The Next Mobile Ad Merger

The Next Mobile Ad Merger
Elizabeth Woyke, 01.07.10, 06:00 PM EST
Google's AdMob purchase and Apple's Quattro deal will likely kick off a new wave of acquisitions.

First came Google, with its November acquisition of AdMob, then Apple with its recent purchase of Quattro Wireless. Now, a host of Internet firms, device makers and even wireless operators are expected to snap up their own mobile advertising networks in the coming months. The challenge? There are only a few--possibly just two--ad firms left that are widely viewed as attractive candidates.

A series of new deals would represent a second wave of merger and acquisition activity for the mobile ad market. The industry experienced an earlier burst of M&A in 2007, when Nokia ( NOK - news - people ) bought Enpocket, AOL acquired Third Screen Media and Microsoft ( MSFT - news - people ) absorbed ScreenTonic. Rajeev Chand, a managing director at Rutberg & Co., says there are three reasons for a resurgence of interest: the strategic growth of the mobile Internet, a renewed interest in making acquisitions as the economy improves, and a greater number of potential acquirers.
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Google ( GOOG - news - people ), in particular, is driving the deal-making, says Karsten Weide, program director of digital media and entertainment at researcher IDC. He estimates Google and AdMob together would control 21% of the U.S. mobile ad market, a chunk large enough to give them a comfortable lead over competitors (one reason the U.S. Federal Trade Commission is investigating the purchase.) The disparity will force other tech companies with mobile advertising ambitions to follow suit, says Weide.

Apple ( AAPL - news - people ) was the first to counter Google, announcing its Quattro buyout Jan. 5. Insiders say Yahoo! ( YHOO - news - people ) and Microsoft are likely to be next. Yahoo!, which holds an estimated 10% of the mobile ad market, likely wants to increase its share--and has the cash on hand to make such an acquisition, says Weide. Microsoft, which IDC estimates has an 8% slice of the market, is probably interested due to its "laser-like focus on search," he adds.

Other potential buyers include handset makers, which increasingly view their devices as platforms for tapping into mobile Internet traffic; publishers investing in digital content; and carriers looking for a new way to generate revenue. "Publishers are very interested in the mobile device market," says Noah Elkin, a senior analyst at eMarketer. "The same logic that applies to Apple [buying a mobile ad firm] could apply to a Hearst as well."

AOL is not on most analysts' short lists. The media giant, which is focused on a turnaround, currently lacks the means and "attention span" required for such an acquisition, says Weide.

The choicest targets appear to be Millennial Media and Jumptap, two U.S.-based firms that operate their own mobile ad networks and each command at least 5% of the mobile ad market, according to IDC. Analysts say the companies are likely meeting with potential buyers, or will be soon. Yahoo!, in fact, held talks with Millennial back in 2007, but walked away because the firm wanted too much money, says one analyst. IDC estimates Millennial's 2009 mobile ad revenue at $35 million and Jumptap's at $18 million.

Millennial and Jumptap declined to comment on acquisition rumors, but acknowledged that the AdMob and Quattro acquisitions have spurred interest in their own firms. "For people who thought the AdMob deal was a fluke, the Quattro deal validated the huge opportunity for mobile advertising ... the opportunities are just starting," says Jumptap Chief Marketing Officer Paran Johar.

But will there be opportunities for firms besides Jumptap and Millennial? Other companies, such as Amobee and Greystripe, are small enough that analysts don't track them. "It's hard to know how well [some of these companies] are doing and how much traction they have," says Julie Ask, a vice president at Forrester Research.

Some smaller players contend they're a better value. Bob Walczak, chief executive of the mobile ad tech firm Ringleader Digital, notes that Millennial raised $16 million in new funding in November while Jumptap secured more than $26 million in its last round, in August 2008. "They've put themselves in a higher price category," he says. "They'll have to show a lot of value to warrant an exit to their [venture capitalist investors]."

Analyst Weide says if Millennial and Jumptap garner the same high multiple Google paid for AdMob, they could be acquired for about $600 million and $300 million, respectively.