Every week the Opus team picks a news story or topic or idea that is relevant to the entrepreneurs and businesses we partner with.

RSS Feed

Archives

Mobile advertising: A tough market?

Ajit Deshpande - - 0 Comments

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…

« Back to Blog
Also on the Opus Blog

VMworld

September 3, 2012
Ajit Deshpande - Last week, VMware hosted its annual conference, VMworld, over three days between August 27th and August 29th. Coming just a few weeks after the company’s acquisition of software...

IBM backs MongoDB

June 11, 2013
Ajit Deshpande - Last week brought news of a partnership between IBM and 10gen, whereby the two companies would work together to achieve interoperability between IBM’s DB2 relational DBMS and...

MotoX and Google Now

August 8, 2013
Ajit Deshpande - Last week, Google announced its latest smartphone, the MotoX. The device, which was developed by the Google’s Motorola Mobility unit over the past year, offers a number of...

Gamification in the Enterprise

December 11, 2012
Ajit Deshpande - Capgemini Consulting, a global strategy and transformation consulting firm, and Badgeville, a fast growing startup focused on gamification of enterprise applications, last week...