Market Jitters
Subprime mortgage fallout fears have brought the market off of it’s July highs, which saw the Dow in the neighborhood of 14,000. Since then, it’s been like a kiddy ride at a carnival… up, down, up, down, down down… you see where this is going. The DOW and NASDAQ are both 5% off their summer highs. But, is it all really Doom and gloom for the markets? With pressure on Bernake to cut rates and the looming fear that the falling of the housing market will topple the whole row of dominos, I think its likely that we’ll see another rate cut from the Fed before the end of the year. Whether this will signal the bottom of the market and redirect the economy in the long run is doubtful. In the end, the market needs to truly and completely correct from the real estate bubble that has built up over the past few years.
On a micro level, what does this mean for our industry? How does this affect Internet business? Assuming that the markets are headed for a correction, combined with tightened underwriting requirements, we’ll see a less liquid market. The result is less spending for consumers and businesses. In an industry where so much revenue is B2B, the key indicator for our industry will be IT spending. If IT spending weakens and financing is more difficult or expensive to get, we’ll see further market consolidation.
When money gets tight, those with deeper pockets are the survivors. Smaller companies (i.e. hosting resellers, small software providers, etc) will end up either being acquired (in the best of cases) or simply going belly up. What about the big fish? The big fish end up acquiring or otherwise taking more market share. Case in point (although unrelated to IT): on Warren Buffet’s to do list this week was the purchase of more than 10 million shares of rail provider Burlington Northern…