devices. In addition, Apple has tight control over the creative process regarding the ads.

Apple originally required marketers to commit to a spending limit of at least $1 million, but this was later cut down to $500,000. Also, Apple was charging marketers every time a user tapped an ad, which would quickly eat through the budget.

But Apple is now making some changes in order to beef up its failing ad service. For starters, it reportedly plans to drop the spending limit from $500,000 to $400,000. It will also put a cap on its tap-related charges, where advertisers pay $10 every time an ad is viewed 1,000 times and only $2 whenever the ad is tapped.

In addition, Apple has created a training program in order to show potential advertisers what they can get out of participating in the iAd service. OMD, Apple’s media buying agency, has brought its advertising clients to Apple headquarters in Cupertino, California for a tour where Apple designers offer information on its products and marketing, complete with a stop in the Apple store on the way out where companies can buy Apple products at a discount.

Despite Apple’s efforts to compete with Google, IDC analyst Karsten Weide doesn’t see Apple winning this battle.

“Apple we believe will, over time, fade into the background,” said Weide. “It was attempted to make sure that even consumers advertising experience on Apple devices was perfect, but it hasn’t really worked.”