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— Venture Well —
This is not lost on venture capitalists who have been aggressively funding companies that facilitate placing advertisements on mobile device screens. "This is Internet advertising circa 2001," say Accel Partners' Richard Wong. "There were many flat and down quarters in the tech downturn, but over a five-year time span, there was a massive acceleration in terms of ad spend." So far, the universe of companies with a foothold in this promising frontier of digital advertising seems immune to the general pullback in VC funding that has stifled other sectors.
Late last month, mobile advertising network AdMob Inc. closed a $28.2 million third round from Draper Fisher Jurvetson's Growth Fund, Northgate Capital LLC, Sequoia Capital and Accel Partners. In the months previous, Apptera Inc., a San Bruno, Calif.-based startup network for voice ads on cell phones, received $10.5 million in funding, and Santa Monica., Calif.-based Transpera Inc., which integrates ads with mobile video, received
$8.25 million. There's a reason why. Some researchers forecast spending
on mobile ads to reach $11 billion by 2011. While the VCs who back
mobile ad companies tend to agree that this figure is optimistic -- the
market was probably somewhere around $250 million in 2008 -- the
excitement is real. Though they are still figuring out exactly how best
to approach this new medium, advertisers can't resist the lure of
getting their wares in front of the billions of young eyeballs spending
an increasing amount of time looking at cell-phone screens.
"Last year was when this market became real; it was one of real growth and support for successful companies," says Wong, who sits on San Mateo, Calif.-based AdMob's board. "Although it is very early innings for the mobile ad market, the leaders are beginning to emerge." Indeed, while there is probably still room for startups in a variety of sectors catering to the fringes of the mobile ad business, the equilibrium has been reached as far as actual mobile advertising networks are concerned. Three VC-backed startups have emerged as leaders: San Mateo, Calif.-based AdMob, Millennial Media Inc. of Baltimore and Waltham, Mass.-based Quattro Wireless Inc. "There will be some winners in this very attractive space, but it's pretty much too late to get a new one started," Wong says. As in so many other sectors, the rise of a handful of successful small companies in a promising technology will attract M&A interest. It probably won't take long before this happens, says George Zachary, a general partner at Charles River Ventures. The most likely buyers will be companies like Google Inc., Yahoo! Inc. or Microsoft Corp., which operate existing advertising networks and want to add the mobile element to it, he says. "I expect there will be good exits for all of these companies," adds Zachary, who sits on the board of Millennial Media. The startup announced a $15 million Series B round in November 2007. The market for placing advertisements on cell-phone screens took off about two years ago. It's not a complete coincidence that Apple Inc. launched the iPhone at about the same time, says Zachary. "All phones before the release of the iPhone frankly sucked," he says. Despite the pervasiveness of the popular device, however, more phones must have similarly easy-to-use technology before the online ad market can fulfill its promise. "The market won't take off until the average phone has a good display and user interface," Zachary says. "This is going to be driven by a really good phone experience. That is the constraining part of the market." There are other hurdles. There are so manydifferent mobile devices with so many different network providers that serving ads to all of them is "hugely challenging," says Jeffrey Bussgang, a general partner with Flybridge Capital Partners. And, despite the excitement around the sector, mobile advertising remains an experiment, Bussgang adds. "Right now advertisers don't have lots of money sloshing around to conduct experiments," he says. "This ball has been rolling downhill, but that doesn't mean there hasn't been a lot of friction." Yet, as has been proven again and again in technology development, friction often acts to encourage smart entrepreneurs to hack out a path to the next big thing. |
In the cyclical world of technology, past is prologue. There's the boom, the shakeout and the next crop of startups battling for leadership in the latest tech iteration.
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