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The Market Leader in a Fast-Growing Industry

By: Andy Obermueller
Posted: 1/26/2012 8:30:00 AM
Referenced Stocks: AUGT;KR

We humans are pretty predictable. We live our lives in certain patterns and according to certain preferences.

There was a time when no one knew what those preferences were. The guy taking my order at a restaurant might remember I like Diet Coke, or the mechanic might remember something about my car, but these observant people were the exception, not the rule. And they didn't talk to each other. There was no network.

That has changed.

When my wife and I moved to West Virginia, we had a number of things we needed to find, fast. A grocery store. A dry cleaner. A gas station. A barbershop. A pharmacy. And do you know that at each one of those places, the first thing they asked for was personal information, data they they used to tie in to a loyalty card. We use the cards to obtain better pricing. That's the quid. The pro quo is that they use the loyalty card to track exactly what my wife and I buy.

Not long ago, we got a letter from Kroger (NYSE: KR ) , our usual grocer. In the letter was a series of 10 or a dozen coupons. Each one was for products we had bought before: store-brand dry-roasted peanuts, unsalted butter, Nutella, and Diet Coke, to name but a few staples.

Now, this exact same grocery store puts a circular in the newspaper and mails one once a week or so. I have never opened either. But I used eight of the coupons from the letter.

That's called targeted marketing. Unlike the circulars and print ads, which target certain seasonal items to a general audience, what I received in the mail was laser-focused -- tailored to an audience of one customer, based on typical buying pattern.

Now, I don't know a lot about marketing, but my guess is that if the CEO of Kroger looks at the results of the campaign and sees that I used 80% of the coupons I receive, he's going to keep sending them just to get me into his store, where I'm likely to buy other higher-margin products.

This is the sort of program that Augme Technologies ( AUGT ) designs. But it doesn't use the post office, which is expensive, slow and unreliable. Instead, it builds offers like these and sends them out through another channel entirely -- the cellphone.

Some 240 million Americans (out of more than 300 million) have a cellphone, which is pretty much everyone but the very, very poor and young kids. The mobile sector is also adding tablet computers, which were the must-have for this holiday season. The variety of mobile devices in consumers' backpacks, purses and briefcases creates a staggeringly complex problem: What should the ad look like?

Augme solves this problem with a patented device detection system -- part of its Ad Life software -- that determines the specs of the phone or the tablet and then formats the ad to fit perfectly. Problem solved. This system lets Augme solve the bigger problem right out of the gate: 30% of all Internet searches are done on mobile devices, but only 2% of the web is optimized for mobile. In other words, 98% of websites assume that they will be viewed in a computer web browser, which is wrong. And if you've ever tried to view a web page on your smartphone that wasn't mobile-device ready, you know how poorly the site is delivered and how difficult it is to use.

On top of determining the device and formatting the content, Augme adds in tons of other features that brand managers and marketers can use: Coupons, bar codes, UPC codes -- any offer , special or traffic-driving content can be added in. The technology here is so good that other major high-tech companies, among them Oracle, Hewlett-Packard, Sun Micro and IBM, have alluded to it in their own patent filings.

Great technology in a hugemarket
Mobile marketing is already a major industry, and forecasters say it will get even bigger, doubling from its 2009 level to nearly $17 billion in 2015, according to Forrester Research.

A subset of the mobile marketing business -- called interactive marketing -- is a smaller piece of the pie, but it's growing at an even faster annual rate. Interactive mobile marketing, using a phone or tablet of some kind to facilitate a specific customer interaction, is Augme's main business. This $145 million company is a David staring into a Goliath market -- and my take is that the outcome is going to be the same: Augme might be a small player looking at a big market, but given its competitive position, there's no reason it can't win. 

While the industry is seeing some significant consolidation , as niche players morph and meld into larger, more capable enterprises, Augme offers a competitive advantage in that it already has all of the pieces in a one-stop shop . This puts the company in the cat-bird seat and should allow it to capture a disproportionate share of that massive $17 billion market. Being first has a distinct advantage: It gives a company time to establish a customer footprint with basically no competition.

And indeed, Augme is already showing signs of domination. Its revenue has very nearly doubled in the past year, a feat that few companies can match, especially in a down economy .

Risks to Consider: As with any small, startup-like company, you should be willing to tolerate a fair degree of volatility if you buy this stock. Also, note that it trades over-the-counter, which goes to say that it does not (yet) trade on a major exchange. That shouldn't push you away from investing, necessarily -- plenty of stocks with amazing growth stories started out on the OTC markets -- but it is something to keep in mind if you consider buying shares . Consult with your broker if you have any questions.

Action to Take --> I recently brought Agume to the attention of readers of my newsletter: Fast-Track Millionaire . It's exactly the kind of stock my readers want to know about… it's an up-and-coming company that could turn the web ad market on its head. 

The market isn't getting any smaller, and as more and more web customers embrace mobile marketing -- which they ultimately are going to have to do to survive -- the better Augme should do. I think the stock is a major growth story just waiting to happen.  

--Andy Obermueller

Andy Obermueller does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.