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How Apple's Infuriating Ad Bureaucracy Makes It So Profitable

Most people assume Apple (AAPL)'s success is to do with its superior product design and trendy marketing. But some of the things we associate with lousy companies -- bureaucracy, bottlenecks and corporate sclerosis -- play a surprisingly effective role at Apple in terms of its advertising and app development businesses.

At first glance, the approval systems for the ads that appear in Apple's mobile iAd system for iPhone and iPad, and for the apps that are available in the App Store, make no sense in the modern age. Advertisers and developers have to apply for their content to run on iAd and in the App Store, and then a bunch of faceless executives at Apple accept or reject those applications on an ad hoc basis.

The rules change constantly, and developers and advertisers never know whether they have complied or not. The process can take weeks or months. (Ads and apps often come from the same source: Companies trying to promote themselves.) A source recently told Adweek:

You keep getting rejected, but you don't know why. And there's no transparency as to where you are in the process. They put you in a long line to get approval, but you don't know how long or short that line is, and don't even know if you're pending review until there's a change in status online. It's typical of Apple--the process is siloed; there are a lot of walled gardens, and it doesn't seem that the people in one stage know what goes on in the others.
Among the variables:
Those who don't comply risk being banished from Apple's systems. That nearly happened to Toyota, which complied after Apple asked it to stop running a campaign for Scion which allowed users to customize a jailbroken iPhone. Why would Apple's management tolerate this kind of chaotic, hands-on approach when its competitors are trying to make themselves as user-friendly as possible?

Twitter, for instance, just acquired AdGrok, a service that makes advertising on Twitter easier by consolidating dashboard controls into a single screen. AdGrok promises that new users can get a Twitter campaign up and running, from scratch, in less than an hour. Worse, Google (GOOG) takes a smaller cut from subscription apps. Both offer systems that are automated and require no approval from a human at either company.

Easy and free vs. difficult and expensive
On paper, "easy and free" ought to beat "difficult and expensive." But that is not what is happening. Apple is getting more ad dollars than Google's Android network:

Although Apple's iOS devices have just 28 percent of the market, the Cupertino, Calif. company is raking in 50 percent of mobile ad dollars, finds new research. Android with 53 percent of the Smartphone market attracts only 39 percent of mobile advertising, according to mobile ad network Millennial Media.
Apple is getting those ad dollars even though Google actually serves more ads. It's a similar picture in terms of paid apps:
80 percent of all paid apps have been downloaded fewer than 100 times in the Google Android Market worldwide.
"We found that only two paid applications have been downloaded more than half a million times in the Google Android Market worldwide to date, while six paid applications in the Apple App Store for iPhone generate the same number of downloads within a two month timeframe in the United States alone," Distimo said in its report ...
How is it that Apple is able to gain more money even though it serves fewer ads, and why do more people pay for apps from Apple? The answer seems to be related to Apple's heavy-handed management.

On Android, anyone can upload an app. Most apps are free but the quality is variable. Users don't really know if they're downloading a quality product or malware. At Apple, by contrast, customers know that because the company has high standards their apps will probably function properly and be safe. That's a premium that users are willing to pay for -- and it's brought to you by good management's worst enemy: fickle, bloody-minded bureaucracy.

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Bonus points if you correctly identified scholars of bureaucracy Franz Kafka and Max Weber in the image by Flickr user Harald Graven, CC.