It’s supposed to be privately negotiated between Apple and advertisers but we know that it’s something like $2.00 per click and $0.02 per impression (if not clicked) for what we’ll call “Blue Chip” Ads. And on the surface, 60% of that going to developers sounds fantastic. There’s some problems. Apple assumes it can reinvent how often consumers click ads because iAds are fun. AdMob Ads are not fun, so users always ignore them. Simple right? Here’s why iAd click through rates stay at 1% and developers aren’t making money.

The first is that we’re used to ignoring ads. We’re not going to go “hey that’s the iAd badge, this ought to be fun!”, it just gets ignored.

There’s about 30 Blue Chip ads, so it’s unlikely a user is seeing the McRib ad for the first time in your app. You can only expect to make anything if your app is a users only experience with iAds, and even then, most of us already know the brands and their products and don’t need an Ad telling us AT&T’s data plans.

Since everyone has already seen all of the Blue Chip ads already in some app or another, users tend to only care about the Developer Ads. But developer ads don’t have animated banners and don’t go anywhere fun, just an app store link (that doesn’t close your app but with multitasking does it even make a difference?). Developer Ads look static just like AdMob ads, so users are already trained to ignore them. I know I do. That would be OK, except that they’re FREE. Yes, FREE. If a user is presented with a developer ad, and they don’t tap it, you have 1 impression, 0 revenue. There’s only money for click through, and it’s $0.25 compared to that $2.00.

No matter who’s phone I pick up, I find that each app shows about 5 ads to each person. Auto Adjust tends to only get the AT&T Blue Chip ads, and apps in the “Utilities” and “Productivity” categories. The Huffington Post app seems to only get games and the Heineken Blue Chip ad.

But HuffPo also uses AdMob to fill unfilled iAd impressions, which as mentioned earlier, continues to train users NOT to click on Ads.

So to wrap up, users don’t click Ads for a lot of reasons, but that’s not canceled out by any decent payout for mere impressions without clicks. Apparently it’s typical for eCPM (estimated cost per thousand impressions) to be less than $10.00, or one cent per impression. Think about that for a minute. You’ve sold the bottom portion of your app for literally free. And the reason you did is because people aren’t going to click that ad anyway. Think about that too. Who exactly profits in this business model? Does anyone? Does anything get accomplished other than annoying users with distracting ads that make a lot of HTTP requests and sometimes themselves crash an app?

Can anything fix iAds? Maybe. Here are a few ideas…

• The Blue Chip ads are great, leave that as it is. Try to find more advertisers.
• Make developers make REAL interactive ads.
• Use 50% revenue sharing for developer ads.
• Do Not allow Free Apps to be advertise using iAds. They’re just noise.