Mobile ad space hot acquisition target, while VCs target mobile developers

Editor’s Note:This article is an excerpt from RCR Wireless News’ March Special Edition, “The Perfect Storm – A Focus on Mobile Messaging, Marketing, Content and Apps.” The 80-page special edition is available here.

Although the National Venture Capital Association says it expects to see fewer VC investments in the wireless sector in 2010, the activity surrounding the mobile marketing space, with four acquisitions in a short period of time, bodes well for the mobile content sector. The infrastructure sector has also seen a lot of capital activity as it prepares to build out the fourth-generation networks on which rich multimedia is expected to ride.
Going forward, a trio of venture capitalists speaking at Mobile World Congress last month said they expected to see mobile application developers as attractive VC targets, in part because their funding requirements don’t require much upfront money.
The NVCA, in its annual survey of VC groups to offer predictions for 2010, found that VCs see less investment in the wireless segment going forward. VC investments in telecommunications as a sector have been down annually, according to the group, which lists VC investments by category each quarter in partnership with PricewaterhouseCoopers. However, since the telecom market is mostly made up of multibillion-dollar companies, it is an unlikely target for VC investment. “The semiconductor industry is the sector in which most VCs believe we’ll see a decrease next year. Sixty-four percent predict lower investment levels in 2010. Many venture capitalists believe that the wireless sector will experience declines with 37% predicting lower levels for next year as well.” The NVCA survey was conducted from Nov. 30 through Dec. 8, 2009, and included responses from more than 325 venture capitalists across the United States.
Movements in mobile advertising
The mobile marketing space has been marked the last few months with a frenzy of acquisitions and consolidation. Google Inc. struck first, announcing plans in November to buy AdMob for $750 million as a way to enter the mobile ad sector. Later, Apple Inc. picked up Quattro Wireless in January for a reported $275 million. Both AdMob and Quattro power mobile advertising networks that match advertisers and direct marketers with consumers. Not to be outdone, Opera Software announced later in January that it had acquired AdMarvel for an undisclosed amount. Oslo, Norway-based Opera said the deal will enable the company to “expand its portfolio of products and services to include highly scalable ad monetization services for Opera branded mobile products and services offered by mobile operators and content partners.” Opera provides Web browser platforms for personal computers, mobile phones and other Internet-enabled devices.
And fresh off another $16 million investment, Millennial Media, the largest independent mobile media network, announced in February plans to acquire TapMetrics, a San Francisco-based mobile analytics firm that focuses on application usage and behavior.
“When we raised our growth round of financing in November, we stated that we would make investments to accelerate our growth,” said Millennial Media CFO Michael Avon. “We are acquiring TapMetrics because the company shares our approach to serve the needs of developers, regardless of mobile platform. In addition, TapMetrics’ data and analytics capabilities complement our company’s own focus and development plans. We continue to actively evaluate other potential acquisitions to further expand our business.”
The deals highlight an increased emphasis being placed on driving and controlling advertising in the mobile space. This has become more important as consumers have flocked to advanced mobile devices capable of nearly mimicking the Web browsing experience on traditional personal computers. Advertisers see greater potential in the mobile space as the added dynamic of location-based services allows for more focused targeting of consumers.
The rush to back mobile developers
Venture capital firms are finding the current rush of mobile application developers a solid segue for shaking off the past 18 months of economic doldrums. Speaking during a keynote session at last month’s Mobile World Congress event in Barcelona, Spain, a trio of representatives from VC firms provided insight into the current market.
“The VC world goes in waves, investing and harvesting,” said Rich Wong a partner at of Accel Partners. The back half of 2009 we had good visibility and positive momentum for 2010.”
All three members of the panel noted that application developers were in general attractive targets for VC funding as they generally ran very efficient operations needing very little upfront money. “The application ecosystem is very capital efficient,” explained Bob Borchers, partner at Opus Capital. “They don’t need much; just a PC and they can get developing.”
This was countered by comments that the more traditional wireless market was more difficult to fund at the current time due to the generally higher level of funding, and thus greater risk, involved.
But, just because application developers are easy targets for VC firms, the speakers warned that those firms should evaluate if they really need an infusion of capital and increased pressure that comes with the proceeds.
“If you are a small company with low overhead it’s pretty easy to make money,” said Dave Weiden, partner at Khosla Ventures. “If you have a larger overhead and have to pay big licensing fees that makes it more difficult. You don’t want to take on more funding than you need. … We see a lot of companies that should not be looking at getting a lot of money, and should be happy being a successful, small company instead of swinging for the fences.”
Wong added that for those smaller operations a smarter play would be to use friends or families to help fund the operations if possible, that way they could keep control of the operations.
As for a focus of those developers, the panel members said they see a future for both native applications that live on a device as well as those that are browser-based.
“Some apps are better served as a Web app, like banking apps that you may not want on your phone and would rather have them in the cloud,” said Borchers. “But, native apps are also gaining a lot of traction, and I think they will be the most successful in the near term.”
Beyond the general direction of whether to go native or Web-based, the more important question at the moment may be which platforms to support. Apple’s OS; Google’s Android; Research In Motion Ltd.’s BlackBerry; Palm Inc.’s WebOS; Nokia Corp.’s Symbian; Microsoft Corp.’s Windows Mobile; Samsung Electronic Co. Ltd.’s new Bada? The possibilities appear endless.
“We run into this question immediately when talking with companies” Weiden said. “It’s a great testament to RIM that they are even in the discussion, though few in Silicon Valley would think that way. Android has so much momentum that they are hard to ignore. It really depends on who your audience is. I have encouraged a number of companies to put RIM first, even in front of Apple. But it depends on what you are looking for: one million paid users or 100 million non-paid.”
Handmark CEO Paul Reddick puts it another way. “When you rae deciding which 20% of the market to cover, you’re really asking what 80% to ignore.”
Beyond the advice on direction, the panel members also suggested that those firms truly in need of VC funding would do themselves some good by either moving to where the money is or at least having someone on the ground in those financial
centers that is in the loop on which VC firm
s to talk to.
“It’s very important to have a touch point in the Bay Area,” Wong said. “You can have your headquarters anywhere, but you have to consider having a place where the big players are.”
Infrastructure deals
Tower companies also have scored favorable financing deals as they prepare to build out the networks that are the foundation for mobile applications that increasingly are expected to feature rich multimedia, including video, TV and MMS, as well as integrated services that combine things like a social-networking app with location-based services.
In February alone, Global Tower Partners got two new credit facilities, and InSite Wireless Group received an undisclosed equity investment. The publicly held tower companies also have been able to refinance debt at favorable terms.