Well, as everyone is well aware the economic collapse we are experiencing is becoming increasingly serious and the end seems to be slipping further away by the day. With $20 Trillion dollars lost in the US stock market over the last 12 months we have seen a tremendous loss across all of the equity markets and it doesn’t seem to be bouncing back any time soon. Volatility is at an all time high and at some point you have to ask, how will this affect online commerce, communities, and industry? The internet industry has been seemingly detached from the brick and mortar industry we can see taking tremendous losses and decreases in revenue, but that will not last for long.

The first online medium to be hit hard will undoubtedly be display advertising. As most of the large display advertising contracts are held by large car, electronic, and other large international brands, etc . . . those large contracts will most likely be significantly reduced or unraveled completely. Display advertising thrives on the idea of building brand and product awareness, however the effectiveness of such campaigns are not quantified and therefore, from an accounting standpoint, not justified. Budgets will be cut and when a company is faced with a decision between display and search advertising, a quantifiable and easily tracked conversion path will be favored. What this means on a larger scale, is that Yahoo, who’s majority revenue depends directly on display advertising will be hit hard in the coming quarters. Google, on the other hand, will weather this storm relatively well as its bulk of revenue is derived through paid search.

As an economic crisis of this scale affects all types of consumers, e-commerce will undoubtedly suffer and overall e-commerce revenues will see a drastic reduction in the following quarters. When looking at what mediums will be hit the hardest it will most likely be the middle of the road retailers and not the bargain companies (Target, Wal-Mart, Costco, etc. . .). Higher end retailers and luxury retailers tend to hold relatively well through recessions but with a recession on such a large scale we can expect decreases in overall revenue.

As overall revenues decrease, capital is squeezed and the risk involved with starting new companies becomes more apparent. This is not going to stop new online ventures from a funding point of view, but it may give hesitation to those thinking about starting a new company. Venture Capital firms are flush with capital right now. Business ideas that are not capital intensive will have the same opportunity they had for raising money they did a year ago. The difficulty will come for those in the semiconductor industry and other capital intensive businesses requiring hundreds of millions in funding for relatively low ROI. The one exception to this will remain to be solar and green companies as it is such a hot topic these days. Pressure will also come onto those companies that require late stage funding prior to IPO or profitability. In the past these companies could approach hedge and mutual funds for their final rounds with comparatively little equity sacrifice. With these funds now experiencing serious financial pressures, those opportunities will disappear and the companies will be forced to go back to the VC’s for their final round. This is not a desirable position for the companies as VC’s are much more aggressive in terms of valuation and return.

So how does all of this translate to the small to medium sized online businesses? Pricing pressures will be seen in the advertising space, so if your company’s sole source of revenue is advertising, don’t be surprised if you see a decrease within this revenue stream. This will stem from the advertisers side, cutting expenses. The amount of traffic your site receives will most likely remain constant as the web itself will not be feeling any recession, merely the companies that operate within its infrastructure. If you sell products or services that are considered “luxury” items, you can expect overall demand to decrease. It is very clear that there is a recession and we are all in the thick of it, the tough question is “how long will this last”? When we take a closer look at the market forces that are pushing this economy downward, the psychological repercussions that such a downturn has had on the world’s economic mentality, in combination with the more material economic drivers (credit, banking, and regulatory aspects) it is clear that it will be some time. That being said our economy is simply reaching a new equilibrium of true wealth measurement that does not rely upon inflated ideas of worth and un-proportional company valuations.  We have sunken below the new medium, and the correctional bounce that we will experience will be hard and fast. This is not to say that the economy will immediately correct to where it was a year ago, it will bounce back to a more realistic valuation and continue to grow from there. We have, and are still, experiencing a circular degradation of wealth as companies and individuals that were overextended within the investing community are now being pressured to cover their losses and margins are being called; which requires selling of assets at already historically low stock prices and real estate valuations. This economic structure simply forces a down-selling creating a perpetual loss of value. Once, and if, the world’s governments act in a coordinated and rational fashion to re-stabilize the world economies we should see a return to balance and growing economies. This stabilization could happen as soon as a month or as far as a couple years. Either way, it will be years before we see a complete absorption of the losses we have experienced over the last 12 months. If for some reason we see a quick reversal and stocks over compensate for an unjustified rally, it would simply ove that no one has learned anything throughout this turmoil and we would be setting up for a repeat economic disaster.