In 2001, the sky fell for web development. Everything fell as the dot-com bubble broke. In 2008, even though the US economy’s not looking so good, there’s more hope for the web to follow the economy’s course rather than shatter and fall below it.
I’m a computer book editor, not a business commentator, so I don’t have charts, facts, and figures to document how revenues will remain steady even against a backdrop of stagflation, war, and other economic tensions. The reasons I think web business may do better this time have more to do with how the Web has become an ordinary part of our life.
-
Need it
-
In 2001, Internet access was still on the edge of ‘necessary’ in American homes. It was definitely a luxury item people could do without if needed. Today, while it’s still not as important as power, heat, or water, the Internet and the Web have become key parts of people’s personal communications infrastructure. We expect to talk with our friends online, find information online, and do business online. Places without broadband access are pushing hard to get it because it’s now seen as a required component for business development.
-
Community
-
The dot-com boom and bust were largely built on an effort to get customers to come somewhere and buy things. When the deals looked less exciting, customers simply stopped coming. The past few years have seen an explosion of sites built on sharing and communication between visitors, not just between buyers and sellers. Those communities have become a part of people’s daily lives, an important part of their social life. This doesn’t mean that people spend all day staring at Facebook, Amazon reviews, forums, or blogs - but it does mean that people have integrated those sites into their daily lives.
-
Ordinariness
-
People have adapted to and accepted the Web. Having a web site for a business is no longer a huge special event - it’s something normal. Lots of people now turn to the Web rather than the phone book when they want to find out what a store’s hours are.
-
Costs less than it did
-
In the late 1990s, putting up a web site was a big deal, involving costly hosting and bandwidth, specialized developers, and a mindset that poured money into building audience size at any cost. Today, you can do even large-scale hosting at much lower cost, web skills are a more ordinary part of skill sets for administrative assistants, Java programmers, and database gurus alike.
-
Lower up-front costs ease entrepreneurship
-
One of the most important changes over the past ten years has been the fall in the costs imposed by the need to scale. Web traffic has always had a dangerous way of coming and going and spiking and disappearing. Early on, the answer was to buy a big server, let it sit quietly much of the time, and hope that it was big enough for the spikes. Today, thanks to horizontal scaling techniques and new offerings like Amazon S3 and EC2, you can buy smaller chunks of processing capacity and add as needed. (And sometimes you can just grab key functionality through mashups, at least to get started.) This should make it much easier for entrepreneurs to keep trying new ideas even if investment money dries up.
-
International reach
-
The Web reaches well past local stores and local customers. If someone somewhere likes what you have, it’s much easier to conduct a transaction now than it used to be. This might be stabilizing - international customers may be responding to different economic stimuli than local ones. Of course, the value in that depends on other areas doing better than the local economy.
-
Gas costs more than electrons and shipping
-
As gas prices go up, it would make sense for people who are used to going online to find things to go online and buy things rather than driving from store to store. Shipping costs may go up as gas goes up, and the cost of pushing electrons will also climb, but all of those systems have major infrastructure efficiencies that driving around lacks. (Will people realize this? And what are the limits?)
-
Maintenance mode
-
There are still immense new projects coming on to the Web, but there’s also a tremendous amount that’s already up, developed, thought of as monthly maintenance costs rather than intense new expenditures. While this may not look like a bright new horizon for entrepreneurs, it does provide the Web with some much-needed ballast to keep it stable through whatever waves the economy throws at it.
I’m sure I’ve left out a lot of reasons for stability, and at the same time I doubt that the web world will shrug off the impact of broader economic busts or booms. Google, Yahoo, Microsoft, Amazon, and other big players have, after all, become a key part of our economy, tightly integrated with all kinds of businesses on their way up or down.
What I don’t see today, however, is the kind of industry collapse that happened in 2000 and 2001. I’m still haunted by memories of a dreadfully empty web development conference in the Moscone Center in early September 2001, where plans made earlier for a thriving industry left a sense of huge emptiness when the industry wasn’t thriving any longer. (A lot of good ideas did percolate during and after the bust, and led to the more interesting Web we have today, but I don’t think too many people enjoyed the collapse.)
I’ll admit that I hope I’m not wrong. Past performance is no guarantee of future returns, and all that.
On the other hand
http://www.reuters.com/article/internetNews/idUSN2323460320070323
I've no doubt that for business you are right. There are some complex issues though. Say you are building a system with web front ends and servers that rely on cell phone services as part of the deliverable. The cell phone provider reliability varies enormously and that limits markets in ways that are tough to predict. These couplers in the shadows (not hidden but not at the edge of perception), can combine to dry out a market.
In a recession or loss of income, what were becoming necessities are seen as luxuries. It comes down to choices between them, so given shrinking income due to rising prices does a family get rid of the daily newspaper (a cheap item overall for depth of news), the multiple cell phones (one per child), the car for the teen-agers, the cable TV, yoga classes for Mom, violin for the daughter, math tutoring for the son... or their broadband Internet connection with the attendant fees such as subscriptions to World of Warcraft?
It isn't that the web industry will collapse. The question for sales is will it expand at the current rate because that is what the marketing group uses for budget given that businesses tend to live on future income, borrow for current expenses, and have to very carefully monitor the time from bid to sale to cash receivables.
It's a complex problem and predictions are tough.
Right, Kurt. The critical problem becomes revenue realization against outstanding loans and the increasing costs of obtaining loans. For example if one is invested in online gaming, one has to ask in a crunch where the online entertainment industry is headed: growth or decline, and at what rate. Some speculate increase in gas costs means the value of online entertainment is more attractive. Some would say that balancing the cost or online entertainment against other necessities means it is less attractive.
It is hard to say much about individual markets where the costs to keep current are changing. R&D usually takes a very hard hit. Big ticket items (software tools, transportation, etc.) take a hard hit. The late seventies were revealing to those of us who say car sales declines, home sales decline, and so on. In fact the way we knew it was over was those awful K-cars starting to appear everywhere.
But as to the web, a big difference is the web technology is very common in all other aspects with a lot of growth in the infrastructure markets. Whereas ten years ago I could say with confidence public safety was a late adopter making little use of it, now exactly the opposite is true. Health systems? Not as much but on the increase. Security is a particular problem in both of these still with hack attacks on a sharp rise.
If R&D takes a hit, then it makes it tougher to fund infrastructure improvements that is, is it worth retooling XML or investing in XML's replacement, or the next generation for web/internet clients that may not use markup in the same way as the current one?
But the web collapsing like a bubble? That won't happen. It is fiber and sinew now in the business systems even if growth slows elsewhere. The fire/fuel/air analogy is a good one.