The internet is composed of traffic ecosystems. Destination platforms with indefinite retention ultimately control those ecosystems.
Zynga had an explosive IPO in 2011. It hasn’t made money and has lost most of its shareholder value. Zynga built itself largely based on Facebook’s ecosystem. When Facebook apps were new, if you had an app Facebook graciously spammed all of your user’s friends for free. What was hundreds of millions of dollars worth of paid exposure was handed out for like pretzels at a dive bar. At the same time, some of the engagement Zynga created with Farmville players fed Facebook’s own user retention: people wanted to log back in to harvest some more grain. Soon enough there were many others who could provide the same. Facebook cashed in.
There are numerous companies which are deeply dependent on free traffic from behemoth platforms. Indeed, acquired by Recruit Holdings, built its’ position largely thanks to Google’s free traffic gravy train and inability to index legacy applicant-tracking system Taleo (recently purchased by Oracle, with copious quantities of irony.) Currently about 50% of Indeed’s users arrive from Google. How much of that free traffic supports their operations is unknown. What is certain is that a loss of that free traffic would have a further reaching impact than just losing half of visitors by: funding the competitor(s) who replace them and the share of direct visitors who originally discovered Indeed on Google who will go somewhere else instead.
Retailmenot IPO’d last year. About 90% of their users arrive by typing in trademark terms on Google. After receiving those visitors for free, Retailmenot sells them back to the trademark owners in exchange for affiliate commissions or other advertising. Retailmenot may find placing large banners in shopping malls does not deliver anywhere near this many visitors. Sadly the only area with a positive ROI may be the shakiest. Warren Buffet would perhaps see it more as an on ramp than a moat.
Mobile game developers are in a similar camp. While the winners spend vast sums of money on pay-per-install player acquisition they also benefit from free exposure on both the Google Play Store & Apple App Store. Just as Google has reduced organic exposure on its search pages, do not be surprised if in the future top visibility requires top dollars to Google & Apple.
Local and national newspapers around the world get much of their traffic for free from places such as Google News & Facebook. Rest assured that when someone does figure out a magical model to profit from journalism (Buzzfeed theft & amateur content hacks excluded) that a good chunk of those profits will be handed over in a competitive bid based marketplace for user’s visits.
What makes a good internet investment? A place users are going to return to on their own for a very long time. If not, poke deeper and the business model probably relies on continuously acquiring users from the place that they do return to. Unlike physical real estate you can’t simply purchase a building on a landmark street and know people will walk past day after day for the indefinite future barring a nuclear detonation. Digital real estate is fluid and handed out by someone else.
Google’s success with Android, barring the emergence of successful forking in the West, means they will dominate for another tech cycle. Facebook + Oculus could present some interesting alternatives. Amazon, Valve, and Microsoft remain wildcards.
My suggestion for anyone who wants to development the next big platform, focus on authenticated security with provable privacy. Today everyone flops hard, from free Android games which steal all of your personal info to Chinese quadcopters with “bugs” which could fly themselves straight in to police helicopters. The NSA is hardly a bother to anyone beyond intimidated Senators. When consumers are doing DNA printing & launching swarm robots they damn well will want to know they are in control.