Apple is banning both providers of CPI ads and applications running paid CPI ad units. This announcement comes on the heels of speculation that Apple has changed the rankings of top applications over the past few weeks to account for DAU figures and reviews. Both these actions point to Apple’s desire to have more control over app rankings quality, like Google’s search quality.

To shut the door on CPI advertising, however, would be a mistake for three reasons:

  1. Old apps have massive cross-promotion advantages. New apps need ads to compete.
  2. Ads are content: they help users discover new apps
  3. Ads don’t disguise terrible apps/games

Large app incumbents have huge distribution leverage.

EA has dominated the Top Grossing App charts for as long as I have been following them. As of today, they have 8 of the top 100 grossing  games with an average rank of 61, meaning that at least 6 of their games are in the top 50.

Publisher Games Avg Rank
Electronic Arts 8 61
TeamLava 6 46
Glu 3 63
Storm8 3 36
Gameloft 2 76
Addmired, Inc 2 49
Pocket Gems, Inc. 2 44
Capcom Interactive, Inc. 2 41
Zynga 2 27
PopCap Games, Inc. 2 25
Rovio Mobile Ltd. 2 15
Web Expansion Cyprus Ltd. 1 100
AssistiveWare 1 99
Nike, Inc. 1 98
Enflick, Inc. 1 97

Assume EA have tens of millions of installs as a result of their long reign at the top of these charts. As Zynga has shown on Facebook, cross promotion, or marketing other Zynga apps to Farmville users, is free and highly effective. This distribution is doubly valuable on mobile because social distribution and web distribution channels are nascent, unlike on Facebook.

In other words, cross promotion is the least expensive way of driving downloads and the big guys already have an advantage. New apps need a way to compete.

Ads are content.

Much the same way Google and Bing complement organic search results with ads, Apple should allow developers to pay for placement. Search engines are most challenged by queries in verticals with strong revenue per query or cost-per-click because web sites are incentivized to spam.

Ads enable brands, new and old, to rise to the top. Run a “hotels in Cancun” query or a dishwasher search on Google and you’ll see what I mean. The ads are better than the organic results. The same is true for apps because….

Ads can’t disguise bad apps.

Compare the performance of two EA games, Tetris and Battlefield Bad Company, on the Top 100 Grossing Apps Chart for the iTunes store since January 2011.

Tetris has been a favorite for decades and the app is great. The app has a 4 star rating after 14,000 reviews on the current version. Tetris is consistently a top grossing application because it’s high quality.

On the other hand, Battlefield: Bad Company 2 has a very different chart. The two revenue spikes are CPI ad driven. Downloads and revenue rapidly climax and decline. With a 3.5 star rating and complaints about lag in the reviews, the game doesn’t have the same staying power.

Granted, we are comparing two very different game types, but the point remains the same. Advertising simply cannot replace high quality games that satisfy users. As a result, poor quality apps are destined to be more expensive to market and ultimately will be far less profitable than great games.

Paid promotion: an essential part of the app economy

CPI and paid promotional placement should be an integral part of every app store. They are natural revenue streams for the market place and applications. In addition, paid promotion ensures the mobile app ecosystem remains vibrant and accessible to new entrants.

Given the importance of paid installs, I believe Apple’s regulatory skirmishes are preludes to an Apple branded product likely dovetailing with GameCenter.

It’s a shame that the ecosystem will be closed to competitors, but Android will likely follow with a more open platform in the medium term – a boon for developers and users alike.