Blowing Bubbles

By any standards, PopCap is a remarkable company. Of the many new games companies to emerge from the new social and mobile gaming scene, it's one of the only ones which manages to sustain a delicate and difficult balancing act - appealing to an enormous swathe of the mainstream, casual market while still commanding significant respect from core gamers.

In the past decade, the company has proved its ability not only to keenly and intelligently exploit its flagship franchise - Bejeweled - but also to generate new IP that's just as compelling as that original break-out hit, including Peggle, Plants Vs. Zombies and Zuma. Moreover, it seemingly effortlessly straddles the mobile and social gaming sectors, just as comfortable providing apps to iPhone users, coffee-break entertainment to Facebook users and downloadable titles on Steam for more dedicated gamers.

There's absolutely no question that PopCap is a great games company. However, if this week's rumours turn out to be correct, and the company sells for $1 billion, it will be the final confirmation of something that's been whispered for a while now - that social and mobile gaming, along with the "social internet" in general, has become a bubble market.

Finnish firm Rovio took in $42 million in a funding round which even the investors admitted the company didn't actually need.

In the past year, company valuations in this sector have soared, and some truly eye-watering deals have gone through. Last October, Japanese mobile gaming giant DeNA paid out up to $400 million for iOS game developer ngmoco - another great company with fantastic products whose price tag raised plenty of eyebrows. Not to be outdone, DeNA's local rival GREE dropped over $100 million in cash on OpenFeint - creators of a social gaming platform for iPhone and Android.

In the west, EA paid $300 million for PlayFish last year, while Disney paid $760 million for Playdom, and has been aggressively restructuring its entire games business around the social gaming model - with mixed results.

Those are just samples of the deals we know about, because they were made in public. The biggest fish in the pond, Zynga, bears a price tag as high as $10 billion according to some valuations. It's not just in acquisitions that the figures are getting breath-takingly high, either - venture capitalists seem to have caught the fever too. Back in March, Finnish firm Rovio - a developer with only one hit to its name, even if that hit is the seemingly ubiquitous Angry Birds - took in $42 million in a funding round which even the investors admitted the company didn't actually need.

It's not just games, of course. In the wider world of the social internet, analysts mostly seemed to come around to the idea that we had entered a bubble market when Color Labs raised $41 million in first-round funding for an iPhone application which not only hadn't yet been written, but which nobody even seemed to be able to explain without resorting to buzzword-laden drivel. That's even before we start to consider the valuation of a company like Twitter - whose service is wonderful, but whose long-term plan for making money seems almost as confused and optimistic as the worst of the dot.com era hopefuls.

Yet even if the wider bubble in the social internet allows us to place the money flying around the social and mobile gaming sector into a logical context, it doesn't do anything to defuse the potential damage of an implosion. What happens when a bubble bursts in a market like this? That's predictable enough - purchasers are left holding an asset that's not worth what they paid for it, and potentially laden with debt which they took on to pay for that asset, while everyone else finds that funding dries up as investors take flight.