iAds, Apple’s ad-aggregation network for iPhone apps?

“This changes everything.”

That’s what one developer told me as he watched Apple’s Steve Jobs demonstrate iAds at a keynote speech introducing OS4 for iPhone.

iAds are ads displayed inside apps that run on iPhones and iPads. The supposed value-add of iAd ads is that they combine the emotional impact of TV commercials with the interactivity of the web. The market strength of iAds is that, according to Jobs, while search dominates desktop computer usage apps dominate the mobile experience. Hence, in Apple powered smartphones and other mobile devices, Apple will become the Google of ad revenue.

60% of iAd revenue will go to developers.

No doubt will there be success stories where one-man or few-man operations rake in big bucks through iAds by developing applications that become hugely popular among iPhone users.

For the vast majority of app developers i see iAds functioning as little more than yet another aggregation network, or, if you will, adgregation network, where thousands of developers will average a few dollars in iAd revenue while Apple will pocket that times the number of apps (strictly speaking 2/3 of that times the number of apps). As is usually the case, the aggregating network wins. The house wins, to use an analogy.

That’s not necessarily such a terrible thing. I imagine the churn among app developers will be huge as young men and boys put in a year or three to strike it rich on their own in Apple’s app world and then move on when it doesn’t pan out. Not an uncommon story in the development world and certainly not one Apple should be shamed for taking part in.

Will iAds work for advertisers? Unless Apple completely screws things up it will most certainly work for some set of advertisers. Perhaps the sweetspot will be a combination of impulse and location ads. I doubt it will be slick brand ads of the type Jobs demoed at the keynote (by the way, the fake ads Apple had created were for a children’s movie, a back-to-school campaign, and one for the perpetually immature Nike. No further comment necessary).

The value proposition for iAds put forth by Jobs – emotional pull plus interactivity – is probably not as strong as he argues. Smartphone users tend to be captivated by their phones when they engage in texting. It hardly follows that other forms of use – watching video, playing games, browsing reviews, sampling music or what have you – is as engaging. There will no doubt be campaigns that combine various aspects of the iPhone to create gimmicky hooks that will translate into substantial sales (imagine a campaign that combines app ads with QSR scanning and the iPhone shake) but by and large iAds advertising will be just like any other advertising, a hit-or-miss proposition. Periodically Apple will announce features or improvements that will address concerns voiced by advertisers unhappy with their iAds ROI.

There should be room for quite a bit of experimenting by advertisers since iPhone apps generate one billion impressions a day according to Jobs. That should result in really low CPM rates.

(But as John Gruber points out on Daring Fireball, Jobs wasn’t pitching advertisers as much as agency people who want to make splashy ads rather than craft AdWords copy that converts on mundane searches)

Robert Niles has thoughts at Online Journalism Review on what Apple needs to do to make iAds work. One key question is how easy iAds will be to use for small-scale advertisers. Jobs doesn’t strike me as a guy who cares about small scale, and, again, he seems to be speaking primarily to agencies. We’ll see.