There was a time, back in 2007, when advertisers’ eyes glazed over with the thought of being front and center on everyone’s smartphone. Consultants told them that this was the next big wave, “The Third screen.”* But they were slow to act, develop standards and learn new technologies. As a result, adverting on the smartphone, especially the iPhone, has taken a new twist, mostly controlled by phone specific apps. Our worst fears have not come to pass, thanks to Apple.

When smartphones like the Apple iPhone and others became technically capable of video, became connected to fairly fast 2G and then 3G networks, we all dreaded the thought of advertisers intruding on our small phone displays. There were thoughts of using the GPS system to identify your location, and then passing that info to advertisers who jump into your full space with full screen ads, much like virtual sandwich boards.

But a funny thing happened to destroy that vision. First, advertisers by themselves aren’t as technically savvy as they need to be in this age. Second, advertisers still haven’t completely understood that advertising needs to be directed and personal. Third, they didn’t control the hardware or the personal relationship that companies like Apple have with their customers. (Google, recognizing this, is seeking to emulate that personal, hardware relationship with Android-based smartphones. But that’s another story.)

Apple’s Clever Disintermediation

As a result, young, smart, technically savvy entrepreneurs have developed all kinds of imaginative business models that provide insanely great services for free on the front end of iPhone apps but are founded on a back end business model that generates revenue for both them and their partners. And, of course, many of those partners are advertisers.

What this has done is make advertising on smartphones up close, personal, and yet no so very obtrusive as we had feared. There are a few notable exceptions, for example, the free iPhone app “Words with Friends,” but by and large, app developers and advertisers have figured out how to balance the utility of the app against the messaging or service that the back end business partner wants to deliver.

In essence, Apple, via the app store has given both developers and advertisers a fabulous business opportunity. That probably explains why, projections are that mobile app downloads would explode from seven billion in 2009 to 50 billion in 2010. Not only is this a gold rush of epic proportions, it’s a trend that is starting to make a serious dent in the TV broadcast model — a place where indiscriminate ads are blasted out to the millions of TV viewers, many of which have no interest in them and use DVRs to ignore them. Funds for TV advertising are already declining and will decline even more advertisers start to get a clue about new ways to approach customers.

By smartly understanding how their customers want to use their iPhones and by delivering a technology that provides terrific business opportunities for developers and their own business partners, Apple has pulled the rug out from broadcast advertising, something Apple is clearly not fond of anyway, as evidenced by the purchase of TV shows on iTunes sans commercials.

The Impact

The impact here, however, is that the manufacturer of the smartphone hardware has become the gateway for advertisers, and each hardware/OS combination is unique. So the day of sitting back and simply routinely selling advertising to a Network is over. Advertisers need to learn how to become technical partners with each smartphone developers for each major brand. That will demand a lot from them.

This industry is moving fast. Companies, like Apple, that provide valuable hardware married with business opportunities for advertisers will forever change the traditional TV industry and its dying business model. That’s why the iPad, if you haven’t surmised it yet, will become such an important a product. With its much larger screen, based on iPhone OS, the ability of advertisers to create that personal, productive relationship with customers will be amplified enormously. 

* Screen #1 was the TV, screen #2 was the computer display.