• GigaOm, Monday, September 10, 2007 11:01 AM

The "R" word (recession) was bandied about last week by financial people after it was revealed Friday that 40,000 jobs were lost in August (analysts were expecting a gain of around 100,000), as companies started to lay off employees in the wake of an economy-wide credit crunch. So what does this mean for the Web industry, GigaOm asks? Is the Silicon Valley startup bubble about to burst?

Venture capitalists and Web 2.0 wannabes are all at risk, says Giga's Anne Zelenka. If the economy starts to hurt real bad across all sectors, "it could be everyone's turn to practice austerity," she says--even Web advertising, the foundation on which many a VC-funded startup is built. Data from Nielsen//NetRatings shows that online advertising has been heavily dependent on the financial services sector, which will no doubt draw its purse strings tighter as the credit bleeding continues.

On the other hand, some pundits claim the tech sector could be the next destination for cash. It depends on whether the market believes in its growth potential as a safe haven. But as Zelenka says, "the economy doesn't play fair, so just because hedge fund managers, private equity dealmakers, and real estate flippers won big over the past few years doesn't mean it's someone else's turn." She thinks investors will either lose money or hold onto it as a result of the credit crunch--even if the Fed cuts interest rates, meaning lowered spending in all advertising sectors.

Read the whole story at GigaOm »