The chase for advertising dollars just waiting to be harvested from all those smartphones is just getting starting. Of an estimated $500 billion in annual global ad spending, only about $2.7 billion is going to the mobile ad market. Apple Inc. (NASDAQ: AAPL) wants to increase its share of the take, and to do so it has lowered the amount an advertiser must commit from $1 million to $500,000.  There may be more to this than meets the eye.

The Wall Street Journal’s All Things Digital blog reported this morning that Apple is lowering its minimum ad spend in an effort “to appeal to smaller-scale advertisers” unwilling or unable to spend a million bucks. But Apple’s iAd platform is apparently failing to gain traction in the mobile ad market, even though the revenue generated by iAds is considerably higher than revenue generated by the AdMob platform owned by Google Inc. (NASDAQ: GOOG).

Apple must believe either that its premium pricing and tight control of iAd is paying off and it wants to extend its reach, or it must have come to the understanding that it needs to cast a wider net if the company wants its ad revenue to contribute seriously to its top line.

Google has indicated that it’s mobile ad revenue exceed $1 billion. If that’s the case, then the company is getting more than one-third of all global revenue for mobile advertising. As more and more Android-based smartphones hit the market, Google’s share of the mobile ad market really has nowhere to go but up. Microsoft Corp. (NASDAQ: MSFT), Nokia Corp.’s (NYSE: NOK) new partner in the smartphone market, has its own ad platform, but it’s numbers must be minuscule at this point because it doesn’t yet have a significant number of handsets in use.

Developers like Apple’s iAd platform, even though the fill rate is small and could be dropping. An independent developer noted a 50% drop in iAd’s fill rate compared with a 4% in his AdMob fill rate.  Fill rate is the percentage of ad space inventory that gets filled with an advertisement. The reason developers like iAds is for the higher revenue it generates, but that could fall if Apple lowers its minimum spend.

If the per-ad insertion rate doesn’t fall with the total required spend, then why would an advertiser want to commit even $500,000 to iAds? Maybe Apple’s ad sales people can persuade ad buyers that the Apple demographic is more valuable and therefore worth more to advertisers, but that’s going to be an uphill slog.

The other issue for Apple is whether or not the competition for Android-based handsets will begin to eat into either iPhone margins or iPhone shipments. Apple may be the leader in innovation and coolness, but Google has been a fast follower in software capability, and the various handset makers that build for Android have also produced competitive offerings.

Apple has a lot of experience creating imaginative, market-leading products that it controls from cradle to grave. It has much less experience in the often rough-and-tumble world of advertising, and the company’s desire to control advertising (and advertising revenue) in the same way that it controls it hardware and software could stand in the way of the company’s ability to grow its advertising revenue.

In other Apple news today, shareholders at the company’s annual meeting rejected a resolution calling for Apple to develop a succession plan for CEO Steve Jobs, who is currently on medical leave. The company also announced an event on March 2nd that is widely believed to be an announcement for a second version of Apple’s wildly popular iPad.

Paul Ausick

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