A couple of posts in the last day or so have (or should have at any rate) sent a shiver down the spines of tech industry watchers. First came Om’s post. Om discusses earnings and profit announcements from many of the online advertising players and notices a levelling off of advertising revenue. He also reminds us all that it was only 10 or so years ago that a similar hype around low (or no) revenue model businesses that we’re seeing around some Web 2.0 start-ups resulted in the first dot com burst.
Then over on Smoothspan, Bob discusses the fact that while Google’s revenues are still on the up, their profits are not. And at the end of the day in a recessive portion of the economic cycle it’s profit rather than revenue that keeps investors safe.
So two questions;
- Are things going to get worse?
- What does this mean for web businesses?
- Where is the escape chute?
Are things going to get worse?
While I’m no economist, it would seem that we’ve only seen the tip of the iceberg in terms of flow on effects from the US sub prime fiasco. I’m an eternal pessimist but I have to answer an emphatic yes to question one.
What does this mean for web businesses?
We’ll see a flight firstly to viability and then to quality. Funding options for businesses with no real monetisation model will dissipate. Investors will move from riskier stocks to more proven models. Companies will be forced to cut costs as a foil to reducing revenue.
Where is the escape chute?
For businesses fully committed to low/no revenue models, hoping for a big payout come eyeball to dollar conversion day – there is no real solution. For businesses that have a solid revenue model but are seeing a decline in these revenues – don’t panic.
I talk to web businesses all the time and most are relaying tales of falling revenues and cancelled contracts – you’re all in the same boat. Hold on, cut costs and ride out the storm is the only sage advice I can give.
For those looking at going out and starting a start-up – now more than ever you need to think carefully about where your revenue will come from, how exposed it is to falling expenditure on non-essential services and how cash intensive your biz dev strategy will be.
Scary times huh?
(Oh and in a final plug for SaaS – in this environment OpEx is always easier to justify than CapEx – SaaS vendors have a big advantage in this respect)