Friday, January 16, 2009

2008 prediction and looking to 2009

In January of 2008, I laid out my prediction for what would happen in the rest of the year. Unfortunately, it turns out to be largely correct.
We will see a dot-com crash in 2008 ... The crash will be driven by a recession and prolonged slow growth in the US. Global investment capital will flee to quality.

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.

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 ... Google and Yahoo will do ... substantial layoffs.
Parts of the prediction did not come true yet in 2008, but may in 2009.
It will be more prolonged and deeper than the crash of 2000.

Desperate competition with dwindling opportunity will drive profits in online advertising to near zero. Google ... will find their available cash dropping.

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.
Underlying the prediction of a dot com crash was a prediction of the broader economy. While the direction was correct, I have to admit, I got parts of that prediction wrong. In particular, I did not expect huge multinational banks to be so rash as to make gambles that could drive them to insolvency, nor did I expect the normally more considered Europeans to follow the foolhardy practices of we Americans. I did expect hedge fund failures and a housing price fall, but I was as amazed as everyone else that the ratings on bonds would become completely unreliable and that one particularly prestigious fund was actually just a Ponzi scheme. Where I was wrong, it appears my mistake was assuming Wall Street still had some lines it still would not cross.

I do want to say that I am in no way happy that my 2008 prediction turned out to be largely true. It is awful, truly awful.

It also is sad to look back at the irrationality and willful blindness of early 2008. A glance over the comments on my January 2008 post gives a feel for how people reacted to anyone who tried to send up the red flags. It is not true that no one saw this recession coming -- economists like Nourel Roubini, Paul Krugman, Robert Shiller, and Dean Baker were quite vocal -- but they were marginalized and maligned.

I hope that the early warning I tried to give had at least some positive impact. It seemed that some startups were looking to secure funding rounds earlier than they might otherwise and build up cash, but, as much as I might hope it was helpful, I have no evidence that what I posted influenced any startups to be more cautious.

As for predictions for 2009, given the vitriol my 2008 post attracted, I am going to leave this game to others. If you really do want to see things fairly close to what I think will happen in 2009, please see [1], [2], [3], [4], [5], and [6].

8 comments:

Jason M. Adams said...

It's funny (in a dark way) how similar the reactions were in your previous post to the reactions many in the media gave the voices who were actually right about the housing bubble. It must be some sort of knee-jerk reaction to hearing voiced the fear buried deep in their subconscious.

Affan Laghari said...

Old folks in our country say that when an Ostrich feels something dangerous is coming, it digs a hole and puts its head inside, so that it won't see what's coming.

Matt said...

What a pity that you don't make your prediction public for 2009...

Jack said...

Hello,

Love your blog.

Since when should you care about people's reaction to your posts?

I think you should post what feels right for you, even if those are only speculations. Like you said, for those who do/will take them into acount they might help.

Thanks,

Jack

Kevin Burton said...

I think that at the time I felt you were being overly pessimistic.

In hindsight, the fact that you didn't predict the global financial instability partially means you were being a bit hyperbolic.

I felt the market was headed for a correction which is one of the reasons I've been saving cash and not hiring (we have 1-2 years of cash in the bank).

I think this could be very good for the industry... come 2010 the companies that make it through will be able to grow rapidly and perhaps make a number of cheap acquisitions.

Chad said...

Greg, here is another vote for you to post your predictions for 2009, despite the naysayers from last year.

See the comments from your October post (http://glinden.blogspot.com/2008/10/2008-dot-com-crash.html), including one from me.

Blud said...

Greg you should post your predictions. The haters are all too busy crying over their smashed portfolios to come here and hate on you this year.

Sean Murphy said...

Greg, I think you should post predictions with some advice for entrepreneurs. I found your 2008 predictions thought provoking but somewhat pessimistic, clearly you were much more right than wrong and I was too optimistic. I am sorry that some folks decided to be needlessly insulting but I found them to be valuable. The comments are useful as a "decision record" of entrepreneurial thinking.