iAd: Apple’s Mobile Death Star

Apple’s mobile Death Star, an iPhone and iPad advertising platform called iAd, should make Apple and app developers a lot of money, as well as keep app prices low for consumers.

When the App Store debuted a couple of years ago, most apps were free, or cost only $1. The last 12 months, however, bore witness to rising app prices. A few examples: TomTom U.S. and Canada iPhone app ($50). Jibbigo voice-to-voice translation iPhone app ($25). Golfshot GPS iPhone app ($30). Wall Street Journal iPad app ($18 per month).

The average price for paid iPad apps hovers around $6, according to Mobclix, an operator of a mobile ad exchange marketplace. “But there will be a lot of apps around the $10 price point,” says Krishna Subramanian, founder of Mobclix, adding that a good number of apps will also be priced in the $20 range. Eighty-five percent of iPad apps in Mobclix’s network are paid apps.

Is there no end in sight for the rising cost of apps? Apple says help is on the way with iAd. Given how much Apple plans to charge advertisers, Apple might actually deliver on its promise.

Apple aims to charge close to $1 million for ads on its iPhone and iPad, ad executives told the Wall Street Journal. It’s quite a premium considering similar mobile deals range between $100,000 and $200,000, ad executives said.

Part of iPhone OS 4.0, iAd is Apple’s big mobile advertising play—dynamic ads built on HTML 5 (not Adobe Flash, of course) running inside apps. The opportunity is a sizeable one: There are more than 85 million iPhones and iPod Touches on the street today, with the average person spending 30 minutes a day on the devices, according to Apple.

Apple plans to charge advertisers a penny each time a consumer sees a banner ad, ad executives told the Wall Street Journal. A click on the ad banner will cost advertisers $2. Costs can reach a million dollars with the various views and taps.

Apple will sell and serve up the ads, taking a 40 percent cut of sales. The other 60 percent will go to app developers. Apple CEO Steve Jobs said the goal is to get money in the hands of iPhone app developers so that they don’t have to hike up prices.

“A lot of the apps on the [iPhone] are free, or 99 cents, or $1.99. And we like that. Users like that,” Jobs said. “But these developers have to find a way to make some money, and we’d like to help them.”

Forty percent isn’t chump change, either. Apple is also cutting out third parties from selling on the iAd platform. Apple’s developer contract states that device data—namely, consumer analytics—can’t be shared with a third party, making it impossible for third parties to sell ads. That’s because ads are sold based on consumer analytics.

Tom Kaneshige is a senior writer for CIO.com in Silicon Valley. Send him an email at tkaneshige@cio.com. Or follow him on Twitter @kaneshige. Follow everything from CIO.com on Twitter @CIOonline.