Ad executives: App Store Search Tab Ads 'dreadful' and too expensive

The Search Tab Ads, which Apple launched earlier in May, offer a new slot for advertising that features prominently in App Store searches. But several ad executives told Business Insider on Monday that the feature appears to be "dreadful" from a return-on-investment perspective.

According to app marketing firm SplitMetrics, the average cost-per-thousand impressions (CPM) was about $31.10 in the first 10 days after launch. In some categories, like utilities, that number is closer to $50. Marketing experts say that, compared to other search ads, the new format isn't delivering what it needs to for the price.

Thomas Petit, a marketing consultant, told Insider that the cost-per-installation was 30% to triple-digit percentages higher than the other ad products that Apple offers on the App Store.

Only a small number of users — in the single to low double-digit percentages — were installing the apps that were advertised in Search Tab Ad campaigns. Apple's other ad products resulted in about a 50% installation rate. "All in all, ROI-wise, this is looking dreadful so far," Petit said.

Lucy Bennett, account director for app advertising firm Redbox Mobile, also found that advertising costs were higher than expected and tap-through rates were low.

"Search-tab ads has potential, but in our view, broader options within the target audience demographics is needed to increase the audience relevancy and bring down the CPMs," Bennett said.

Ad experts told Business Insider that one of the reasons why the new ad slot is performing poorly for its cost is that the actual ad is small. Additionally, advertisers aren't able to customize the wording or imagery in it.

Search Tabs Ads lets advertisers target audiences using data like location, age, gender, and device type, among other metrics. However, ad copy is automatically created using App Store metadata.

"A high CPM in general wouldn't be a problem, but for a really small ad placement, it's not qualified, from my perspective, for branding purposes," said Marian Bucher, an app growth manager at e-commerce firm Otto. "This placement sits between two chairs: It's not really branding and it's not really performance. Either you have to change the pricing or, maybe, the size of the ad."

At launch, Apple said the new ad slot could help app developers get their apps in front of the "millions" of users who used App Store search each day. The new ad slot is still in its infancy, however, and it's likely that Apple will tweak the advertising algorithms.

Additionally, it may be too soon for advertisers to know whether the ads are having an influence on their brand awareness metrics.

"As Apple's algorithm will evolve, we expect that conversion rates will increase significantly with simultaneous decrease of costs," said SplitMetrics CEO Max Kamenkov. "And advertisers themselves will get better at optimizing."

According to SplitMetrics, however, click-through rates for Apple's search tab ads were comparable to online ads on platforms such as Facebook. They were just lower than Apple's preexisting App Store ads.

The ad slot was launched just a few days after Apple debuted App Tracking Transparency, which requires developers to get user permission before tracking them across other websites and apps. Advertisers are concerned that ad revenue will drop because targeting will become less effective. According to initial data, users appear to be opting-in to ad tracking at a low rate.

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