Skeptics say iRadio ad sales will disappoint

But the service will serve Apple well if it helps sell iPhones instead.

By Benzinga Jun 10, 2013 1:30PM
copyright AppleBy Louis Bedigian

At the corner of Pessimism Road and Jumping The Gun Boulevard, iRadio skeptics are lining up to warn the world that the new, unannounced service may not be profitable for Apple (AAPL) or record labels.

The latest assessment comes from AllThingsD, which reiterated nearly-confirmed iRadio details, while reminding readers that Pandora (P) has yet to produce an extremely profitable ad business.

This is true -- it can be very difficult to successfully make large amounts of money selling ads through an online radio service.

However, it is unlikely that Apple cares about ad sales. Initially, the company is likely to use iRadio's ads to fund the cost of running the service, which includes music acquisition. Apple may not make much money from the service this year or in 2014 -- but it will surely break even.

iRadio's true success will come from Apple's ability to turn it into an iPhone-selling device. On its own, iRadio may not be able to sell a single smartphone. If consumers are attracted to it, however -- just as they are the iPhone camera, and just as they were attracted to Siri in 2011 -- iRadio could be an integral part of the next-generation iPhone.

Apple had hoped to accomplish the same thing with its Maps app last fall. That app was not well received, however. Consumers could not wait (Benzinga) to download an alternative, particularly the one that was previously built into iOS -- Google (GOOG) Maps.

Consequently, Apple had to ignore its newest app and rely on commercials that focused on the iPhone 5's sleek design. This could explain why the device initially sold at a slower rate ( than the iPhone 4S, which launched with Siri.

That being the case, it suggests that consumers are more persuaded by cool features than the design of the phone itself. This makes a lot of sense, actually. Why else would the iPhone 4S (which was a clone of the iPhone 4) have outsold all of its predecessors?

Unless iRadio is a fresh, unexpected concept that will change the face of radio, investors should not expect it to have the same effect on iPhone 5S sales that Siri had on the iPhone 4S. It could still be very meaningful to Apple's bottom line, however.

In the end, all the company really needs is another excuse for consumers to switch from Android to iOS. iRadio could be the latest catalyst to push smartphone shoppers over the edge.

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