As Apple preps augmented reality for the masses, developers are searching for the money

Key Points
  • Traditional mobile advertising won't work in a world of augmented reality.
  • Playable ads drive higher conversion than video ads and interstitials.
  • AppOnboard's founder sold his previous ad-tech company for $350 million.
An attendee demonstrates the ARKit, augmented reality tool, on an Apple Inc. iPad Pro during the Apple Worldwide Developers Conference (WWDC) in San Jose, California, U.S., on Monday, June 5, 2017.
David Paul Morris | Bloomberg | Getty Images

Apple CEO Tim Cook is downright giddy about augmented reality. And the world is about to see why.

While virtual reality headsets from Oculus and others have yet to go mainstream, hundreds of millions of iPhones and iPads in circulation are an iOS update away from morphing into consoles that bridge the real world and the imaginary one.

On Apple's latest earnings call, Cook said AR has "broad mainstream applicability across education, entertainment interactive gaming, enterprise, and categories we probably haven't even thought of."

Apple's big bet is on ARKit, the company's homegrown technology for enabling developers to build AR apps. The software is among the most anticipated features of iOS 11, which is likely to be available this month, and you can expect to see some splashy use cases for the technology at Apple's iPhone event on Sept. 12, in Cupertino.

For game developers, who will surely be some of the earliest adopters of ARKit, a new challenge awaits -- advertising.

Mobile ads are annoying in general. But it's particularly hard to imagine playing an AR game in a multidimensional world and being interrupted by a video, interstitial or pop-up ad. Nor do existing ad types work for developers who want to promote a game in another app.

You have to experience AR for it to make sense.

"Showing a video of someone playing an AR app doesn't tell a story," said Jonathan Zweig, a longtime entrepreneur in ad-tech and the CEO of AppOnboard.

AppOnboard team

Zweig thinks he has the solution. Two years after selling mobile ad company AdColony for $350 million, Zweig created AppOnboard in 2016 with the idea that people would rather play an ad than watch one. With AppOnboard's technology, developers can advertise their games in other apps through a demo that lasts 15 to 30 seconds.

For example, if you're playing an adventure game and struggling to get past a certain spot, you may have the option of taking a few swings in a baseball app as a way to get to the next level. At the end of the short trial, you're given the option of downloading the app or returning to the game you were playing.

AppOnboard, which to date raised $4 million in venture funding, has several existing mobile games using the try-before-you-buy model. For the launch of ARKit the company has partnered with Snatch, a virtual treasure hunt app, and gaming studio Lucid Sight.

"Instead of watching a video to earn currency or get to another level, you play a short demo," Zweig said. "That's a huge leap in technology."

AR isn't just coming to the iPhone. Last week, Google released a sneak peak of a software development kit called ARCore for Android devices and said it's targeting 100 million devices by the end of the preview.

The mobile ad market is there for the taking. According to eMarketer, mobile will account for more than 70 percent of the $83 billion digital advertising market this year and will surpass the size of the TV ad market in 2019.

A first look at Apple's new augmented reality app
A first look at Apple's new augmented reality app

Playable ads seem to be working for the current generation of games. Mobile ad-tech start-up Vungle said it's seen playable ads drive a 30 percent increase in downloads over static ads while improving retention by 20 percent.

Snatch, a London-based start-up whose treasure hunt app went viral in the U.K. and will soon launch in the U.S., expects AppOnboard to be one of its primary marketing channels.

The game allows players to pick up virtual packages around town and collect real rewards from brands like Pizza Hut and U.K. retailer Topshop or win vacations and cash. Players have to hold the parcels for six hours before opening them and, in the meantime, other people can try and snatch them.

In a Snatch ad, a user will pick up a package but won't be able to find out what's inside without downloading the app. For people playing Snatch, they will have the option of briefly trying out another game to acquire currency for in-app purchases.

"People will pay for that level of engagement because the results are much better," said Joe Martin, Snatch's founder and CEO, in an interview from San Francisco, where he's fundraising and gearing up to build a U.S. team. "It's better than video, better than print, or pop-up banners."

Most importantly, Martin said, "it's non-intrusive -- it's there if they want it."

There's always the chance that none of this stuff takes off, or that the most popular AR titles out of the gate follow a similar trajectory to the early AR sensation Pokemon Go.

AppOnboard demo

A week after its launch last July, more than 28 million people a day were playing Pokemon Go, walking around town and staring at their screens to catch a Pokemon or find a PokeStop to get a treat. By late in the year, that number was down to about 5 million, according to ComScore, and Pokemon Go is currently outside of the top 200 most popular iPhone apps.

But AR enthusiasts have little doubt that iOS 11 will open up the technology to the masses.

"It's the first time there's been a fundamental hardware and software change for the iPhone that unlocks a whole bunch of new stuff you can do," said Randy Saaf, the founder and CEO of Lucid Sight.

Saaf has plenty of money at stake in that thesis. In addition to developing AR games for Lucid Sight, he's a board member and investor at AppOnboard. He and Zweig were partners in the market as far back as the AdColony days, having co-founded that company 2008.

The ad model still has to be proven out, but Saaf is convinced AR is poised to take off. And quickly.

"The great thing about ARKit is there are 200 million devices that will be compatible on day one," he said. "This opens up a lot of ways to enjoy media and games that weren't available before."