Advertising Could be Apple's Next $50b

The internet has been buzzing with rumours that Apple is planning to enter advertising in a big way, with some sites reporting that Apple is building a Demand Side Platform (DSP). There's no formal word from Apple, however a recent job ad seems to be the most revealing clue.

Saying Apple is building a DSP is missing the trees for the forest. When people talk about DSPs they're usually talking about 'programmatic media', which is the strange web of open ad exchanges and supply side platforms that exists to flood the internet with crappy display banners. There's three reasons Apple won't be getting into programmatic media:

1. They've been burnt in the past with iAd.
2. Programmatic media goes against Apple's stance on privacy and trust.
3. Walled gardens make so much more money.

Apple already is a Walled Garden

What makes a good walled garden?

• Mass reach - iPhone is one of the largest platforms in the world.
• Unique first party data - Most real people with iPhones have iCloud accounts.
• Unique advertising placements - App store search ads.

Apple is already in the business of selling ads. While Apple is focussed on search ads for now, they're already looking to expand their advertising business with new placements in the App Store. While the App Store alone is unlikely to have enough scale to compete with the likes of Facebook and Google, Apple has been putting work into their larger suite of media apps which could all have advertising in them in the future. In fact, Apple's Media Services serves as a laundry list of places where Apple will be putting ads next (along with Maps as well) – if they're willing to put ads in the discovery section of the app store, why not do the same for podcasts?

How Big Could Apple Advertising Be?

The iPhone and Apple Media Services make up the building blocks of a great walled garden advertising ecosystem, but they need to find ad placements to sell if they want to reach $50b. Apple will follow Amazon's approach, meaning this will happen in three steps.

Expand Opportunities for Search Advertising.

Taking share from Google is an obvious starting point. Google is the biggest player in the space with $257b in ad revenue in 2021, even a small slice of the search advertising pie is big business.

Search ads run at the point of sale and sit at the bottom of the marketing funnel, which means advertisers are willing to pay the highest rate for them – this makes them incredibly profitable. Being at the bottom of the funnel they're also easy to sell. If you're selling an invoicing app and someone is searching 'invoicing app' why wouldn't you pay for an ad? In addition, targeting ads based on people's current search behaviour also has far fewer privacy concerns than other types of targeting in digital advertising.

With App Store search ads, Apple already has a foothold. While it's still early days for their ad platform, having a monopoly on ads in the App Store helps – research suggests that Apple's search ads business already rakes in over $4b. Even if Apple is actually only making a fraction of that, they will have a very high profit margin. Apple can reinvest this money into enhancements to their ad platform, expansion into new ad placements (like maps), and building sales teams.

Create Advertising Opportunities in 'Discovery' Sections of Existing Apps.

Once they've got a strong foothold in the market with search ads, and their sales teams have developed relationships with large advertisers, they can take their ad products up the marketing funnel. While ad products designed to build brand awareness typically have lower margins, they also have much higher volume.

This is where Apple will take a chunk out of Facebook's slice of the pie. Facebook brought in over $114b in 2021 from advertising, and over 94% of that came from mobile advertising. If Apple can provide quality (bot free) placements for Ads, then they will pretty quickly take share off of Facebook – even among advertisers that don't sell apps.

Open up Apple Media Services with Ad Supported Tiers.

Once Apple has proven themselves in performance media with search ads, and made the move up the funnel with discovery placements across the App store and other media apps, then they can set their sights on the broader media market. They can expand services into ad supported tiers for Apple TV content, partner with news partners or podcasters to share revenue on ad supported content in the podcast and news apps. They could even open Apple Music with a similar model to Spotify.

At this point the way Apple builds out their media ecosystem, and how they partner with publishers will guide how big this opportunity is. If they can execute well on the first two steps they will have plenty of options open to them, and the question will just be what order Apple tackles them in.

Will Apple Really Get to $50b?

Amazon is bringing in over $30b a year through advertising, and Apple is likely going to follow a similar trajectory. If current predictions around Apple's advertising revenue are true, then advertising will be a $50b business for Apple by 2030 if they want it to be.