I recently read an essay by Paul Graham on what happened to Yahoo. In it, he describes how Yahoo acted like a media company when it was really technology company, and how funky management made it into what it is today. One quote struck me as relevant today:
By 1998, Yahoo was the beneficiary of a de facto Ponzi scheme. Investors were excited about the Internet. One reason they were excited was Yahoo’s revenue growth. So they invested in new Internet startups. The startups then used the money to buy ads on Yahoo to get traffic. Which caused yet more revenue growth for Yahoo, and further convinced investors the Internet was worth investing in. When I realized this one day, sitting in my cubicle, I jumped up like Archimedes in his bathtub, except instead of “Eureka!” I was shouting “Sell!”
Having just integrated iAd into one of my iPhone apps I’ve noticed that pretty much all of the ads are for other apps. Most of these apps are “free,” and I assume that they could potentially be using iAd for revenue as well. This is a result of low fill rates for iAd and Apple wanting to offer developers a way to advertise their apps. It makes sense, but one has to wonder exactly where all the money is eventually going (Apple gets a 40% cut of iAd revenue), and who has the incentive to keep that system running.
A while ago I wrote my predictions for iAd. I didn’t foresee Apple opening iAds up to developers who wanted to advertise their apps. That’ll help the fill rate, but I can’t see it helping CPMs when developers have something like a $0.25 CPC and it was reported that the larger media campaigns like Dove were closer to $2 CPC. Seems like another race to the bottom, just like paid app prices.