startup culture

Why InMobi’s acquisition of an American tech company is a big deal for India’s startup ecosystem

So far, young companies have not chased inorganic growth outside the country.

A young technology company from India has acquired a startup in the United States.

On January 10, Bengaluru-based mobile ads firm InMobi said it is buying California-based startup AerServ for $90 million in a stock-and-cash deal. AerServ helps mobile publishers increase revenue through its online platform where they can manage several ad networks at the same time.

The acquisition is significant for the Indian startup ecosystem, which has not seen many young companies chase inorganic growth outside the country. This is the Softbank-backed InMobi’s fifth and biggest acquisition till date and comes at a time when it is struggling with lower-than-expected revenue growth.

“Their key offering is very specifically header bidding [real-time auction of ad space by publishers] in the app space,” said Abhay Singhal, co-founder and chief revenue officer at InMobi. “The second offering is very strong video solutions, and video is the highest-growing format worldwide today.”

After this acquisition, InMobi’s video ads and programmatic ads [buying ads through machines as opposed to human negotiations] businesses will account for 35% of the firm’s total revenue. That’s important because two-thirds of the world’s digital display advertising is expected to be traded programmatically by 2019, climbing up from $57.5 billion in 2017 to $84.9 billion. And within the next four years, InMobi is aiming to earn at least half a billion dollars in revenue, riding on AerServ’s platform.

Video is another opportunity that has InMobi all charged up. “Look at the overall OTT [over the top services] space, connected TV space,” Singhal said. “It feels like 2009-10 of the app economy. When it was coming up, people didn’t understand how it would work, but look at it today.” OTT allows content providers to bypass cable or television service providers and sell content directly to consumers. In India, the OTT video content market is currently valued at $280 million, with nearly 100 million subscribers.

Need for growth

Founded in 2007 by four alumni of the Indian Institutes of Technology —Naveen Tewari, Mohit Saxena, Abhay Singhal, and Amit Gupta—InMobi is far off the $1 billion revenue mark that its CEO Tewari had set back in 2011. Tewari had expected to reach that target by 2014.

Perhaps that’s why InMobi chose profit-making AerServ over the other firms it evaluated. “Not many companies have been able to scale because their tech becomes very expensive,” Singhal said. The acquisition is also in line with InMobi’s pivot away from nurturing tech talent in just Bengaluru, the cheapest destination for software engineers. Over the last year, InMobi has worked to house critical tech functions in North America.

“Our core data science functions already run out of North America,” Singhal said. After absorbing the 70 employees of AerServ, InMobi’s total headcount in North America will more than double to 150. Its products will be merged with InMobi, though its tech team will continue to work out of its Los Angeles office.

In any case, AerServ is not the last item on InMobi’s shopping list. “The overall ad-tech ecosystem is consolidating, so now is the right time to be in the market,” said Singhal.

This article first appeared on Quartz.

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