There’s always fanfare when Apple releases its new iPhones every September, as the company is expected to do at its annual hardware event in Cupertino on Wednesday.
But away from the pomp of its hardware launch, Apple has been working behind the scenes to boost its growing software and services business – one that market research firm GBH predicts could be worth more than $50 billion by 2020.
The bulk of that cash will probably come from video and music streaming and services such as the App Store, Apple Pay and iCloud, but Apple has also explored souping up its advertising business. Its iAd mobile ad platform didn’t work out, but for the past year Apple has been flirting with the idea of launching a contextual ad network.
Apple’s efforts make perfect sense, even in light of the company’s staunch stand on privacy and data collection, said Bill Magnuson, CEO of mobile marketing automation platform Braze.
“The hardware and devices business, especially smartphones, is still enormous, but the growth rate has slowed down,” Magnuson said. “Apple is under pressure to explore new places where they can make additional revenue.”
Even so, it’s questionable whether Apple has the DNA to make a real go of it in the advertising space. Advertising only comprises a fraction of Apple’s revenue, and that’s not going to change if Apple doesn’t change (and Apple probably isn’t going to change).
“Advertisers value the hypersegmentation abilities that they get from the likes of Google, Facebook and Amazon,” said Tom Edwards, chief digital and innovation officer at Epsilon. “Apple would have to make a compelling offer for advertisers to pull dollars from Google, which recently made a big push to improve their in-app advertising performance.”
But it’s possible that Apple’s stance on data collection, which historically put it at a disadvantage to other ad networks, could actually position it for success.
“We’re seeing the legislative winds change toward a relationship with the customer that’s more protective and focused on first-party data,” Magnuson said. “The move away from third-party data levels the playing field for Apple a little more now and it might allow them to run a more competitive ad business, even though they still have a huge focus on privacy.”
For now, Apple flaunts that record on privacy, as advertising remains a tiny driver of revenue compared with hardware. At its Worldwide Developer Conference in June, Apple announced it would start blocking third-party cookies and digital fingerprinting in Safari. The move was a pointed dig at Facebook, whose data-collecting widgets are embedded all over the internet.
Apple doesn’t need third-party tracking data to target ads. Just look at its search ads product, which allows advertisers to target people based on their searches, App Store metadata, deidentified data on the apps a user has downloaded in the past and contextual information, such as time of day and device type.
If Apple is serious about building an ad product, it’s going to “keep looking for ways to differentiate while still maintaining its stance on user privacy,” Magnuson said.
But it’s not easy to woo advertisers without a truly compelling data proposition. One large media agency told AdExchanger that volume for search ads was “super low” and that there hasn’t been much growth in its use other than for branding and bidding on a competitor’s keywords. Feedback about Apple search ads as an exciting channel has been muted other than to praise the simplicity of the UI.
Even so, Apple’s search ads business was reportedly worth almost $1 billion last year – a drop in the bucket versus overall revenue, but every billion counts as Tim Cook endeavors to double Apple’s services-related revenue over the next two years.
In 2018, though, hardware remains the apple of Apple’s eye. Apple worshippers can expect three new larger-screened iPhones to be unveiled at Wednesday’s event.
But it’s also possible the increase in phone screen size could give Apple’s services business a shot in the arm.