I am only going to make one prediction, but one with broad impact. We will see a dot-com crash in 2008. It will be more prolonged and deeper than the crash of 2000.
The crash will be driven by a recession and prolonged slow growth in the US. Global investment capital will flee to quality, ending the speculative dumping of cash on Web 2.0 startups.
Venture capital firms will seek to limit their losses by forcing many of their portfolio companies to liquidate or seek a buyout. Buyout prospects will be poor, however, as the cash rich companies find themselves in a buyers market and let those seeking a savior come face-to-face with the spectre of bankruptcy before finally buying up the assets on the cheap.
Startups that managed to get cash before the bubble collapses will have a cash horde, but will find little opportunity to rest on it. Most startups will find their revenue models were unrealistic and will rapidly have to seek change. Many will jump over to advertising, but the advertising market will have constricted. Bigger businesses will seek to drive out the new entrants, and online advertising will become a cutthroat business with little profits to be found. Others startups may shift toward licensing and development deals for bigger companies, but will find their investors impatient now that the promised $500M startup has become a $10M company.
The big players will not be immune from this contagion. Google, in particular, will find its one-trick pony lame, with the advertising market suddenly stagnant or contracting and substantial new competition. The desperate competition with dwindling opportunity will drive profits in online advertising to near zero. Google and Yahoo will find their available cash dropping and will do substantial layoffs.
Unfortunately, this scenario has privacy implications as well. Much like we saw after the 2000 crash, it is likely that those with little to lose will attempt scary new forms of advertising. The Web will become polluted with spyware, intrusiveness, and horrible annoyances. None of this will work, of course, and there will be lawsuits and new privacy legislation, but we will have to endure it while it lasts.
It is a dire scenario, but one that looks much like what we saw after 2000. That was a much smaller crash without the fuel from broader problems in the US economy, but we still had investment capital shut off for a few years, most startups shut down, and the remaining startups shift business models. We also saw a dramatic rise in pop-up advertising and spyware.
The crash of 2008 will be similar to 2000 but deeper. We all will have to weather the storm.
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