Riches in Mobile Ads, Just No Profits

Facebook's deal for photo-sharing service Instagram and the IPO of advertising network Millennial Media Inc. prove that the smartphone boom can produce billion-dollar valuations for makers of mobile software and services. Now comes the true test: Actually delivering the revenue and profits to back up those numbers. The technology landscape is hitting another inflection point.

Much as the personal computer created a platform for software makers in the 1980s, smartphones and tablets are now setting the table for another big transfer of wealth as new companies arise and dominant PC-based companies struggle to make the shift. Venture capitalists are making huge bets that mobile phones will be the next big tech money-maker. "It is not a toy anymore," said Chris Sacca, a prominent early-stage financier who invested in Instagram. But a major obstacle is stunting growth. Advertising, the revenue source of choice for many Internet upstarts, isn't keeping pace with the explosive growth in the smartphone platform.