Amidst the excitement over multitasking, the Game Center, folders and the other new features announced for the iPhone OS 4.0 on Thursday, there has been an undercurrent of dread among some over another new iPhone initiative — Apple’s new iAd advertising program:

As far as I’m concerned, that particular ad is sucking away 1/8th of my experience, jamming its nose in my portal to a device that I paid (a lot) to own and use. 1/8th is too much in my book, and it infuriates me that the guy who sold me this phone is the same guy selling someone a means to take part of that phone from me.

» Apple Wants 1/8th of Your iPhone Back—Don’t Give It to Them
(Mark Wilson, Gizmodo)

Without addressing all of his points — and his argument makes some sense — Wilson is really trying to push back the tide when it comes to mobile advertising. Though mobile is a minuscule portion of overall digital advertising, and though display advertising is itself a tiny percentage of overall mobile advertising spending (some numbers and analysis from TechCrunch here), in-app mobile ads are here to stay, and are only going to get bigger. (Literally.)

The Problem With Banner Ads
The problem for users, as Wilson points out, is that mobile banner ads don’t scroll off the screen, which means the usable space for an app on that already-tiny screen is even smaller. The problem for advertisers is that users are likely to simply tune that portion of the screen out entirely — the ad becomes just part of the chrome. Using the New York Times app on various platforms, I can say I almost never even notice the ads are there… and the one time I did click on an ad for a luxury car brand, just because I wondered where it actually went, it led me to a browser landing page — filled entirely with a Flash ad I couldn’t view on my phone. There’s some smart ad spending.

Meanwhile, app development is a difficult business in which to succeed. As with the early years of the Web, the initial stories of million-dollar app jackpots fueled a gold rush which has not yet subsided. There’s still a fair amount of irrational exuberance among developers, who continue striving despite what I assume must be, on average, lackluster returns. Given that it’s extremely difficult to get attention within the current state of the App Store (and presumedly even harder on less active platforms), there will likely be (or already is) a shakeout of developers who decide maybe this isn’t the get-rich-quick scheme they thought it would be.

The question, then, is how developers can better subsidize their products, to attract attention, make money and stay in business. Advertising is one of the most obvious methods, and that’s exactly what iAd is aiming to take to a whole new level.

Dawn of the Microapps
Like the iPad, the iAd concept is halfway between two things you’re already familiar with — in this case, apps and banner ads. iAds basically turn mobile ads into microapps, which can contain multiple pages, rich interactivity, video, even games — many of the sorts of things brands are already doing in their own apps — but triggered within another app. Much of this has been around for years in rich Web ads, and is seen in a growing number of mobile ads, through media providers such as Pointroll. iAds are poised to expand the capabilities of mobile ads much further… but that’s not the main reason they are so interesting.

iAds are codeable without native programming — HTML5 is the language of choice, as with other recent Apple media endeavors — which means advertisers can develop their ads using the same tools they already use for their Web ads and sites. Unlike apps, iAds are delivered to customers while they are doing things they already want to do, but with app-like functionality and user experience. And they can be implemented in apps with minimal work and overhead for content creators and developers, allowing a wider range of apps to be monetized through advertising.

Why this could be huge
This has the potential to turn app-based marketing on its head. Marketing-focused apps are common, but users must seek out them out, which means they must be extremely compelling and useful (or at least novel enough to warrant a download). With iAd, companies could significantly compliment their existing app and site portfolios (or forego app development altogether) and target their messages directly to users without disrupting their normal routine. People will come to where the content is, which will also be where the marketing lives, rather than having to go looking for it.

Gizmodo’s Wilson and some others are concerned about ads becoming intrusive, taking up too much screen real estate, and fear an easy and ubiquitous ad system will bring advertising to all apps, paid or free. However, look at the current app landscape: how many apps cluttering the App Store (and other platform app libraries) are basically just marketing wrapped in a thin veneer of functionality? Many of these types of marketing plays make more sense as ads within content you actually want to see, which means fewer superfluous apps and a more robust App Store. Not only will it be easier to find what you really want in the App Store, but the ads will help subsidize the creation of better apps, and more and better content. As for the prospect of developers including ads even in paid apps: there is certainly no shortage of any type of app, and users will vote with their fingers (only doing that little fingers-do-the-walking motion, with the… you know what I mean).

If you build it, will they tap?
The issue, of course, is how likely even flashy app-like ads are to attract any significant attention. Blurring the distinction between advertising and entertainment has been a fairly effective strategy online, but as with apps, users typically choose to see it. No matter how freakin’ cool an iAd is, it’s still an intrusion into a user’s space, and many users will bristle at the thought of even more in-app advertising. More still are already used to tuning them out, and banner blindness is already common in banner-sporting apps, which means advertisers and developers are going to need to find increasingly clever ways to get users to opt in to the experience. Expect advertisers to continue trying all manner of ad models and gimmickry — in-app product placement, app sponsorships, interstitials, animated ad overlays, high-pitched sounds that make your dog bark until you click on an ad — as they try to get users to choose to listen. But the iAd platform is another potentially lucrative avenue for building connections with customers, which seems to bring something to the table for everyone.

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