The downfall of the walled garden: Here’s why iAd failed

Apple is the world’s most valuable company — no other company even comes close. That shouldn’t be surprising, as the Silicon Valley-based company has created an unparalleled hardware culture that more resembles a lifestyle than a brand.

Apple is potentially worth more than a trillion dollars, and has a staggering $155 billion “war chest” stashed for a rainy day — should the rain ever come.

The forecast for most areas of the company calls for sunshine, but for Apple’s mobile advertising platform, iAd, a storm is brewing. Apple confirmed it is shutting down the six-year-old program on June 30th, officially waving the white flag on attempting to compete with Google, Facebook and other major players in the digital advertising space.

Steve Jobs originally asserted in 2010 that iAd would reach 50 percent of the mobile advertising market, but it never even got close (clocking in at around 5 percent of the mobile-display-advertising market). After a strong start, insiders quickly began divulging that iAds was hurting, with fill rates (the percentage of advertising inventory filled with an ad) dropping from 18 percent to 6 percent for some.

Clearly, the Midas touch we’ve grown so accustomed to from the hardware giant didn’t quite work in this space. Apple certainly could have funneled more money and resources toward iAd, but it didn’t. Why didn’t the company with the largest stack of chips bet more on this initiative?

Every decision in advertising is born in data.

Because the “walled garden” model is endemic when it comes to mobile advertising. While Apple essentially proved the value of ruling with an iron fist on the product end of its business — maintaining stringent control over the operating system, content, apps and media that touch every one of its products — this approach didn’t yield the same benefits for mobile advertising.

An isolated platform inherently closes customers off to important revenue opportunities on other networks. By operating within Apple’s walled garden, advertisers and publishers were only able to reach iOS users — only 13.9 percent of the worldwide smartphone market.

What’s more, by only serving iOS devices, Apple precluded customers from reaching lucrative emerging markets where Android is particularly dominant. In Asia alone, Android owns more than 60 percent of the mobile OS market share, while iOS only owns 11.45 percent. As a result, Apple sacrificed its ability to scale, and denied its customers the opportunity to monetize in developing markets.

Google, even with a far larger global market share, has heard the “integrate or die” message loud and clear. Recently, the advertising giant announced that it’s integrating several additional ad networks into its AdMob and DoubleClick platforms — giving its customers access to outside networks (and thus higher revenues) even at the risk of funneling business to competitors.

The move toward an open ecosystem has become a necessary one to stay competitive in adtech, but wasn’t a concession Apple was willing to make.

So, how could iAd have succeeded? In three ways:

By empowering publishers and advertisers to control the way ads look on their apps.

iAd would have benefited from giving more control to those creating the ads, both in the creation process as well as the buyer-side and seller-side tools. As a result of Apple’s tight control over the ad-creation process, advertisers and marketers saw massive delays in getting their ads to market on the platform.

Ads are only going to continue getting more creative as consumers demand a high-quality, near-artistic ad experience. Ad platforms must adapt to accommodate this increase in non-traditional ad formats and tactics, and make the process as efficient and seamless as possible — or risk advertisers taking their business elsewhere.

By going global.

Efforts to invest in the platform’s international presence went largely unprioritized. It took Apple five years to enter neighboring Latin America — at which point it had already lowered its minimum spend from $1 million to $50, signaling the company was already having trouble executing its advertising strategy.

By not entering the ad market with a clearly defined global strategy, Apple ended up being late to the party, and missing out on pivotal markets like China, Japan, Indonesia and South Korea — which are projected to spend a combined $150 billion on advertising in 2016.

By doubling down on data.

Advertisers grew increasingly frustrated with Apple’s unwillingness to grant them access to the wealth of data the company possessed from its customers and Apple’s hundreds of millions of iTunes accounts. Every decision in advertising is born in data — 70 percent of agencies and 73 percent of brands use data to target the desired audience. Strong analytics tools are becoming ever more important as advertisers strive to keep ads relevant.