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Apple app ads ‘a natural progression’ for the business model: Analyst

IDC’s Mobile Device Trackers Program Vice President Ryan Reith joins Yahoo Finance Live to discuss reports that Apple is planning to integrate ads across its app suite in an effort to increase ad revenue, the decline of global smartphone shipments, and the outlook for Apple.

Video transcript

- Oh, we're also watching Apple. Of course, not just today, but we tend to watch Apple and its trajectory a lot. It's looking to expand its $4 billion advertising business by ramping up the number of ads across its native app suite. That's according to reports. And it's considering ways to add advertising to things like Apple maps, books, podcasts.

Joining us to weigh in is the Vice President of IDC's Mobile Device Tracker Program. That is Ryan Reith. Ryan, thanks for being here. So what kind of opportunity is there here in this advertising business for the likes of Apple? Especially Apple, since it's been seen as sort of having a premium offering, is there also a risk of alienating some of its customers if it goes to ad forward?

RYAN REITH: Yeah, good to talk to you. I think there's always a risk of the alienation coming in, regardless if you're a premium player or a low-end player. But I think with the direction that Apple has been going with a lot of their services and so forth, and their competitors doing the same thing across different platforms and different applications, I think it's a natural progression.

It's all going to be about execution and how much they sort of-- for lack of a better term, how much they try to push down their users throat or do they sort of gradually take the approach. And I think that it's probably going to be a more gradual approach knowing the way that Apple has done things in the past around these things.

- What type of revenue run rate should we start to expect annually for Apple as they start to really accelerates the prominence that they gave to the Apple advertising business?

RYAN REITH: Yeah, I mean, I don't have the actual run rate numbers in front of me. But I mean, I think overall, clearly this sort of plays into the transition that we've watched in the Apple Business model over the course of the last at least five to seven years, where they've depended more on services than they have hardware. And this is sort of going to continue to play into that.

So I think there's the realization that look, I mean, we all understand, the smartphone market now is mature, they're still growing. We expect them to grow next year in terms of unit volumes. The PC market had seen some boost in the early pandemic stage. It's seen a pretty significant slowdown now, not only for Apple and others. And then the other hardware categories are also challenged because of inflation, the ongoing lockdowns in China.

So again, I think why we're starting to hear more about the emphasis on Apple starting to look towards other revenue streams, be that services and/or things like advertising, it's natural but I think it's all going to be about execution and how they sort of handle that. Like I said, I'm very confident that they're well aware that they don't want to alienate their users as a result of whatever moves they make in the future.

- Ryan, we've seen Samsung start to pivot with some of phones to the foldable form factor. I mean, it's pretty exciting. It looks cooler. Do you see Apple going that route? And how big a catalyst could that be for them?

RYAN REITH: Yeah, they will eventually. There's no question. I mean, let's keep in mind, Apple has done revolutionary things for all of these hardware categories that I've sort of already mentioned. But more often than not, they're not the first players out of the gate, meaning they came later with 5G, they came later with 4G and all these other things that we've sort of gone. Like even bigger phones, they were the last sort of to do that.

So I think my guesstimate and based on our supply side research that we do is that they're already experimenting with form factors and their prototyping and so forth. But I think it's probably going to be at least a year or two before we see something from them. But when they do come out, again, my belief is that they will do it in a way that will resonate with users, and they're going to wait to see if the use cases are there.

Because I mean, even the success that Samsung and some of their other competitors, a lot of the Chinese brands have had with foldable phones, it's still a sub 1% of the overall smartphone market volume. It's growing, but it's taking time.

- Hey, Ryan, quickly while we have you here as well. Something that just popped into my head, the fact that you've got so many different end apps that are reliant on Apple being able to connect them with new users of their devices and then install base, that have all just had to grapple with the privacy changes that have taken place and impacted their revenue. If Apple moves forward full speed ahead with its own advertising business and continues to add on to that and services the direct install base that so many other developers and app owners were going after, is that an antitrust risk? Is that an anti-competitive kind of headwind that we should also be keeping in the back of our heads?

connect I think the short answer is, yes. There's no question. I mean, I have to assume that Apple's extremely large group of legal team is looking at this very closely, because I think nobody wants to be hit with any antitrust. And certainly we all know what's happened over the course of the last couple of years with not only Apple but Facebook and others, where privacy is a big concern for everybody.

And as you make these different steps, we've seen many companies, without mentioning specific names. We've seen companies sort of run before they walked, and they've landed in legal troubles and user troubles, which is actually probably more of a concern for a lot of these companies. So I have to believe that they're looking at all that stuff very, very closely and I guess we'll see how it sort of all unfolds.

- Ryan Reith, Program Vice President IDC's Mobile Device Trackers. Good to see you. We'll talk to you soon.