(Reuters) - When Auntie Anne's, the pretzel chain, wanted to tempt moms in Atlanta shopping malls with free offers, it dished out coupons through smartphones that could be redeemed immediately for a free drink or other specials.
But while the moms received the coupons on their iPhone or Android device, the power behind the campaign was not Google Inc or Apple Inc -- it was Millennial Media, a nimble six-year old independent that has grabbed the No.2 spot in mobile advertising in the United States.
Google is No.1, but the flexibility of its smaller rivals is helping them catch up in a U.S. market that is expected to triple in size to more than $20 billion in the next three years, according to market research firm Gartner.
Smaller firms have the freedom to reach users who use any mobile operating system, unlike Apple, which promotes advertising on its Apple iOS platform, and Google, which handles advertising across all devices but also has its own platform, Android.
"Advertisers want to be able to reach the broadest population they can and in the mobile world, where the platforms are fragmented, this gives an opening to the providers who are truly platform neutral," Gartner analyst Andrew Frank said.
Google held 24 percent of the U.S. market last year, while Millennial had 17 percent and Apple 15.5 percent, according to market research firm IDC. Unlisted Jumptap held 9.5 percent, Yahoo Inc 7.5 percent and India's InMobi 2.2. percent.
Ireland-based Velti Plc, which listed in early 2011, is also chasing market share.
Investors are taking notice.
While Facebook Inc has been pilloried for lacking a mobile strategy, shares of Millennial have jumped 76 percent from a low of $9 in early August. Shares of Velti have leaped 59 percent from a life low of $4.99 on July 25.
Millennial, a roughly $1 billion company, is a great bet for someone looking for investments in mobile advertising, said Steven Dray, a portfolio manager at investment firm AlphaOne Capital Partners LLC.
"When you get to brand advertising, which is eventually going to be a huge pile of money that's going to move from traditional advertising to mobile, I think that's where Millennial and some of the smaller players could have very good success," Dray said.
AlphaOne bought into Millennial after its initial public offering in March and holds about 40,000 shares in the company.
Despite the run-up in their shares, the smaller firms have not run ahead of the sector. Millennial trades at 4.3 times forward 12-month sales and Velti trades at 1.3 times.
While their businesses are obviously much bigger and more varied, Google trades at a multiple of 4.6 and Facebook at 6.7.
As consumers increasingly surf the Web on the go, advertisers are looking to ply them with targeted information about nearby restaurants, pubs, theaters, shops and salons.
But there's no point pitching a shampoo to a skinhead, so the secret sauce for advertisers is user information -- and Millennial's trove of user data is what CEO Paul Palmieri is counting on to give his firm an advantage.
Millennial gathers "first-party" data -- information that users provide to a publisher, or that is gleaned from surfing habits that website owners share with advertising companies.
"It is also valuable to users because the more targeted-advertising they get, the more relevant their experience ends up being," Palmieri said, although analysts say the privacy issues this raises are yet to be resolved.
The smaller companies tout their tight focus on the mobile sector, rather than worrying about how that fits in with online advertising.
"We only focus on mobile. Google on the other hand has many different things to worry about. Yes mobile is important, but is it the most important? Probably not," said InMobi CEO Naveen Tewari, although he is not complacent about the challenge.
"The only way to compete with (Google) is by innovating faster," said Tewari, who expects his 850-person company to report billions of dollars in revenue in a couple of years.
But the big guns are not far away. The entry of Facebook and Twitter is expected to change mobile advertising.
Facebook, which declined to comment for this story, is investing heavily in improving mobile applications and creating new metrics to measure the success of mobile advertising -- a move expected to give a fillip to the wider market.
"There is a lack of maturity in the metrics that are available for measuring mobile campaigns," Gartner's Frank said.
"That's where there's an opening for innovation that some of the larger companies are not able to satisfy today."
Twitter, too, expanded its advertising program for the iPhone and Android devices and now sells promoted tweets and advertises promoted accounts on its mobile applications timeline, rather than only on a search page.
And Google is determined not to lose its No.1 spot. It bought mobile ad platform AdMob in 2009 and its YouTube video service recently launched a new iPhone app that carries video advertisements.
The success of iPhones and Android smartphones and the fact that Google owns many popular mobile applications also helps push its mobile advertisements.
The mobile advertising model has its detractors, and some have groused that the small screen on mobile devices makes viewing advertisements difficult, while a lack of good mobile websites might keep away potential viewers.
Users tend to spend less time on their mobiles in one go and advertisements have to be designed for short attention spans.
"I think it's still a struggle. Most of the advertising that you see on mobile devices today is still predominantly not very well targeted or not very granually targeted," Frank said.
Uncertainty about how best to advertise on mobile platforms is holding back the valuations of mobile advertising firms, Baird and Co analyst Colin Sebastian said.
While industry-standard measurements are lacking, the companies argue that mobile advertising has five times the click-through rate of online advertising.
"You can touch the ad, flip the ad, move the ad, you can do things that you cannot do on a PC. Your interactivity levels are very high," Tewari said.
(This story was corrected to remove paragraph 29 that refers to Google's mobile advertisement revenue run-rate as the data was from 2011)
(Additional reporting by Aurindom Mukherjee; Editing by Rodney Joyce)