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Bubbles, Bubbles Everywhere?

“Gangbusters” doesn’t begin to describe the rate at which certain sectors of the tech market have been booming in the past few months. The search battles have had Google and Yahoo unveiling new services weekly, and not a day passes without news of some new mobile-media device or service. But industry watchers are facing down a familiar question: are these technology bubbles reaching the popping point?

For example, advertisers have been pouring money into online forums. The expectation is that these are tremendously successful ways of reaching interested consumers since online ads can be targeted at specific viewers based upon search terms.

This has been a major driving force behind the development of search tools and ramped-up versions of e-commerce websites. Many remain optimistic that, if done rationally, this could continue to be a profitable way to sell products for some time to come.

However, cynical market watchers continue to hold their breath with the realization that ad investments are typically cyclical, with periods of overzealous spending in new media followed by a return to more traditional forums.

The biggest potential bubble is digital entertainment.

Efforts to sell online music are still loss leaders – even for iTunes, which reportedly has 70 percent of the market. Sure, Apple posted a 558 percent increase in iPods sales for the quarter, and there are many who believe that digital music players are reaching the critical mass required to turn online retailers into sustainable businesses.

But iPod competitors are growing in number and quality, and are starting to strip Apple of its stronghold. What’s more, Apple has been stingy with its FairPlay DRM technology, which means that the only device that will play iTune’s tracks is the iPod. That reactive stance – similar to the strategy used by the company at the dawn of the personal computer age – is likely going to send users to competing services that encourage use across a variety of hardware devices.
 
Among the iPod challengers are smart phones, which mobile carriers are hoping turn the cell phone into an all-in-one entertainment center. The expectation is that such efforts will boost sales of phones and distribution of services.

These carriers, though, face their own dilemmas. Whether it be songs, news, or television programming, mobile carriers are typically not aligning themselves with service providers that can dole out any old content that a user’s heart desires. Instead, they have been working with specific content providers – meaning that different carriers will provide different content, thus limiting their appeal.

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