In the wake of Google’s purchase of YouTube and with investors clamoring to tap into the social networking and user-generated content phenomenon, the IAB asks are we in the grips of bubble web 2.0?
I have just read that Dogster and Catster, the social networking sites for pets have received funding to develop their sites further. Now these sites may very well be the cat’s miaow or indeed the dog’s boll… you get the picture, but following on from the GooTube deal you could be forgiven for thinking it was 1999 again and Boo.com had never happened. Across the internet debate is raging on the subject of whether we are in the midst of a web 2.0 bubble that will once again burst.
At the IAB we are in a prime position to witness the happenings of the internet industry. Following on from another strong half-yearly IAB/ PwC online adspend report we can confirm that everything connected to the medium is flourishing. I would argue, however, that talk of another bubble is, if you will excuse the expression, a load of hot air. A bubble implies a sudden flux of interest and investment, but the internet’s growth and influence has been rapid, but steady.
Of course the big money deals of recent months invoke memories of the venture capitalist frenzy of the late 1990s where involvement with companies with a dot com in its title was viewed as the equivalent of having a winning lottery ticket in your back pocket. It didn’t matter that a number of these internet start ups were not yet online nor could prove that their idea could actually work. Analysts predicted that the future was the internet and there was money that could be made. And they were right, but in 1999 technology was hampering a number of these wonderful ideas and the online audiences were not yet in place to support them.
Two of the key drivers behind internet advertising’s growing market share are the 30million UK internet users and the 10 million UK broadband homes. Marketers have been following their audiences online with creative unrestricted by dial up connection speeds. The sheer numbers of people online and broadband are also two of the leading factors why we need not fear that the internet industry is heading for an impending implosion.
When Boo.com burnt through a reported $120 million preparing their site for launch in the late 90s, they were assured (incorrectly) that the majority of internet users had flash capabilities on their PCs. So of course when the site launched frustrated internet users were left waiting for pages to load.
The big money deals that have been taking place in recent months have all involved established online brands with proven functionality and audiences of millions. Yes Google have paid £883million for a video sharing site, YouTube. It is however the leading video sharing site on the internet that achieves daily global downloads of 100million. Copyright aside. If Google can tap into the relatively unexplored marketing potential of YouTube – deals with major film studios and more contextually relevant ads for example - it will have been an excellent business decision.
A few eyebrows were raised when News Corp. paid £330million for MySpace last year, believing Rupert Murdoch’s purchasing of online properties scattershot to say the least. When they received £472million from Google for advertising and search provision, however, it was reappraised as a successful deal.
It is the ‘sudden’ appearance of web 2.0, buoyed by a number of new technologies such as RSS and AJAX the internet has become a two-way medium, that has fuelled the ‘bubble’ discussions. But the wealth of user generated content online has been steadily building for a number of years. MySpace and YouTube were preceded by podcasts and blogs and going back even further the companies that flourished post dotcom crash incorporated elements of user generated content.
Just like the late 1990s there are a number of internet start-ups looking for investment in their companies. Of course the goal in 1999 was to follow in the footsteps of Netscape and Lastminute.com and float on the stock-market. In 2006, in the wake of the plethora of takeovers and purchases a number of companies will be aspiring to be bought by a larger online media owner. It is important to remember, however that each of the internet enterprises that have been the subject of these big money deals were the leading companies in their particular field. Friends Reunited when it was purchased for £120million in 2005 was the eighth-largest online presence and one of the pioneers of the blossoming social networking scene. When News Corp. bought MySpace, it had over 50million user profiles and was already so influential that it was turning the music industry on its head. YouTube was so dominant in the video sharing market that Google took the, “if you can’t beat them join them” stance and bought them to bolster their own presence in the online video sharing market.
The crucial thing to keep in mind is that media owners have been buying audiences and ready made communities, as much as they have been purchasing successful enterprises. In the recent so called ‘web 2.0 bubble’ there are few examples of big money being spent on non-established internet start ups, but there are signs of venture capitalists starting to invest in internet companies offering similar services. Thankfully - as the BBC pointed out in a recent article - the major difference between the 1990s and today is that online advertising is providing a money making model for internet companies and the valuations placed on them, therefore, can be a little more accurate.
2006 will certainly come to be regarded as a landmark year in the history of the internet. If we are in a second bubble, confidence in the internet this time around is well founded. The growth of online audiences has inevitably begun to level, but the importance of the medium within the lives of this audience continues to grow. The internet has proved itself as vital as any other media and is built on secure foundations.
