So apparently the biggest thing in the world is Pokémon. I base this on the number of Instagram memes, Facebook memes, Reddit memes and, to a lesser extent, Twitter comments. Everyone under the age of 21 is using this new app. As luck would have it, I am vacationing with my family and have been able to discuss the game with an actual group of teenagers (notably my nephew Christian), all of whom are in love with this new game.
While I am interested in the game itself, I am more interested in how it's going to make money. Nintendo (NTDOY) is pushing this as something that will have lots of "in app" purchases. Basically the game is free, but in order to do some cool things or get ahead of the pack, players will probably need to buy stuff in game.
In truth, as I review the game and how it works, where I see real value is in two places. To start: data. This game is capturing massive amounts of data on where teenagers are moving, their habits and where they like to hang out. Those playing the game are basically slapping on a sign that says, "Hey Google, feel free to track me and my movements." Basically I would title this game Teenage Data: Gotta Catch It All.
The second place I see real value for Nintendo and Alphabet (GOOGL) , owner of Niantic, is in selling locations. If I am Starbucks (SBUX) trying to get more teens into my store, I can spend hundreds of millions in ad dollars trying to make my brand cool to teens, or I can simply pay Nintendo/Alphabet (not sure whom) to have my locations have cool or unique characters that teens are hunting for. I can pay to make McDonald's (MCD) a "gym" for Pokémons to fight. I can make Taco Bell (YUM) a place loaded with Pokémon ... I think I've made my point. (Alphabet and Starbucks are part of TheStreet's Action Alerts PLUS portfolio.)
As huge as this app is, I think there is more money selling advertising on the back end than there is in app purchases if they figure it out. The upside is huge. What is less clear to me is who benefits. In terms of the data capture, one has to think this is a huge win for Alphabet/Google. On the advertising side, that would be Nintendo, if they are smart enough to execute this type of strategy.
My understanding is that this is going to be very difficult for others to replicate, at least in terms of the character capture/card game aspect, thus there is huge upside. I just want to see these groups figure out how to maximize the value.