Thinking of Advertising as an Apple Service

Benedict Evans:

There’s an old line that everyone in tech is trying to give someone else’s business away for free, and to turn it into a feature of their own product and their own business model. Google gives away a free smartphone operating system to support its ad business, and Amazon gives away free TV shows to support its ecommerce business. Apple’s business model is to sell hardware to around a billion people, bringing in about $200 per user at a 30% gross margin in 2020, then to give away, or sell, a lot of other services on top, both for incremental revenue (about $50 per user at 65% gross margin) and to drive retention.

What kind of services? Well, Apple looks for businesses it can transform with simplicity and control, and take a cut, without owning anything itself, and where it can use that to leverage hardware sales. That worked for music, failed for TV, succeeded massively in smartphone apps and especially games, and has done OK in payments. How about advertising?

I think Evans’ piece is a great assessment of what Apple could be trying to do with its own advertising products and how that correlates with its privacy efforts. But I am sort of stuck on how much of a reversal the advertising market is compared to Apple’s other services.

The billion-or-so iOS users out there want music, apps, and games. They want to buy or use all of those things, creators want to sell all of those things, and Apple wants to take a cut of all of those transactions. Everybody wins or, at least, gets 70% of a win. Also, most payment mechanisms suck — you have to type in your credit card details, maybe verify something, then manage all of the different places where those cards are stored — so it was ripe for the kind of solution Apple can provide.

But ads? People mostly hate ads.

There is always going to be tension between Apple’s premium brand position and its display advertising spots. Different entities work better as ad-supported businesses than alternatives, plenty of companies want to promote their stuff so they want to buy ads, and Apple would surely love to take a cut of each ad placement. But they are all going to be fighting users who, at best, have become numb to advertising. Digital advertising, in particular, has built a reputation of being disrespectful to people: it is abusive to individual privacy, it is rife with fraud, and it has become increasingly obnoxious in its desperate attempts to fight market fatigue.

If Evans is correct and this is the strategy Apple is pursuing, I see the company making a difference on all fronts but still necessarily fighting its users.