Mobile advertising is hot. But mobile ad networks are struggling. There's no clearer example of that than Millennial Media, which became the first publicly-traded mobile ad network in 2012.
But while mobile seems to be working for some -- ie: Facebook -- Millennial Media's stock is down 47% since it listed in March 2012. Wall Street isn't wild about the fact that its ability to grow is closely tied to headcount as deals as the majority of Millennial's business is still people striking deals with publishers and advertisers.
On Tuesday, Millennial completed a deal in hopes of changing that, paying $225 million in stock for a one-time competitor, Jumptap. Once a mobile ad network, Jumptap changed course two years ago to embrace an automated approach, reinventing itself as firm selling direct-response advertisers and agencies tools to buy mobile ads in real-time auctions.
Wall Street wasn't exactly convinced: Millennial Media's shares dropped another 19% the day after the deal.
But the bet here is that Milllennial can can transform from a company built to place brand ads on mobile devices to one that can power the buy-side of advertising, dominated by lower-end direct response and app install advertisers.
Mollie Spilman, the former Yahoo exec who's now EVP of global sales at Millennial, said the deal allows Millennial not just to sell ads, but to help developers and publishers make money from their web sites and apps. "If we can help to better monetize their inventory though manual and automated, that's what we need to do," she said.
Millennial dipped a toe into programmatic when it bought Jumptap's smaller competitors Metaresolver earlier this year. But Ernie Cormier, CEO of mobile ad exchange Nexage, said he had "never seen evidence of [Metaresolver] being used" whereas he called Jumptap "a leader" in automated mobile ad buying. Mr. Payne said Jumptap extends Millennial's ability to buy ads outside of its network through other exchanges like MoPub and Nexage.
Based on research firm IDC's 2012 mobile revenue numbers, Millennial Media plus Jumptap would leapfrog Facebook and Pandora to become the number-two mobile ad company behind Google (and by only $2 million). However, given how fast Facebook is growing in mobile, don't expect them to be there for long.
"The combination of Jumptap's data and [automated ad buying tools] and Millennial's brand advertising business creates for the first time in the mobile [automated buying] market an 800-pound gorilla on the [buy] side," said Asher Delug, CEO of mobile ad network Airpush.
However Millennial's ambitions extend beyond the buy side. In the fourth quarter, Millennial is slated to launch a mobile ad exchange that would function as a marketplace for automated ad buying companies like Jumptap to bid on publishers' and app developers' mobile inventory in real time. If mobile advertising were Wall Street, Millennial Media would own both the New York Stock Exchange and one of its largest brokerage firms.
Millennial had been planning to roll out the exchange in the third quarter but was stretched thin by performing due diligence on the Jumptap deal, Ms. Spilman said. "We have all the pieces, but we just really want to be thoughtful and don't want to overpromise when we deliver."
Ms. Spilman acknowledged that buyers may question whether Millennial's exchange may favor ad bids placed through Millennial-owned Jumptap. "We know that there has to be pure transparency, and there can't be preference given," she said, referring to Yahoo buying Right Media's inventory as an example that the dynamic can work.
"How much will they be willing to spend on an exchange where one buyer you're competing with is owned by the company that owns the exchange," said Mr. Cormier of his company's upcoming competitor.
With an ad exchange and Jumptap, Millennial could erect the mobile version of that automated advertising monopoly, though not everyone agrees.
"I don't think there are any programmatic buyers who buy on only one exchange because there's no exchange with a lock on all inventory," said Mr. Cormier. "If you're going to only buy on Millennial's exchange, I don't think the reach will be sufficient."