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Why Apple is bringing advertisements to its App Store now

App Store icon
David Paul Morris | Bloomberg | Getty Images
App Store icon

Search ads are coming to Apple's App Store — a move that, if executed well, could help developers and support Apple's services ambitions, experts told CNBC.

The advertisements will go live Wednesday, Apple's website said, and will give eligible developers $100 credit toward their first campaign. In the beta version, the ads focused on other apps, were identified in blue at the top of App Store search results and weren't shown to minors, according The Verge's interview with an Apple executive earlier this year.

Brent Sanders, Apple shareholder and CEO of development shop Fulton Works, said from his perspective, the more features and attention that are put into the App Store, the better it will be for app developers.

"I think it's a no-brainer that they execute this," said Sanders, who helps companies build apps. "My customers have asked for this in the past."

As more and more apps hit Apple's ecosystem, it can be harder and harder for individual products to stand out, said Sanders, who can rattle off examples of apps that he's worked hard on, only to see them swallowed by the market. While consumers are spending more time in apps, there are more than 2 million apps out there to compete with, eMarketer estimates.

Most mobile app usage happens in a small number of apps, according to a study cited by eMarketer. Participants on average used 32 unique apps on their smartphone in a month and 13 unique apps on their tablet, according to a Verto Analytics study of 20,000 U.S. adults in December. On a daily basis, respondents used an average of 10 smartphone apps and four tablet apps, Verto Analytics found, according to eMarketer.

Right now, developers must continue to be featured organically or be among the top downloads to maintain visibility, said Mike Dudas, co-founder of Button, a start-up which helps mobile app developers and marketers create better user experiences.

"My fundamental belief is that [with search ads] it will be more accessible," Dudas said. "I know Apple's not in need of a couple million in extra advertising revenue. They need to be more accessible. Apple loses, and they know this, in a world where people can't get past the top 25 apps."

Indeed, giant publishers like Tencent, Google, Facebook and Alibaba dominated worldwide downloads on iOS in the first quarter, according to research by Sensor Tower. The hope, Sanders said, is that the ads, if priced well, can help users find apps they hadn't heard of previously.

"It was about velocity, getting to the 'favorites' lists or the 'top downloads,'" Sanders said. "You had to sustain growth. You couldn't really do it unless you were paying people to download things. I think that's where this ad component is striking a pretty good balance. This is something that is really going to be a new tool for people that do have a budget to acquire customers. ... It's going to cater to the more commercial developers."

It will also let Apple monetize the monopoly it has as the only direct source of mobile software for iPhones, Sanders said. The top app install media source in the first half of this year wasn't an App Store at all, eMarkerter says: It was Facebook.

"The discovery that's happening without Apple, is what's pushing them to do it," Dudas said. "Seeing people interact with Facebook Messenger apps is pushing them to innovate on their own app store. It's a positive development for users and developers."

The ad rollout comes amid ambitious goals for Apple's services, including the App Store, as the company tries to sweeten the deal for developers on the platform.

Apple CEO Tim Cook has said he expects the company's services platform to reach "the size of a Fortune 100 company by next year." The tech giant recently pared its own cut of app revenue sales for developers who agree to sell subscriptions, which could be a big opportunity for developers, The Verge reported.

James Dix, who covers advertising companies for Wedbush Securities, said that Apple's foray into search ads likely isn't a big threat to Google and Facebook, since it only affects one product (apps) that they advertise. While it's unlikely to be meaningful to Apple, either, he said it will be interesting to see whether Apple presents any new features for app promotion that pressure Google to compete.

Though Android users have long seen ads at the Google Play store, Apple has rejected common models of advertising that collect user data. Apple told The Verge it won't create search profiles of users under the new search ad initiative.

"Apple has not had a lot of focus on advertising revenue," Dix said. "Some experiments, but not heavy inroads. It's not big on business models that collect consumer data. The advantage of search as an advertising revenue stream is its not a type of advertising that requires collecting a lot of data to run the advertising campaign. It's largely based on data that the consumer freely gives."

To be sure, Google, which already has search ads, has also seen its store dominated by well-known brands, other than "indie success" app Color Shift, which broke out on both platforms in the first quarter, according to Sensor Tower.

While Apple has said the system will be fair to developers, including independent developers, some have expressed doubt on social media.

But Sanders said that since searches tend to be specific, it could work out in their favor: If one indie app developer lacks an ad budget, its competitors might too.

Some critics have also said the platform has bugs.

While Sanders hasn't given the platform a spin, he's not surprised by the complaints. Sanders said that Apple's developer-facing platforms have often lacked the polish of its other products in the past five years.

But Sanders still supports the initiative, and said he's surprised it didn't happen sooner. Dix said it could help Apple experiment on where to go next in ads.

"It's an interesting initiative, because you'd think it's the lowest hanging fruit for Apple in the ad market," Dix said. "It plays to their strength in mobile, improves experience of the device, users can find the apps that they want. It gives [Apple] a use case and data and to how well it's working. It allows them to improve it."