Targeting ads to users on smartphones is a huge challenge for the ad industry. Cookies don't work on mobile as they do on desktop, so it is difficult to serve ads to people based on their browsing behaviors.

Apple is now pitching a new solution.

Apple's in-app mobile ad platform iAd, which was launched in 2010 with high expectations, is merely a "small" part of its business, per CEO Tim Cook's own words earlier this year.

Basically, iAd is a flop. It's gained only a tiny fraction of the mobile ad market, while Google and Facebook have carved up most of the revenue for themselves.

When Steve Jobs launched the product in 2010 the bar was set high. The basic idea was that app developers could make a big profit by selling ad space within the apps they built and sold in Apple's App Store. Apple is understood to share 60% of the ad revenue from iAd with the developer.

At launch, Jobs set out the bold ambition that iAd would capture 50% of the mobile ad market. Apple marketed iAd as a best-in-class solution for advertisers because it owns both the hardware and operating system the ads ride on and gains valuable data when people sign up for Apple ID to register for iTunes accounts. That means it can target ads by age, gender, home address, iTunes purchases and App Store downloads.

However, it's still somewhat behind that lofty 50% target. iAd made up just 2.5% of the mobile ad revenue booked in the US last year, according to eMarketer, behind Google which takes the lion's share (37.7%) and Facebook (17.9%). The most recent data from IDC states Apple generated $125 million in mobile ad sales in 2012.

But alongside the release of the new operating system last month, iOS 8, there could be a big opportunity for Apple to grow iAd with a new advertising capability.

Cross-device retargeting: the new frontier for iAd

A report this week from Digiday suggests Apple is promoting the in-app retargeting capabilities to ad agencies just in time for the holiday season. Several sources have confirmed to Business Insider that Apple is currently visiting mobile specialists at the top media agencies in New York City to push the new function.

Cross-device retargeting is of most use to retailers: if a customer spends some time looking at a dress on their iPad app but decides not to buy it, that same retailer can "retarget" them with an ad displaying an image of that dress, options to buy, or directions to the store when they next pick up their iPhone.

It's also of interest to all app developers in general. Getting users to discover your app is one thing, but getting them to use it more than once is the bigger task. With cross-device retargeting, developers can remind people using other apps that their app is still there and ready to be opened again.

Apple isn't the only operator in the cross-device mobile retargeting space. Facebook recently announced the launch of Atlas which allows for cross-device targeting, Google offers cross-device tracking and is testing targeting using your Google ID as an identifier as you skip from device to device, Amazon is touting its advertising ecosystem (across Kindle, Fire Phone and the Amazon store), and there's other smaller players like Criteo and Tapad which specialize in offering alternatives to the cookie across mobile.

Apple's advantage over its competitors is that Apple users spend 87% of time on connected devices within apps. That's an awful lot of opportunities to serve ads.

Eric Franchi, co-founder of adtech company Undertone, told Business Insider: "This is largely an effort to keep app developers happy and give them another reason to build for iOS first.

"First party data is king for advertisers since it allows them to target and segment customers very accurately. The desire is certainly there to expand it into mobile."

iAd's slow start

Any advertiser would be forgiven for being put off by a brand new platform asking for a one-off commitment of $1 million — even from one of the world's most-used mobile platforms. (Mobile ads are generally the cheapest digital ads to buy, and many small clients spend only hundreds or thousands of dollars on them.)

Even after Apple lowered the minimum spend to $50 to allow smaller app developers a slice of the action, advertisers became increasingly perturbed that Apple refused to give them any access to the wealth of data iAd has on consumers from the near 600 million iTunes accounts active today.

In Apple's defense, it did last year become the first major mobile ad network to gain accreditation from the Media Ratings Council, which means it has verifiable audience data. But marketers want to know how that relates back to their own "first-party data," which they hold on their customers.

One advertising exec summed up the situation to AdAge: "[iAd is] the best looking girl at the party forced to wear a bag over her head."

iTunes Radio

Apple hoped to reignite interest in iAd when it announced advertising integration with its streaming service iTunes Radio. The service links iAd’s targeting tools with bespoke audio and video ad formats designed for iOS devices, Mac, PC and Apple TV.

But, again, this advertising venture has got off to a rocky start.

One source recently told Business Insider iTunes Radio "had been nothing but disappointing," and the platform has still yet to expand to important international territories like the UK.

It might just take time for iAd to truly take off. A long time

Apple admits that iAd is nowhere near core to its business. And it still has a long way to go to build the unit up to anywhere near the share of Google or Facebook in the mobile advertising space.

As James Chandler, global mobile director at media agency Mindshare, puts it: "Apple is still going to sell millions of high-end devices whether or not iAd/iTunes Radio works, so I think they can take their time of getting it right, focusing on quality and the experience for the user.

"I think our premium and luxury brands will value this over the idea of stalking and spamming customers across the internet and in-app, reminding them to pay for something they left in their basket."

But the rest of the market would rather not wait.