Kara Swisher

Recent Posts by Kara Swisher

Dear Web 2.0: It’s Still the Economy, Stupid!

Last week, one of the things that struck me about the coverage of the two main tech conferences devoted to start-ups, DEMOfall and TechCrunch50, was the almost complete lack of discussion–or, more appropriately, worry–about the troubled economy.

This, even though the subprime mortgage crisis remains in full swing, along with the continuing turmoil around the stability of Wall Street financial firms, as well as Fannie Mae and Freddie Mac. Also, let’s not forget those sky-high gas prices.

Still, one entrepreneur after another got up and spun stories of companies built on fancy new ad models to come or the more hidden premise that they would get bought by a bigger fish up the food chain like Google (GOOG) or Microsoft (MSFT).

But as I wrote last week, all those stocks are suffering, and those companies are likely to be retrenching rather than expanding.

In fact, at an interview with Internet entrepreneur and investor Peter Thiel at TC50, he called Web companies undervalued. (See my video interview with Thiel here last November, in which he says a lot of the same stuff.)

As he told me almost a year ago, Thiel repeated his contention that the technology sector was still not in a bubble.

Well, perhaps not, but that’s actually because most companies in Web 2.0–despite their massive valuations over the last few years–aren’t going to have the chance get frothy and light enough to become so poppable.

Instead, most will likely fizzle away quietly, with no exits in sight as the economy weakens and puts a vise grip on companies that cannot survive the very tough financial road ahead.

That means the popular Web 2.0 maxim of “growth before profits” is in for a very bumpy ride.

It’s going to be especially true after this weekend’s latest round of bad news–the bankruptcy of Lehman Brothers, the sale of Merrill Lynch, the impending crisis at banks like Washington Mutual.

And with more to come, I could not help but remember the well-known political phrase used in the 1992 presidential race by the Clinton team: It’s the economy, stupid.

And that’s true even here in Silicon Valley, where the sun always seems to shine, even as the clouds gather.

(Also, here is a very good piece on the topic by CNET’s Larry Dignan on some more details of the impact on tech firms, specifically on selling products to financial firms.)