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A Rare Apple Failure: Heavy Discounts Needed to Draw iAd Advertisers

How much premium can the Apple (AAPL) Reality Distortion Field demand for iAd, its advertising program for iOS devices? Nowhere near as much as management thought, it appears. According to a Bloomberg report, Apple has cut rates by upwards of 70 percent.

Forget the days just last year when a Citigroup (C) or J.C. Penney (JCP) would drop a minimum of $1 million for a campaign. Apple's now offering rates for as little as $300,000, and even at that some ad agencies are giving two multi-touch thumbs down. The company has a virtual cash printing press in its office, so mustering sympathy is tough. But if Apple can't get a major premium for electronic ads, who can? Is this the face of doom for media companies and many that hoped for better ad rates?

Hype was in full swing
In April of 2010 when he introduced the iAd program, Jobs said Apple was going to "change the quality of the advertising" and he projected a billion ad opportunities per day with an "incredible demographic":

Apple would take control of the advertising process, essentially becoming a combination outlet and ad creative agency, like a rich man's small metropolitan daily that creates the display ads for businesses too small to have an agency. And iAds would keep consumers in an app, rather than pulling them out to an advertiser's site.

Irony central
Unfortunately, Apple's desires ran into an ad industry brick wall, especially at $1 million a pop. A good story can fail when you're talking to people who spin them for a living. Jobs said that Apple wouldn't make a lot of money on iAds. Seems like he was more accurate than he might have liked.

Apple faced the same problem as everyone else in the online ad business: too many outlets, which means too much inventory and, by the power of supply-and-demand, price pressure. There's a reason that media companies have battled ad rate card discounting for decades. Apple just awoke to industry reality. Hey, at least it makes an antitrust investigation a lot less likely.

They can get it for you wholesale
And so, the minimum ad purchase is now $500,000, or half of what it once was, with additional discounting available to agencies if they bring multiple campaigns.

According to Bloomberg, 20 companies used iAd in the past month. Just 20. In a magazine, that would have been pathetic. Apple has often demonstrated a golden touch, which didn't hold up this time. Maybe other companies need to get realistic now, particularly those in the media that have seen the iPad as their salvation.

As the industry continues its quick transition online, hoping for a way to make ads pay what they did in print is increasingly a waste. Executives have to forget about saving a dying business model and, instead, find what sort of structure will work in the new revenue reality.