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