Are We In a Social Media Recession?
A lot of headlines lately have been alluding to the potentially calamitous repercussions of the current economic situation on the social media and online marketing industries. This morning’s Online Media Daily from MediaPost certainly seemed to forecast cause for despair: headlines reported that AdBrite has just laid off 40% of its staff, and Nielsen plans to shut down its “Hey, Nielsen!” social network.
The newsletter also reported that despite the recent downturn, Google reported Q3 profits from ad sales that exceeded expectations. This could be no more than a glimmer of false hope, however — the sharpest decline in the markets occurred only in the last few weeks, meaning Q3 numbers were buffered by greater sales earlier in the quarter, potentially masking cutbacks in ad spending more recently. Even if ad sales did in fact show consistent growth over the entire quarter, some have argued convincingly that this is exactly the trend we should be expecting — right before a PPC advertising crash.
What should we make of all of this? It’s important to recognize that despite the doom-and-gloom headlines, many companies in this sector are gearing up for strong continued growth. In the last 48 hours alone I’ve come across reports that Google, Facebook, Hi5, Twitter, Digg, and Mashable are all doing some serious hiring at the moment. Strong businesses that understand their priorities will continue to grow, some quite substantially. All boats may rise with the tide of an economic boom period, but that doesn’t mean that they all sink when times get tough.
This is not to say that the current situation should be taken lightly. Every company is taking a hard look at their P&L and thinking about the tough decisions they may have to make in the coming months. But for many companies, this was a long time coming. VC firm Sequoia Capital has taken an aggressive stance on the need for adjustments among the companies it has invested in, and is now “stressing the need to control costs and become profitable to survive the downturn.” At the risk of pointing out the obvious, startups should always be seeking to achieve profitability, and it smacks of irresponsibility on both sides of the table that companies should have to be reminded of this purpose by their investors just because belts are getting tighter.
Ultimately, like the dot-com bubble at the turn of the millennium, this period will reveal the companies that have developed a strong core offering and a sustainable business model, while weeding out those who have floated along on the most recent bubble of VC investment but have failed to achieve profitability. Great ideas will still prevail and great startups will continue to receive investment, but everyone will be taking a refreshing step back to look at the big picture — and that’s very good news.
(Photo credit: VC Confidence Index Graph from TechCrunch)
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