Another mobile advertising acquisition is in the books – last week, mobile display ad network Millennial Media acquired competitor Jumptap for approx. $225 million in an all-stock transaction. The combination of Millennial and Jumptap owned approximately 28.7% of the United States third-party mobile display advertising market and had approximately $240 million in total revenues during 2012. The combined entity would become a market leader in this segment, at par with Google (29.0% share) and larger than Apple iAD (14.8%), in third party mobile display advertising.

Mobility is a fast-growing trend, and so are projections for mobile advertising dollars. Yet, the mobile advertising landscape has been quite curious from an IPO/M&A standpoint. Aside from AdMob’s $750 million acquisition by Google, there seems to be a soft ceiling of ~$300 million for acquisitions in this space. On the public equity side, recent IPO and public company valuations seem to all be at $600 million range or lower. Isn’t it interesting that there isn’t currently a stand-alone billion dollar company in this high-growth space?

Let’s start with the numbers here. Global mobile advertising (including search, display and messaging-based advertising segments) revenues were $8.9 billion in 2012.  Of this, mobile search advertising accounted for ~53% (with Google being the dominant player) and mobile display advertising was at 38.7% (~$3.4 billion). Further, the mobile display advertising market can be divided into two categories – first-party (e.g Facebook, Google, Pandora, Twitter etc. managing display ads on their own mobile sites), and third-party (e.g Millennial displaying ads on third party owned content sites). This third-party mobile advertising segment is currently approx. $850 million in size as back-calculated from Millennial’s announcement, meaning first-party mobile ads accounted for more than two-thirds of display ad revenues last year.

So, a company like Millennial Media needs to compete not only against other pure-play third-party ad networks, but it also has potentially limited access to the largest content sites owned by Facebook, Google, Pandora and other big players. Further, as content sites get scale in mobile, they will want to become their own first-party display ad networks to ‘cut out the middleman’ – meaning a pure-play provider like Millennial will always run the risk of key customers walking away from them. Not good for any business, even in a hyper growth market.

Acquiring Jumptap gives Millennial a bit more scale for today, but the bigger question is whether the likes of Millennial can remain viable and thrive over the long run. As of now, neither the stock market (in the case of Millennial), nor venture investors (who put in $122 million into Jumptap for less than a 2x return) seems to think so…