So, it’s been a tough few weeks for a lot of folks. Quite an understatement huh?
The crazy thing about it is that it’s really just begun, especially for Web folks. A lot of Web folks haven’t felt the crunch quite yet for a variety of reasons, the biggest being that a lot are sitting on some funding that should last them a little while. The problem is that, unless they have a real profit model, that funding is going to dry up and the next round is probably not going to be there. The bright side is that this isn’t the first time it’s happened to many of us, and the smart companies realized a year ago that this Web 2.0 boom couldn’t last forever and prepared for the downturn. Here’s my take on what will happen.
The bad news:
- Companies who have been living off of funding without a profit model are going to feel the squeeze real soon. If you’ve been focusing on growing a user base without a profit model in the hopes of an exit, you’re probably out of luck for a little while
- Start-ups looking to start something better be looking to bootstrap because investors are going to get stingy, there’s no way to get loans, and the “big win” exit strategies are quickly evaporating (Sarbanes-Oxley took away the IPO option and the big Web companies aren’t going to have the cash to acquire for a while)
- Impression-based advertising is going to dry up as companies reduce marketing and advertising budgets. The ad agencies and remaining portals are going to be in trouble. Just watch to see if Y!, MSN, etc. start serving house ads for their own products and services.
- Luxury consumer products and electronics are going to take a hit. This is obvious, but I don’t see many people buying computers, flat screen TVs, blueray disc players, smart phones, cars, etc. I say this for two reasons. The first is that no one has disposable income and the second is that everyone in the world just got done buying those things a year ago
On the bright side:
- Companies who focus on performance-based advertising will be ok. That means anyone doing search pay-per-click advertising or acquisition based advertising. I back this up by pointing to Google’s remarkable success during the dot com bust, and the likelihood that many companies are going to look for smart measurable ways to increase sales
- Companies who make money by helping people save money will be ok. This includes companies like Ebay (even though they just laid people off), Zappos, Netflix, etc. Consumers are going to tighten their belts, but they’ll still want to make purchases especially for the holiday season. They know that you can get the best bargains online and they’ll go where they know the deals are
- Anyone providing entertainment or distraction at a reasonable cost will be ok. People will be looking for reasonably priced distractions from the madness, and online media distribution is real this time around. Netflix is cheaper than going to a movie. iTunes, Hulu, YouTube, etc. If they’re monetizing their traffic, will be ok
- This is different than the first time around. A lot of companies have been here before and know how to tighten their belts, and everyone can be confident that the Web will survive. That experience and confidence is huge this time around. The Web isn’t run by kids anymore
- Thanks to cloud computing, google apps, development platforms like Ruby on Rails, viral marketing, and web standards, the operational cost of running a successful web site is dramatically less than it was just a few years ago
So what do you do? Well, here’s what I recommend. If you have a job, stay where you are. If you work for a start-up that has some good traction but generates no revenue or relies on impression-based advertising, find a way to start charging for your service. Don’t be scared to ask for money for your quality product or service. A lot of companies are scared to charge, and that fear is going to drive them right out of business. Find ways to cut costs other than laying off smart people. Your people are your greatest asset. Look for smart inexpensive technology like Google Apps and cloud computing. Don’t be retarded and spend money on things you don’t need. Don’t spend ridiculous money on Sharepoint when Basecamp and Google Docs are enough. Take open source products seriously. They will save you money. They’ve matured a lot in the past five years and many are comprable or better than similar closed source products. Also consider that many of the folks who contribute to open source products to it for the passion and glory, not the money. They’re going to be paying attention while the closed source folks are laying people off. Speaking of layoffs, it might even be a great time to hire as some companies lay off and freelancers run for cover. Hire if you’ve got the money, and just like in the NFL draft, go for talent not position. This might just be your chance to get that ninja developer you always wanted.
Take this opportunity to innovate, build a tight team and streamline your business. If you succeed you might just be looking at a very big win. Oh yea and I’ll say it one more time to be absolutely clear. KEEP YOUR SMART PEOPLE AT ALL COSTS. THEY ARE YOUR BEST ASSET. Of course, if you don’t want them, let me know because I’ve got some kickass ideas and my company is ready to go.