Mania for iPhone Apps Comes with Risks for Agencies and Brands

The cult of iPhone has understandably piqued advertiser interest in creating applications for the device. But that enthusiasm comes with the risk of wasted spend, as advertisers sink millions into experiences that fail to stand out from the crowd.

Patrick Moorhead, director of emerging media at Razorfish, said last week that the promiscuous output of developers — hundreds of new iPhone apps are rolled out through the iTunes store each month — has led the agency to question the wisdom of investing in new ones. The fear is that client spend may be squandered as users either fail to notice a new brand-created app or stop using it within weeks or days.

“You hear about the wonder apps,” he said. “What you don’t hear about is 9,999 apps that were downloaded once.”

The long odds have not dampened client enthusiasm. According to Moorhead “All of a sudden you have clients who are pounding their fists, saying, ‘We’ve got to be on the iPhone.'”

Razorfish is not anti-app; the agency now has four or five iPhone apps in development on behalf of major brands. Nor is it the only agency struggling to satisfy — or discourage — client demand for iPhone apps.

As AKQA CEO Tom Bedecarre twittered earlier this spring, “All I hear is that our clients want a shiny new iPhone app.”

Moorhead is worried the rush to build such experiences will lead to disappointment for many clients. For one, the lifespan of an app on the device is only one to two weeks. “You have to come up with something amazing to get any more than a passing glance from the consumer,” he said.

And even if an app resonates with iPhone users, the relatively small installed base of the device limits the potential reach.

“It’s like, I’m really excited you’re hip to the mobile opportunity to the extent you want to spend a quarter of a million dollars,” he said. “But I’d much prefer a $250,000 investment in a mobile Web property. That will last a hell of a lot longer than an iPhone application.”

By any measure, Apple’s share of worldwide smartphone sales is growing by leaps and bounds. Of 36 million smartphones sold worldwide during the first quarter of 2009, 10.8 percent were Apple iPhones and 19.9 were made by Research in Motion’s Blackberry. Of 32 million sold worldwide during the same period in 2008, 5.3 percent were Apple iPhones and 13.3 percent were by Research in Motion’s Blackberry.

In defense of iPhone apps, researchers know much of the growth in consumption of mobile news and other information is driven by installed applications. In January, 22.3 million people in the U.S. accessed mobile data via apps, according to Comscore.

However the relatively small installed base of the iPhone means that even if a branded app makes a huge impact — say 20 percent of all iPhone and iPod Touch owners in the U.S. — that still means the total reach of the app will max out at 2 million to 3 million.

“It’s a house of cards,” Moorhead said. “I’m worried the people who drove [the development] are going to say, mobile is not an opportunity.”

Interestingly, Moorhead said client obsession with the iPhone has been driven less by marketing than by IT departments. Almost all the app work Razorfish is doing now is funded through information technology or information systems budgets.

“The IT departments have been seduced by this technology,” he said. “It’s their moment where they can do something emerging, sexy, and hip for the company that kind of has an extension into brand marketing.”

Moorhead can recall only one other period in his career when client technology teams drove marketing strategy. It was circa 1995, during the emergence of the Internet itself.

“Think about the whole era of the Flash intro,” he said. “The difference was that even then, when everybody was rushing to get their business online, there was a reach opportunity. Here it doesn’t exist.”