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Why Apple?s tilt toward control over openness may hurt all

By Paul Gelb

I am frequently asked to assess the long-term prospects of digital platforms for our clients. My conclusions are based on a comprehensive analysis of a diverse set of predictive factors.

Yet I have consistently found that the ability of a platform to maintain the often-fragile balance between openness and control is the most predictive variable of a platform?s success.

It is through this context that I view iPhone 4.0 and iAd as watershed moments for Apple?s mobile platform.

If Apple continues to maintain a balance between control and openness, its path to becoming a dominant mobile platform will be unimpeded. However, if the balance it has achieved is disrupted, a rapid decline may be inevitable.

Jobs done
An argument can be made that Apple CEO Steve Jobs made the mistake of being too open when he allowed Microsoft to have full access to Apple?s operating system prior to the release of the first version of Windows. Microsoft may have used the code to develop Windows.

Since then Mr. Jobs? biggest failures, including the precipitous loss of computer market share to Microsoft and the Apple TV product, have been the result of being too controlling.

However, before Mr. Jobs? presentation earlier this month, the iPhone appeared to have solidified a perfect balance between openness and control for a mobile platform.

After almost three years, it seemed like nothing could slow down Apple?s momentum towards becoming the dominant mobile platform.

Morgan Stanley pronounced iPhone/iPod touch the fastest growing technology in history. AdMob reported iPhone OS devices now account for 50 percent of mobile Web traffic.

With six times the applications offered and ten times the application downloads of the Android Market, the iTunes App Store seemed like it would always be the most robust.

The iPad exceeded lofty sales expectations and, according to Quantcast, and already accounted for 5 percent of mobile Web traffic in the few weeks it has been around.

Most industry publications could not find any compelling evidence that iPhone OS 4.0 and iAd would diverge from Apple?s streak of groundbreaking mobile innovation.

Yet, as the presentation ended, I felt both apprehension and hope.

Adding such an innovative and creative force to the mobile ad industry offers untold potential promise.

However, Mr. Jobs perplexingly anointed iAd as the first and only solution for providing engaging in-application rich media ads that do not push users out of the application.

Yet, pioneering companies such as Medialets have provided this solution to marketers for years. In fact, I wrote an article about this mobile ad UX advancement in Razorfish?s 2009 Digital Outlook Report.

Ironically, a day before Apple?s presentation, Medialets announced, with much less fanfare, that it now offers an SDK and creative tool suite for both Android and iPhone. This makes Medialets the only cross-platform provider of independent rich, in-application ad solutions.

While Medialets has offered the same engagement value and UX advantages as iAd for years, it has since added numerous improvements that increase the value it provides marketers and publishers.

Most of the media coverage echoed Mr. Jobs? talking points. Others acknowledged that iAd offered nothing new, but was a step in the right direction for Apple.

I concluded that what Mr. Jobs did not say during the presentation this month was likely more significant than what he did say.

The unanswered questions will dictate the true impact of iPhone 4.0 and iAd. The iAd announcement did not cover ad production, ad targeting, campaign measurement or application analytics.

Ad production ? whose bag?
Most of the rich media assets for online campaigns are produced using Adobe?s Flash product suite and thus cannot be used for mobile campaigns.

Consequently, mobile rich media ad production and analytics tagging have predominantly been done by ad networks and major publishers as part of a media buy. 

However, recent meteoric growth in mobile marketing changed the process.

Ad networks, major publishers and rich media production and analytics platforms would have had to exponentially increase their staff and resource allocation to services that are neither scalable nor high margin.

All of the major firms have recently addressed this issue with creative tool suites and SDKs that enable marketers to produce ad units and set up measurement tagging themselves.

The creative tool suites and SDKs not only facilitate the production and tagging process, they also allow agencies to efficiently scale mobile ad production and analytics services across mobile OS platforms.

While iAd may be a simpler solution for developers to support highly engaging ad units, it requires marketers to revert to relying on a third party for mobile production.

If marketers decide to shift their budgets from established firms to those who have relationships with to iAd, they would likely pay for those services with higher ad pricing.

As well, iAd?s formats seem to be limited to engaging entertainment-oriented ad formats. This ignores how functional mobile ads can be. Users can locate a store, opt-in for messaging through texts, emails or social networks and even share ads and product wish lists with their friends.

The iAd network?s success will be dependent upon how fast Apple relinquishes control of the ad production process by releasing its own SDK and creative tool suite.

As a software specialist Apple has the opportunity to develop a superior product that enables marketers to extract the full value and potential of mobile ads and turn ad production from a potential challenge into a competitive advantage.

Unanswered questions over analytics, data and targeting
Buried within the documents provided to registered developers, which include detailed descriptions of changes to the operating system and the revisions to the developer legal agreement are new unprecedented control policies.

These provisions appear to restrict third parties from offering ad targeting, campaign measurement and analytics.

Also, user data will no longer be able to be sent to third parties. This prevents publishers from obtaining analytics data about their application, which eliminates the ability to optimize an application?s design, content offering and navigation based on user behavioral data.

Ad networks will not be able to offer marketers user data-based targeted inventory. Location-based targeting, which has enormous yet still unrealized potential value for users, marketers and publishers is prohibited unless it is the core functionality of the application.

Apple has remained silent about whether or not it will offer these services in the third parties? absence.

If Apple eliminates the significant value that analytics providers and ad networks can provide to publishers and marketers for application advertising without offering a comparable alternative, it will shrink the revenue potential of iPhone applications.

Eventually developers will migrate to other OS platforms in pursuit of a larger potential ad market. This will provide an opportunity for Android and Microsoft to build up their application marketplaces.

Indeed, this is increasingly significant as Apple has shown how directly a mobile platform?s success is correlated with the robustness of its App Store.

However, in the short term, Apple?s application dominance could multiply and reverberate the impact of its decline throughout the mobile marketing industry.

Again, Apple can relinquish control of this process and leverage it as a competitive advantage with the right balance of control and openness.

For example, Apple could require that users opt-in to data collection and even incentivize them to explicitly offer information about themselves that would be valuable to publishers and advertisers.

A native application could allow users to provide information about themselves in return for loyalty points. These points could be redeemed for free applications. This would reduce privacy concerns, increase the stickiness of the Apple platform and increase the efficiency and effectiveness of in-application advertising.

The iPhone 4.0 and iAd deserve all of the buzz and attention they have received. Yet how Apple will handle new choices between control and openness is uncertain. Thus, the long-term prospect of Apple?s mobile platform still hangs in the balance.

Paul Gelb is manager of emerging media at interactive agency Razorfish, New York. Reach him at .