Monday, October 13, 2008

Identifying the survivors

With the recession in full force, and warnings from multiple venture capitalists to their investments to "batten down the hatches," it's probably time to start think about which Internet companies will survive and which won't. The dot-com collapse left us with a few world-class survivors: Amazon.com, eBay, Google and Yahoo! (I'm focusing on U.S. companies, but there obviously are others, such as Baidu in China.) In the worst case, who would emerge as leaders after a Web 2.0 collapse?

Right now, there are only two that I'd be willing to put good money on: Facebook and MySpace (MySpace is of course part of News Corporation, but I'm looking at them as an independent entity in this case.) Some of the specialty social media networks, such as LinkedIn, are likely to survive through acquisition. The online video space is already turning into a boulevard of broken dreams, as it did in the original bubble. Sites that are already affiliated with an "old media" company will probably make it through, because they have strong capital bases for support, but most standalone sites are dead meat. The costs of streaming bandwidth compared to available advertising revenues are simply too high. Some of the independent blog networks will also make it, because they've always made do with limited capital, and their costs are so low. In short, anything not named Google that's dependent on advertising revenues and isn't already profitable or at least cash-flow positive will be hanging on by its fingernails, if it hangs on at all.

There will also be the e-commerce segment leaders, such as Zappos, that will probably make it, but they're going to have to survive in a market with consumers who spend less and have less credit. There are lots and lots of infrastructure services out there--far too many for the market to support, and most of them will go away.

I'll stop at this point--any suggestions on sites that I missed?


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