Cautious Optimism From Agencies On The Millennial/Nexage Deal

MillennialNexageMobile ad platform Millennial Media is buying up mobile exchange Nexage and the message to agencies seems fairly clear: We want to be your everything.

Announced Tuesday, the $107.5 million deal, a mixture of cash and stock, is expected to close in Q4. The tech integration will start in earnest in the new year.

With the acquisition, Millennial Media hopes to become a self-styled independent alternative to larger players with mobile tech stacks, like Google’s Admob, Twitter’s MoPub, the Facebook Audience Network and Apple’s iAd.

Millennial’s CEO, Michael Barrett, was particularly emphatic on that point in a call with investors Tuesday morning.

“We’re an independent company, [while] the other folks that kind of look like us in this space are also publishers and own their own inventory,” Barrett said. “We’ve consistently heard feedback from the advertising side about the large appeal of working with someone like Millennial, just given our position as an independent in the marketplace.”

When Nexage’s platform is officially integrated into Millennial’s tech stack, the latter will be able to add SSP capabilities to its existing DSP and DMP, allowing advertisers and agency trading desks to buy how they want to buy. Goodbye insertion orders, hello programmatic direct.

That’s what Barrett is banking on, at least.

“To transition from a largely network-based and insertion order-based system to a more open platform with RTB exchange capabilities will significantly increase and diversify our future revenue-producing opportunities,” Barrett said.

Given Millennial’s recent revenue woes – the publicly traded company posted a net loss of $15.1 million in Q2 2014 vs. a $3.1 million loss in Q2 the previous year – that’s going to be pretty important. Millennial needs to prove to investors and potential clients alike that it’s a winning proposition that’s finally getting serious about programmatic. During Millennial’s Q2 earnings call, Barrett said the company would make the expansion of its programmatic platform presence into a priority over the next few quarters. The Nexage acquisition fits snugly into that promise.

“Millennial talked a big game and they wanted to claim to have capabilities in programmatic, but I don’t know that they were actually doing a significant amount of programmatic business,” Mediasmith’s director of insights and technologies, Marcus Pratt, told AdExchanger. “It’s clear they had to do something, especially given their last quarter’s results and their general downward spiral, and this opens the door to more people doing business with Millennial in a way that suits them.”

Although getting more deeply into programmatic seems like a natural thing for Millennial to do, it’s not likely to solve the company’s revenue problem overnight. First Millennial has to integrate the tech. Millennial CFO Andrew Jeanneret told investors Tuesday that integration costs are expected to clock in at about $3 million.

As to whether agencies are looking for the independent solution Millennial wants to provide them, most industry experts AdExchanger spoke with were cautiously optimistic, including Jon Hook, Mediacom’s head of mobile, who noted that any solution that might help increase margins is at least worth paying attention to.

“There has to be consolidation in the supply space,” Hook said. “One of the biggest challenges for agencies is finding the ‘source’ amongst our supply partners and getting as close to it as we can without the need for multiple middlemen taking their slice of the pie. If this acquisition helps us do this at scale and gives us greater access to quality inventory in a transparent way and at a fair price, then I’m all ears.”

Regarding inventory, Rachel Pasqua, senior partner of mobility, North America at MEC (a GroupM company), said she sees the acquisition as “a validation that mobile web inventory does matter.” According to Pasqua, MEC and Millennial have been longtime media partners.

“One of the stats that we’ve had to myth-bust quite a lot with clients is that people spend 80% of their time in apps,” she said. “Following on that, however, there’s another stat that says, yes, but most of that time is spent in one or two native apps like Facebook, Instagram and others like that. The rest of the time they spend on the mobile web.”

Pasqua said the chief benefit of the deal will be Millennial’s ability to enrich its mobile web inventory as a counterbalance to in-app inventory.

“Whereas in the past I might have looked to other partners for mobile web coverage, I might be more inclined to work with them now,” she said.

There’s no doubt that the acquisition is a “smart move” on the part of Millennial, but Rob Griffin, EVP and global head of digital at Havas Media Group, said he is somewhat skeptical about its practical longevity.

“I agree that their vision and proposed need for an integrated mobile solution is accurate, but my only question is: For how long?” Griffin said. “As everything becomes digital and mobile and the second screen becomes the first screen, why is mobile siloed? It’s not a media channel, but more of a consumer access point. If you follow this through, I buy premium publishers and content to associate my clients’ brand with, and I want that content on air, online, offline, on demand, on mobile, etc. So, if everything integrates, why would I need a stack?”

Although it’s hard to put an exact timestamp on when that’s going to go down, “it’s already starting to happen as agencies create video buying teams and such,” Griffin said, noting that “mobile teams don’t [even] manage mobile search anymore, so it’s in flux now.”

That may be true, but at least in the short-term, it appears as if Millennial has made a solid move.

“For a while there, Millennial seemed to be lacking any real direction [and] they were taking a hammering on the stock market,” Hook said. “But now they are making some very interesting hires, forging some smart partnerships – and this latest announcement clearly shows they mean business and are not going to roll over. It opens up a far bigger conversation with Millennial now in terms of mobile web and how we can push boundaries on this, as too often all of the focus from advertisers is in-app.”

Millennial’s “independent” positioning also appeals to Hook, who said that “there is most definitely room for a third-party independent full stack,” especially “seeing at the big boys are leading down a closed garden wall route.”

“In an ideal world, what we need is to create an open mobile inventory system through which we can target, optimize and engage with users across the most relevant inventory, be it Facebook, Google or anyone,” Hook said. “Closed walls with each partner working off their own unique ID doesn’t benefit advertisers and makes things unnecessarily complex.”

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