Fearing dotcom crash 2.0? Ain't gonna happen

Why the recession could be a blessing for the web industry

Jason Calacanis

Here we go again. We're racing full speed into a recession. Banks are collapsing, stock markets are in turmoil and entire countries face bankruptcy.

eBay and Yahoo! are cutting around 1,500 jobs each and many start-ups are laying off around 10 per cent of their staff.

Here comes dotcom crash 2.0. We're screwed.

Or are we? Actually, chances are that the internet industry isn't on the verge of another big dotcom crash, after all.

When the bubble burst in 2000 the situation was very different. Money had been thrown at anything that had the remotest connection to the web and sensible business models were few and far between.

But people have learned from their mistakes. "I've lived through recessions, I died in recessions," says Simon Waterfall, co-founder and Creative Director at digital agency Poke.

"This one's different because it's an over inflation not of our marketplace, it's of consumption as a whole. It's a good reality check because we've learned every time a boom has gone bust. Plus, brands nowadays don't just have a branded site as a souvenir. They have something to deliver, they're making services, which means we will all be busier in a recession."

No bubble, no crash

Many companies saw the economic downturn coming a year ago and are prepared for it. There's also less money in the market than during the big dotcom anyway and it's invested much more strategically and smartly. And while venture capital financing, at least in the US, is certainly down for 2008's third quarter, it still keeps coming.

LinkedIn just raised another $22.7m, Like.com another $32m and blog network GigaOm another $4.5m. Web design, in particular, looks set to continue to grow (at least for big agencies with big clients) because online marketing is less risky and cheaper than traditional marketing.

Fewer dotcoms will go to the wall than we saw seven years ago. That's because there's another crucial factor that sets today's situation apart, as billionaire entrepreneur, Chairman of HDNet and owner of the Dallas Mavericks, Mark Cuban, points out:

"The difference is that companies are not going public. Facebook, MySpace, the big 2.0 names are taking investments or being bought, but there is no way for the individual to buy stock, so there's no bubble. No bubble, no crash."

Why a recession could be good for dotcoms

Inevitably, there will be lay-offs, but let's face it, Yahoo!'s decision to let people go has less to do with the recession than with the troubles the company found itself in over the last year.

In fact, the current economic climate could turn out to be a good opportunity for companies to realign their businesses and cut costs. Serial entrepreneur Jason Calacanis, who now runs human-powered search engine Mahalo which itself just has laid off 10 per cent of its workforce explains:

"What's the loss? People have three, five or 10 employees, so if the company doesn't work out, they can make it a company of two or three people working from home and five people get laid off and go to another company. It's not like the old days when you had people raising $100m or $200m, thousands of employees and then the company goes down and thousands lose their job."

Many entrepreneurs believe that this time of economic uncertainty can actually be a good thing for the industry. Mark Zuckerberg, founder and CEO of Facebook, recently told delegates at the Future of Web Apps conference in London:

"Traditionally, some of the best companies have been built in down economic times. Companies that have succeeded in providing clear value succeeded no matter what the economic conditions were. If you offer value to the end users, who are really what you're building the service for, then that lasts."

The perfect time to start a web business

In a recent essay, Paul Graham, programmer and co-founder of Y Combinator, a venture firm specialising in funding early stage start-ups, argues that now is a good time to launch a start-up.

He says that founders who've got the right qualities will win in even a bad economy. The same applies to start-ups that cut down their resources and are run as cheaply as possible: "The cheaper your company is to operate, the harder it is to kill. Fortunately it has gotten very cheap to run a start-up, and a recession will, if anything, make it cheaper still."

Of course, some companies will close (be it for the lack of funding, or because they were lacking a clear business model), but that means there's less competition, a point Calacanis thinks benefits Mahalo:

"Actually, the down market is good for us," he says, "because we can take market share and it'll be easier to get people to join the team."

Author, marketing expert and founder of Web 2.0 start-up Squidoo, Seth Godin agrees:

"Uncertain times, frozen liquidity, political change and poor astrological forecasts (not to mention chicken entrails) all lead to less competition, more available talent and a do-or-die attitude that causes real change to happen."

His conclusion? "If I wasn't already running my own business, today is the day I'd start one."

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