Advertising on the iPad. What to expect

What does this tell us? That iPad experiences are deep, immersive experiences for which advertisers are willing to pay a premium. Now it is hard to say whether the Marriott is getting bang for its buck and arguably it is advertising at the moment to reach those early adopters, but if their advertising experiences are translating into bookings more than web ads (which they might well be), this could be a sign of more to come.

Fewer advertisers serve the publishers better. The Wall Street Journal chose to partner with just six advertisers at the time of the launch of their iPad application. They were able to find the six advertisers in a week and each one was charged \$400,000 for two print ads and one digital ad in addition to the iPad placement translating into revenue of \$2.4 million for them. The pitch was that this would be a deep brand advertising experience and not one about impressions.

It is early days for the iPad and it is difficult to tell the kind of engagement different applications will get. The media publishers are also in the process of building their own brand on the platform. As a result, publishers are smart to limit inventory and not over sell the opportunities to advertisers. It'll serve them better in the long run. 

Custom content leads to custom advertiser interest. As shown with the recently launched Sports Illustrated iPad application, custom and more in-depth content leads to the perception that the iPad application is a differentiated product warranting the higher price point. The Sports Illustrated app costs \$4.99 and includes an original documentary, multiple photo galleries, athlete interviews and uniquely interactive panoramic photos.

The moral of the story? If you want your iPad app to sell well at a higher price point, you've got to make sure that you're giving the users something special. Otherwise, they might as well just buy the cheaper Zinio version of the magazine. Something else that's important - as the Editor of Sports Illustrated recently pointed out - advertisers love the iPad apps with custom content. He explained that he was on a sales call recently in Chicago showcasing the iPad app. It turned out to be his best sales call ever. Toyota and Gatorade are already advertisers.

Subscription or Advertising. The answer is not clear. The success of the iPad as a publishing platform for newspapers and magazines alike is ironically making it harder for publications to choose the right revenue model. The Wall Street Journal is probably the furthest along where they have free online sections of the newspaper available on a free iPad app as well. Once you sign up for the paid subscription, you get the other sections of the newspaper too.

The USA Today had originally decided to start charging for its iPad application after the first 90 days. However, advertiser reception was so strong that they have just decided against doing so. Instead, they are going to continue giving the application away for free and are bringing on new advertisers like Barnes and Noble, Chrysler and Capital One. CPMs continue to be in the \$50 range and the app has been downloaded over 500,000 times. Conde Nast with Wired Magazine has just changed their subscription fees - now its \$4.99 for first time downloaders and \$3.99 for issues after that.

My hunch - advertising will trump subscription formats with the iPad in the long run.  As the iPad and other similar devices get critical mass, holding onto expensive subscription plans will be a challenge. However, in the longer term when inventory increases dramatically and there's less scarcity, the downward pressure on CPMs will force the publishers to rethink subscription fees. It'll be the same story as with the web all over again.