Why Silicon Valley Should Stop Worrying â€" and Get Busy
You can feel the panic slowly build in Silicon Valley: chests tightening as people vainly fight for breath, fearful glancing about, looking for a way out. Movers and shakers are trying to brace themselves for a crash of reality. Unfortunately, in the process they will create their own worst nightmares and pass opportunities that could put them on top of the industry.
Blossoming fear is palpable:
- Om Malik is concerned about online advertising revenues.
- Web and media executives at the Allen & Co. conference were heavily concerned with the state of the economy.
- There's concern that the credit crisis could cause a money drought for investing.
- Aaron Greenspan finds a "partial bubble" in the Valley, with no substance, no profit, and plenty of hype, but no high valuations for solace that is the result of social networking Kool-Aid.
- Even in February, Silicon Valley start-ups and investors were "beginning to hunker down and tighten their belts", cutting spending and trying to build up cash.
- You get advice like How To Take A Stock Market Dive In Stride.
The quarterly results posted Thursday by Microsoft Corp. , Google Inc., International Business Machines Corp. and Nokia Corp. all point to some common trends that are sustaining revenue growth. At a time when many other companies are struggling amid high energy prices and a worsening credit crunch, these four firms are benefiting from healthy technology demand outside the U.S., the growing economic importance of the Internet, and widening use of cellphone and portable computers in emerging economies.The results show that so far, the tech industry remains better positioned to ride out the troubles buffeting industries such as finance, autos and pharmaceuticals. But executives at the companies acknowledged that the tech and Internet industries aren't immune to a further economic slowdown and foreign-exchange shifts. And there were notes of caution -- particularly from Google and Microsoft.To compare current times to the dot-com bubble is silly. At that time, people were talking about an end to the "old fashioned" concept of needing revenue and cash flow. Everything was in market valuation. Unfortunately, market valuation is driven by emotion, and payrolls, expenses, and profits all demand tidy piles of green paper. But LinkedIn claims to be already in the black. Facebook is projecting revenues of $300 million to $350 million for 2008. In News Corp's FY 2008, MySpace revenue topped $800 million. These are businesses that may need to grow expansively, but they are hardly imaginary.
Ad revenue online down? Yes, as is the case with advertising revenue everywhere else. Gannett second quarter profits dropped by 36 percent. Magazine ad revenue was down by 3.1 percent in the first half of this year. Newspaper advertising revenue fell 7.9 percent in 2007. It's not the first time advertising spending has dropped, and it won't be the last.
Silicon Valley has a bipolar view of business. To look at only the highs and lows is to miss the entire experience of business and all its opportunities. There are always cycles, and all the important work is done between the peaks and valleys. When things slow down, you consolidate your position, watch spending, and use the now-saved resources to innovate. As the economy speeds, roll out and expand from your innovation and put money away for the next downshift. At all times you look at reality with a good dose of humility. Or, as Google CEO Eric Schmidt was quoted as saying during the Allen & Co. conference, "We make our own weather." Sure, put on a pair of galoshes and hoist the umbrella, but remember that all the water will eventually float a lot of boats.
Boat in storm image via morgueFile user penywise, use by permission