How Apple Tablet (maybe) will save both publishing and mobile advertising

by John Einar Sandvand on January 23, 2010 · 13 comments

With all the speculation about the coming Apple Tablet:  What Apple really is looking for is a new revenue stream from the publishing industry. That is the claim of Ben Kunz in this interesting video.

Apple Tablet Saves the World from Ben Kunz on Vimeo.

Ben Kunz is an expert on internet advertising trends and director of strategic planning at Mediassociates.  (Twitter: @benkunz).

I came across this interesting video on the advertising blog Thought Gadgets. It is worth looking through – and he makes some valid points about possible consequences for both the publishing and advertising industry.

For publishers the most interesting aspect of the tablet will not be the technological possibilities built into the tablet, but what type of business model Apple will present for media content. Will it be subscription based or will the products be disaggregated with the single piece of article being the core unit for sale?  How much of the revenue stream will be given to the publishers?

Ben Kunz’ thinks a major interest of Apple in launching the tablet will be to tap into the revenue streams of publishers, just like Apple did in the music industry with iPod and iPhone.

But he also points out how mobile advertising never has taken off. Every year experts have lowered their predictions for mobile advertising revenues. The reason, according to Kunz, is that mobile advertising is not working, one of the reasons being the small screens. He thinks Apple’s Tablet will create a new opportunity for mobile advertising to take off.

What do you think?

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{ 11 comments… read them below or add one }

1 Ben Kunz January 23, 2010 at 3:09 pm

“Will it be subscription based or will the products be disaggregated with the single piece of article being the core unit for sale?”

That’s a great question. One of the revolutions by Apple with the iPod/iTunes was figuring out a palatable pricing model for online music. A buck a song – so simple, so brilliant. I’ve been wondering what pricing strategy they’ll use to build adoption of subscriptions online.

Apple is brilliant at pricing, and often doesn’t get credit for it. The iPhone’s high price at launch, and subsequent drops, were carefully staged I think to build momentum in adoption.

It would be really interesting if the tablet launched in the $500 range (lower than the $800 everyone expects) and then if publishers offered subsidies in exchange for loading it with subscriptions… when tech gadgets approach $100, they start becoming impulse purchases. Apple will also have to drop the price because within a year, competitors will catch up with light color screens as well. If Apple wants to build momentum as a publishing distributor (iTunes becomes iPages?), it will need to grab a big slice of the market in the narrow 12-month window it has before it is matched with other devices. Pricing strategy will be key.

Thanks for bringing up pricing, great thought.

Ben

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2 John Einar Sandvand January 23, 2010 at 4:15 pm

Thanks for your comment, Ben!
There has been a lot of discussion of whether micropayment is a viable option for news publisher, asking users to pay per article.
Personally I think this is a very tough road for publishers and not likely to succeed.
Basically I think there is only one player which might succeed in making a pay per article model work – and that is Apple. Imagine if Apple did the same for articles and other pieces of media content as they did for music – building a huge market and making it extremely easy to pay. Imagine further that they pretty much allowed everyone to upload content to this market. It would basically revolutionize the publishing industry as it did with music. Not only would we need to offer our content piece by piece, there would also be great opportunities for all kinds of other players.
I don’t really think that is what Apple will do, but I still find it an interesting scenario. And because they have this wonderful App Store infrastructure in place already, they might actually succeed in introducing micropayment for content.
Or am I totally far off?

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3 Anders Brenna January 26, 2010 at 9:41 pm

@Ben

I enjoyed your good analysis, but I believe you are wrong when it comes to the part where you state that Apple goes in there to get a cut of the revenue.

No one says no to money, and certainly not a billion or two, but Apple is not running iTunes or App Store for the profits.

Apple have a gross margin of 40% and a profit margin of 20% last quarter. They take 30% of the income from iTunes, and that is too low for Apple.

The more music they sell, the more pressure they put on their total margins, as these are not the lucrative parts of their business. In fact, I believe they would be willing to loose the profits from music and apps sale if they had to for competitive reasons.

Apple makes a lot more money selling their own high margin products, and they only need the content sale to make sure that they sell as much of their own products as possible.

I’m looking forward to see what Steve Jobs shows off tomorrow, and I’m sure he’s got something for the media business. It’s a good business to have a strategic position in, as everyone buys gadgets to read news.

Best regards,
Anders Brenna

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4 Ben Kunz January 27, 2010 at 7:54 pm

Anders, thanks, that is a sharp analysis. The marriage of content and machine likely goes beyond margins; all devices are becoming commoditized, and by ensnaring consumers in the iTunes and now iBook stores, Apple is creating switching costs. I also don’t think Apple would sneeze at more than $1 billion in revenue from iTunes to date even at lower profit margins.

Another potential angle as well is the advertising business. The new tablet is yet one more dedicated device that uses apps to launch into the web without going through normal content or Google portals. As the old web browser fades and apps become the front door online, there is a huge opportunity to unlock ad revenue.

I do think content connections are important, because this device will become a commodity. In two years color tablets will be everywhere for $150. For Apple to maintain share and margins for its gadgets, it will have to keep adding new features (such as the missing web cam in the tablet version 1.0) and tie customers into content (via online store integration).

Will be fun to see how it shakes out.

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