Private: Intelligence

OMGPOP and Instagram have clearly set the stage for the rebirth of the bubble, but what does that mean for the rest of the digital media and Internet industry?  More importantly, what happens if the bubble pops?

The bubble in 2000 was based on inflated valuations from companies that amassed eyeballs and had yet to recognize a viable revenue stream.  Sounds familiar doesn’t it?  Both of these companies have been able to establish a strong base for eyeballs, and have yet to monetize them on a mass level, but the fact is the Internet is now in a much more valuable position than it was in 2000.  The web has been woven into the very fabric of daily life unlike 2000, where it was still an early adopter medium.  Mobile has driven much of that adoption, along with the additional advent of the tablet (led by the iPad).  This bubble may feel bigger, but it’s a stronger bubble and it won’t be nearly as easy to pop.

The other thing is that the sluggish recovery of the economy is being led, in many ways, by technology.  The Internet is driving that bus!  Jobs are being created, and revenue is being discovered by the ecosystem of these companies, mostly driven by advertising. 

That realization leads me to my point.  There’s only so much quality inventory available on the web, and what these platforms are doing is creating premium inventory that needs to be monetized, whether it will be monetized by what we currently know as ads, or not.  The existing model of banners and sponsorships will not be the end game in online advertising, but they will get us over the hump of people thinking this is a bubble.  The fact is that the current model of ads on publishers and websites is viable because they drive engagement.  The recurring theme I‘ve been addressing around viewable ads is rooted in the idea that there is finite premium inventory.  That inventory is what we consider to be the most valuable, and that is what we can charge the most for, regardless of the model.  An opportunity for a marketing message to be delivered to a highly engaged consumer is a valuable one, and both OMGPOP and Instagram have figured out how to create that opportunity.  Whether they have the final solution or not (hint: I don’t think they do yet), they are clearly on the path.  You can argue that the valuation for these companies might have been high, but there is value there and it falls on the acquirer to establish the value in their own terms.  It’s not for the outside world to decide.

Zynga’s acquisition of OMGPOP feels like one of a team and the ability to solve problems.  They figured out to make a competitive game more of a partnership, and that drives higher engagement.  Facebook’s acquisition of Instagram makes slightly less sense to me because these were users that, for the most part, Facebook already had.  If anything, they just wanted to own the service as another entry point into the Facebook landscape for the average consumer.  The less you have to let them leave your service, the better it is for you.

In both situations, the acquirer now has the opportunity to “own” the experience of the consumer, meaning they have them from beginning to end.  The Draw Something game is a self-contained environment and photo-sharing alongside the social platform is a self-contained environment, as well.  If you own the entire experience, you can own the session and you can effectively surround the user with a more immersive marketing experience too.  The NY Times pioneered this model many yeas ago and others have extended it.  Even basic retargeting with banners speaks to that effect.

This surround model, and the ability to own the experience online for a consumer, is where I see the future of online marketing and advertising.  That is why, in my opinion, there may be a bubble at play, but it’s a tough bubble.  This is Hubba Bubba, this ain’t no wimpy Big League Chew being used to blow it up.  This is true growth in an environment where it is needed, so let the funding flow into these companies and let’s continue trying to push the envelope with them, and see where it leads!