About three months ago, Apple (AAPL 0.09%) made a small but noticeable change to its corporate structure. Its vice president of advertising, Todd Teresi, began reporting directly to Eddy Cue, who oversees all of Apple’s services business.
This is apparently just the start of a big push for the advertising industry. Since then, Apple has made more moves to grow the business, and Teresi said her goal is to grow the company to more than $10 billion in annual revenue.
Two recent changes
Apple’s advertising business is relatively small for a company with an installed base of over 1.8 billion devices. The company currently generates around $4 billion in annual revenue, which pales in comparison to advertising giants like Metaplatforms, Alphabetor even Amazon. The smallest of this group, Amazon, has an advertising business almost an order of magnitude larger than Apple.
Apple currently advertises in the App Store, News and Stocks apps. But the success of his big tech companions in advertising suggests he can build a much bigger ad business.
This will start with Apple’s plans to expand ad inventory within the App Store. Apple currently displays display ads when someone clicks on the Search tab of the App Store and has promoted listings in search results.
Soon it will display advertisements on the Today tab, which provides personalized suggestions of new apps to download. It will also start displaying display ads in third-party app pages, which means apps will be able to advertise their product on their competitor’s product page.
The second big change in the app industry is a new job listing spotted by Digiday. The company is looking to build a demand-side platform, also known as DSP. A DSP would allow marketers to automate ad buying across Apple’s inventory, which can lead to increased ad spend. It could also attract advertisers with smaller budgets, increasing competition for each ad spot, leading to higher average ad prices. Owning your own ad technology can also result in higher operating margins for the ad business.
Where does Apple go from here?
Apple has plenty of opportunities to insert more advertising into the apps and services that iPhone users interact with most often.
He would have already explored the potential of advertisements in Maps. This could include sponsored search listings as well as highlighting locations along a route or area of interest.
Other potential areas for advertising, such as Bloomberg‘s Mark Gurman points out, include podcasts and books. Both have search and discovery features, which might lend themselves well to simple display and keyword ads.
Expanding ad business could also lead to things like a podcast ad network or video ads on Apple TV+. In fact, Apple is already responsible for selling a small amount of ads during its Friday night baseball shows on Apple TV+. Apple may expand this to more ad-supported video content in the service in the future.
Another interesting long-term opportunity is the construction of an Internet search engine à la Google. While Apple today has a lucrative deal with Google, the search giant could face regulatory pressure in the future ending such deals.
Teresi’s goal of hitting $10 billion in ad revenue shouldn’t be too difficult. And with digital advertising’s high margins, it could play a big role in Apple’s earnings growth over the next few years.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a board member of The Motley Fool. Adam Levy has positions in Alphabet (C shares), Amazon, Apple and Meta Platforms, Inc. The Motley Fool has positions and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple and Meta Platforms, Inc. The Motley Fool recommends the following options: $120 long calls in March 2023 on Apple and short calls $130 in March 2023 on Apple. The Motley Fool has a disclosure policy.
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