Reasons Why We’re Hurting (and How Quickly Things Will Change)

It’s no news that most of the world’s economies are slowing down, including our own. After years of unprecedented sustained growth it’s reasonable — although not pleasant — for growth to take a breather. And it’s the tech sector that ran up one of the most enviable growth rates of any industry, setting itself up for the current “the bigger they were, they harder they fall” scenario.

An investment banker described one the absurdities of the recent past: a few years ago he began receiving business plans from various telecoms. After reading a few he noticed they had one thing in common: they all needed about a 30% market share to break even. It isn’t hard to see (today, not back then) that if ten companies all need a 30% market share to survive, not all of them are going to make it. In fact, the situation turns into “The Producers”, in which the shysters Bialistock & Bloom sell 4000% of what they hope will be a failed show to unwary investors. In their case the show was an unexpected hit; unfortunately today’s telecom industry is a disaster for companies and investors alike.



Incidentally, we’re still seeing effects of all that VC money that was invested willy-nilly over the past few years: slowly but surely companies whose plans had no business being financed are dying, agonizingly, victims of their enormous appetites for cash and their meager abilities to generate income. Webvan is only the most recent casualty; unfortunately there will be more. A Wall Street fund manager recently offered his opinion that “we’ll know the game is really over when the other shoe drops. And the other shoe is called”

Most of this pain trickles down to our very own advertising economy, especially media. After years of booming year-over-year growth, 2001 can’t end fast enough for most media salespeople. An unscientific survey of a few players (radio, cable, print, Web advertising, television) offers no consensus as to when things will really turn around. There’s a vague “early next year” thing that pops into some conversations, but for the most part it feels like wishful thinking. One big question is: Will consumers spend real money this Christmas? If not, push back the recovery even further.

And — not to get mired in economics —all those wonderful interest rate cuts the Fed has given us haven’t done anything to weaken the dollar. That means that our exports are likely to suffer, which isn’t good for American manufacturers. More layoffs? Probably.

Lastly, let’s not forget we’re in July — the utter and absolute bottom of the summer doldrums. If things are ever going to look bleak, it’s right now. In just a few weeks it’ll be back to school time, summer will be over, and who knows? What we’re living through today could turn out to be just a bad memory. P> - Michael Kubin is co-CEO of Evaliant, formerly Leading Web Advertisers, one of the web's leading sources for online ad data.

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