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Web leaders on economy: Keep calm and carry on

At the Web 2.0 Expo in New York, just a stone's throw from the turmoil on Wall Street, it was hard not to notice the financial-industry meltdown.

Caroline McCarthy Former Staff writer, CNET News
Caroline McCarthy, a CNET News staff writer, is a downtown Manhattanite happily addicted to social-media tools and restaurant blogs. Her pre-CNET resume includes interning at an IT security firm and brewing cappuccinos.
Caroline McCarthy
5 min read

NEW YORK--The crowds at the Web 2.0 Expo seem to have one clear consensus on what they think of this week's Wall Street meltdown: things are bad, but it's no time to panic.

Of course, they're all pretty relieved that the tech industry can't be blamed for this economic meltdown.

"This is a very good time to start up a company," investor David Rose of the New York Angels firm said in a panel called Starting Up in Silicon Alley. "Despite the calamities that are going on outside, the world is not coming to an end."

The current financial crisis is less than a week old, after all, so the outcome is less than certain. Most of the conference crowd chose to be cautiously optimistic.

The Jacob Javits Convention Center is only a few blocks from Wall Street. Yet at the Web 2.0 Expo, it was mostly business as usual: marketing, monetization, branding, social advertising, and a Microsoft-sponsored party on Wednesday night where the centerpiece was an ice sculpture that dispensed vodka shots.

Standing at his company's booth on Thursday afternoon, one representative of a Web-based nonprofit organization shook his head with disapproval. "Not enough people are talking about it," he said. We all know what "it" is.

In fairness, it's a stretch to say everyone was twittering while Wall Street burned. The underlying attitude at the Web 2.0 Expo was one of sober acceptance, realizing that conducting business in 2008 is more difficult than it was in 2006.

I'm very worried," said Majid Abai, CEO of the community software start-up Pringo. "When the economy is down, investment in technology is down."

There's reason to be concerned: financial-services companies are often cutting-edge technology buyers, and the mess on Wall Street makes it unlikely that big brokerage houses (at least the ones still standing) will be spending on anything nonessential anytime soon.

But that doesn't mean that the start-ups here plan to close the shop and go home. Investor Rose stressed that the technology industry grew resilient from the dot-com bust and that those lessons will carry over.

"We got hit hard," he said on the panel. "What we're looking at now is an extraordinary sea of experienced serial entrepreneurs."

Is the Web industry, gasp, growing up?

Tim O'Reilly, founder of expo organizer O'Reilly Media, hopes so. He gave a keynote address on Thursday morning that exhorted the Web 2.0 community to do something worthwhile. "We have to assume the worst. We have to assume this world is going to hell in a handbasket, unless we do something about it," O'Reilly said. "It will work out if we make a difference, if we make stuff that matters, if we create more value than we capture."

"Do things that matter"
In other words, building products that help corporations run more efficiently, that assist with nonprofit efforts and Internet access in developing countries--those matter, according to O'Reilly's message. iPhone applications that simulate beer chugging are a different story.

But "do things that matter" is a mantra that O'Reilly has been chanting for several months now, not just in the face of the Wall Street crisis.

The last Web 2.0 Expo, held in April in San Francisco, came amid the collapse of investment bank Bear Stearns and a research firm's reports that venture capital was starting to dry up.

Nielsen Online announced on Thursday that the financial-services sector pulled back its display ad spending 27 percent in the first half of 2008, making the entire industry's spending drop 6 percent. But predictions for online-ad spending had already been spiraling downward.

For many at the Web 2.0 Expo, the week's news was a forceful reminder of the shakiness of the economy. Graphics chip manufacturer Nvidia just laid off 360 workers. Hewlett-Packard slashed 24,600 jobs earlier this week to "streamline" the operations associated with its acquisition of EDS. eBay reportedly is considering unloading StumbleUpon, a start-up it acquired just over a year ago. These things likely would've happened regardless of Lehman Brothers declaring bankruptcy.

"It's true of our sector overall that there's going to be ups and downs," Kevin Ryan, the former DoubleClick CEO who co-founded the business blog Silicon Alley Insider last year, said in the Starting Up in Silicon Alley panel. "The rate of change in the Internet media space is slowing down. This has nothing to do with the economy. If I asked you, how many new things have you been using, in terms of Internet applications, in the past year, that rate of change is slowing down."

It's no secret, for example, that many industry insiders have been concerned about the reliance of the past few years' hot Web companies on advertising revenues. "Online-ad budgets are probably going to be up 10 or 20 percent this year, not 50 or 60 percent, like we'd hoped for," Tom Gerace, CEO of social network Gather and chairman of a new social-advertising standards group that was announced at the same time as the expo, said in an interview with CNET News. "Due to the fact that ad budgets are being migrated to the online space and continuing to move online, I think the real hit is happening in print, especially newspapers."

But tech leaders say they've seen this one coming too. "It seems to me that the pure 'eyeball' play is not long for this world," Rose said, referring to the dominance of display advertisements on the Web for the past decade.

A positive sign
Indeed, most of the buzzed-about companies at the Web 2.0 Expo, as with the Demo and TechCrunch50 events earlier this month, were enterprise-oriented services rather than free consumer applications. There's a real question as to whether companies will spring for these products in a time of tightening budgets, but ultimately, it's a positive sign: business models, not cute fads, are at the forefront.

"A lot of people would label us in the 'too risky' category. But I don't think you can make that argument anymore."
-- Michael Lazerow, CEO, BuddyMedia

Some speakers at the conference went so far as to insist, in subdued language, that these times are beneficial for the tech industry: they keep people grounded and fiscally responsible, weed out the companies without effective business plans, and keep the venture community from making rash deals that it will end up regretting.

"We're continuing to actively invest to the extent that we see compelling opportunities," venture capitalist Karin Klein of Softbank Capital said in the "Silicon Alley" panel. "This is probably one of my favorite times to find opportunities because the entrepreneurs who are starting businesses now are really committed."

Tim O'Reilly's keynote speech echoed this. "Remember that visionary companies are not afraid to make bold commitments to big, hairy, audacious goals," he said, underscoring "the potential in big problems."

Plus, some said, there's the chance for an influx of new talent. Rose cited the example of First Round Capital's Josh Kopelman, who launched a Web site this week called Leave Wall Street, Join a Start-up.

BuddyMedia CEO Michael Lazerow likewise addressed the common wisdom that New York's engineering talent has traditionally favored Wall Street over tech start-ups because of stability.

"A lot of people would label us in the 'too risky' category," Lazerow said. "But I don't think you can make that argument anymore."

CNET News' Jim Kerstetter contributed to this report.

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