Apple's Ad Service Off to Bumpy Start

Apple Inc. AAPL -1.73 % is facing some early challenges in its closely watched mobile advertising foray, with some ad campaigns experiencing delays as agencies attempt to learn the new system amid Apple's tight control over the creative process, according to ad executives.

Since launching its iAd mobile advertising service on July 1, Apple has been slow to roll it out. Of the 17 launch partners Apple named for iAd, only Unilever PLC and Nissan Co. had iAd campaigns for much of July. Of the remaining 17, Citigroup Inc., C -1.51 % Walt Disney Co. DIS -0.83 % and J.C. Penney JCP 0.91 % Co.—which tied its campaign to the back-to-school-season—have since launched iAd campaigns and other companies are planning iAd efforts.

Part of the reason some marketers are experiencing delays in getting their iAds to market is that Apple has kept tight control on the creative aspects of ad-making, something advertisers aren't used to, according to several ad executives involved with creating iAds.

That has made the creation of the mobile ads laborious, taking about eight to 10 weeks from brainstorm to completion—longer than normal for most mobile ads, executives said. The building of the actual ad, handled by Apple, in some cases is taking two weeks longer than expected, one person added.

"It's a huge issue having Apple in the creative mix," said Patrick Moorhead, director of mobile platforms at DraftFCB, an ad agency owned by Interpublic Group of Cos. IPG -0.67 % Mr. Moorhead isn't working on any iAds.

At least one company appears to have dropped their iAd efforts for now. Luxury marketer Chanel SA, one of Apple's iAd launch partners, said it doesn't have a campaign planned at this time.

A Chanel spokeswoman declined further comment.

Citigroup—which has experienced delays with its iAd campaigns, according to people familiar with the matter—is "taking a phased approach and working closely with Apple to ensure everything is working properly" due to the newness of the technology and platform, said a Citigroup spokeswoman.

ENLARGE

Announced in April, iAd delivers interactive ads inside iPhone apps without users having to leave or close the app they are currently using. IAd provides a way for Apple to make money from free apps. Developers—who Apple said receive 60% of revenue from the ads—also have more incentive to focus on the App Store, rather than other app marketplaces run by rivals such as Google Inc.

However, competition is increasing as other mobile ad companies like Millennial Media and Google's AdMob start to offer similar services.

While iAds may be expensive for marketers, with packages starting at $1 million, it also offers them new targeting and interactive elements. One of Apple's first iAd advertisers, Nissan, launched an iAd for its all-electric Leaf car that lets users shake their iPhone to change the color of the car.

A Nissan spokeswoman said its iAd "has driven exceptional results to date." The company said the rate of users tapping on the banner is five times the click-through-rate of the Nissan Leaf online campaign.

Apple said in early June that it had iAd commitments from advertisers for 2010 totaling more than $60 million. A person familiar with iAd said it signed up more than 10,000 developers in its network in the first month.

Still, some developers have noticed the slow takeoff of the iAd service. "I think it's the best looking ad format and will perform long term, but the start has been disappointingly slow," said Sam Altman, chief executive of location-based social networking app Loopt Inc. He added that he hoped to see more advertisers soon.

Overall, mobile advertising is just starting to gain steam. Revenue from ads sold on cellphones in the U.S. is expected to increase by 43% to $593 million in 2010, up from $416 million in 2009, according to research firm eMarketer.

People familiar with the matter said Apple underestimated how tough the new business would be and is still learning the best tactics for dealing with ad agencies. At the same time, ad agencies are struggling to keep pace with new ad technologies.

With Apple handling the production of the ad unit, agencies don't necessarily know what it is capable of or how to use the technology, one ad executive said. The iAd is designed in HTML5 technology, and Apple has yet to distribute a "developer kit" to agencies so they can understand how it works, although the company makes it available as part of its developer software for the iPhone operating system to app developers.

In addition, Apple doesn't tell marketers where their iAd is appearing, leaving advertisers searching for their ads, said people familiar with the process. Apple does allow marketers to say where they don't want their ads to appear and provides data about user behavior in the iAd. It doesn't allow marketers to place their own measurement tags in iAds.

In a move seen by some as a way to fill ad space while it gets more interactive iAds, Apple in late July launched a program called "iAd for Developers" where developers can create a simple static banner ad. When users click on the ads, they are led to a page that lets them download another app without leaving the app they are currently in. People familiar with the program said Apple is charging developers 25 cents every time a user taps on the banner and an ad pops up. That's at the high end of most mobile ads, but a deep discount to the $2 it charges branded advertisers.

Many iAds that appear on App Store apps today are from developers like collective buying service Groupon, reference site Dictionary.com and social-networking service myYearbook.

—Suzanne Vranica contributed to this article.

Write to Yukari Iwatani Kane at yukari.iwatani@wsj.com and Emily Steel at emily.steel@wsj.com