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No Ordinary Recession: How Has the Great “Reset” Affected Us So Far?

Posted August 4th, 2011 by Andrew Goodman

Nearly three years ago, I wrote a two-parter for Search Engine Land addressing the “Wall Street Meltdown” and how it would affect digital marketers in the coming years.

Although many people suspected things were going to be a bit rough, only a minority were concerned enough to believe that a major shift was taking place. You’re supposed to “bounce back” from recessions. It didn’t happen this time.

Since September 2008 when I wrote the piece, the stock indexes have remained about where they were. The precipitious fall continued into 2009, then a powerful rally got things back to where they had been, and as of this writing, stocks are falling steadily. The market is almost always a pretty good (18-month) leading indicator, so along with everything else, that indicator suggests we’re headed for more trouble and more slack demand.

What perhaps couldn’t have been predicted was the fact that the tech investment bubble kept bubbling – seemingly exponentially – in the midst of unprecedented calamities in housing prices, employment, etc., in the rest of the economy. Analogous to the process by which much of the loot at the top of the economic expansion went disproportionately to a few in the finance sector (either in bonuses from successful bets, or government transfers for bailouts), these high-tech windfalls don’t seem to do much to stimulate the broader sector, at least in the short term. The founders and investors in a small number of companies like Facebook, LinkedIn, Twitter, GroupOn, Pandora, etc., walk away with windfalls from IPO’s or pre-IPO financings, limiting the “good times” to a small number of winners. Companies in a rush to do the same thing suddenly look out of step with normal human decency when they grab a little too hard for it, openly, without taking care of things like basic safety, ethics, etc. — to wit, the recent Airbnb fiasco.

There have been a raft of successful tech IPO’s in the past couple of years, after a long drought. It’s entirely possible, though, that a decent number of those in the planning phases may need to be shelved as investor demand dries up. It will be interesting to watch whether investors continue to look the other way at ugly fundamentals and questionable founder ethics, or if such companies will soon be held to “normal” investment standards.

That aside, the continued success of this sector isn’t inconsistent with the economy, as this is not a normal “demand slackening,” general sort of slowdown, but rather an inchoate and yet-to-be-determined reorienting of how economic and social life are organized. Richard Florida calls these episodes “Great Resets,” and posits that this is only the third such reset since the 1870′s. During the Great Depression, for example, Prof. Florida cites a wide variety of innovations and huge leaps forward in productivity that rolled out in the wake of the Roaring Twenties, as the general population retrenched into caution and often grinding poverty. I’ll dig into this in a future post.

Essentially, there are a series of cataclysmic changes happening at once: broader fiscal and economic cycle issues; the ‘Chaos Scenario’ for old media, the Great Reset that will continue to produce steady declines in employment in many traditional working-class and middle-class professions, while creating massive growth for high-skill Creative Class professions on one hand, and dead-end but tolerable service-sector jobs on the other (and somehow to be afforded, the persistence of stable government jobs and a huge increase in health-care related employment). Are these trends all interrelated? No; it’s dangerous to try to divine some coherent logic from every trend. But with the pace of change, the insistence by analysts like Florida that some kind of Schumpeterian process of “creative destruction” is currently at its height is obvious, on one hand, and depending on where you sit, perhaps too sanguine, on the other.

Anyway, to touch back on a few highlights among the 11 predictions I made for our particular sector nearly three years ago, they were roughly as follows (paraphrasing at times):

  1. Paid search will remain relatively robust.
  2. Display ads are vulnerable in a slowdown
  3. Weak companies die. The strong get stronger.
  4. M&A and downsizing means frequent job changes for some
  5. Phony ‘performers’ and ‘rock stars’ get outed, and real expertise becomes easier to spot
  6. The tools of business and pleasure all get cheaper, for those who can afford them. The face-to-face conference business won’t dry up (in our sector) as fast as you might think or fear.
  7. More people will re-evaluate their priorities, values, and goals.
  8. Real-world financial problems will be achingly bad for many folks, something that should become hard to ignore even inside the most meticulously-constructed digital bubble.
  9. Traditional ad agencies and traditional media will continue to decline.

How do you think these predictions played out? Were some of them on the mark? Most? All? Let me know what you think.

I’ll be back in a bit, when time allows.

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