Blackberry maker Research in Motion Ltd. (NASDAQ: RIMM) has been shopping for a mobile advertising network that would position the company to compete with Google Inc. (NASDAQ: GOOG) and Apple Inc. (NASDAQ: AAPL) for what many believe is the next big battleground for revenue and profits. Google now owns AdMob and Apple recently purchased Quattro Wireless, the two largest mobile ad networks.
The Wall Street Journal reports that RIM has been negotiating with mobile ad network Millennial Media, but has been unable to agree on a value for the network. Google paid $750 million for AdMob in November 2009 and Apple bought Quattro for an unconfirmed amount rumored to be around $360 million in January 2010. Millennial is reportedly seeking a price in the $400-$500 million range, and RIM apparently believes that price is too high.
RIM’s Blackberry smartphones dominate the business market, and the company now owns a 17.8% share of the global smartphone market. But that share has shrunk over the past year, and the company trails Android-based phones and Apple’s iPhones in the consumer market. Competition for smartphones is also shrinking margins somewhat, and RIM likely has decided that it needs to look at a different way of growing its revenue and profits.
For its part, Millennial told the WSJ last year that it hopes to become a publicly traded company rather than an acquired one. While that may be Millennial’s preferred option, it may be unrealistic given the current lack of appetite for IPOs.
RIM, which is primarily a hardware company, is reluctant to pull the trigger on a deal at this level. The company no doubt sees that there are few, if any, synergies in an acquisition of an ad network. Pushing $400 million into the pot at this point is very much like drawing to an inside straight. The mobile ad market is growing, but is still far smaller than its estimated annual $30 billion potential. One estimate put the total US mobile ad market in 2009 at about $416 million.
It’s pretty easy to see why RIM is reluctant to pull the trigger on Millenial. The potential may be huge, but the payback could take a long time and, in any case, is not guaranteed. This sort of gamble is not easy for a hardware maker to take.
As of this writing, Paul Ausick did not own a position in any of the stocks named here.
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