If the Recession is Long, Web 2.0 Startups Could Be Screwed

(MoneyWatch)  Andrew Chen, writer of the online advertising-focused blog Futuristic Play, has a post up today talking about online advertising in a recession. Included is a stark prediction about some of the most active areas in online. From his blog post:

Unfortunately, some of the weakest areas for online spend during a recession are also some of the hottest spaces for startups right now. In general, startups based in video, social networks, and communication applications are some of the most brand-dependent companies out there. The problem is that generally, they have a hard time monetizing pageviews because users aren't in a buying mindset when using the products.

Because of this, you need to be at a critical mass point to be relevant to agencies - and of course, this bar can be expected to rise over time in the case the economy is sputtering. Why spend a dollar with a no-name publisher when you can buy premium inventory for relatively cheap CPMs?

This mirrors what I've been hearing over and over about marketing in a recession: brand advertising is screwed while direct response is only going to get stronger. Of course, the main beneficiary of direct response is anyone involved in search advertising. As always, its good to be Google.
Still, it's not all gloom and doom. Andrew Chen goes on to note the giants of today were mainly founded in the doldrums following the last economic downturn:

The brand-oriented web properties that exist today were built in the 2003-2005 era, when brand advertising wasn't so healthy. Similarly, Google was created during a period where online ads was out of vogue, and they had to figure out a model that works.

For the new startups that are building their business plans from scratch today, I think there remains tremendous opportunities in the advertising-supported model. It pays, as many investors can attest, to be counter-cyclical. Perhaps the startups being incorporated this year who reach scale 3-4 years from now will be the ones that really kill the TV ad market by doing things we can't even imagine today.