Will the unthinkable happen on the internet?

Internet users – myself included – have got used to relying on free online services which rely heavily on either online advertising or investors being willing to put up large pots of money even when there isn’t a clear way of turning users into income.

Many of the services have become such a key part of their users’ lives that their failure is often unthinkable to people. What would happen if you woke up tomorrow and discovered Facebook or Flickr or Twitter or Google or one of a score of other major free services had gone bust?

Well, you’d probably¬† have more time on your hands to get away from the computer and enjoy a bit of walking in the fresh air … but it would also cause widespread disruption and angst.

Looking at the current economic outlook, it’s hard to see how we can get through the next 18 months without some dramatic fall out.*

There is a double-squeeze building up for internet firms. The credit crunch has not yet had much of an impact in restricting the availability of funds for the high-tech sector, but as it continues to bite and financial institutions look to rebuild their balance sheets, it is easy to see how the flow of new finance could dry up.

Second, there is no reason to think that internet advertising will be immune to general economic slowdowns. In previous recessions the fallout for the advertising industry has been quite vicious in many sectors; for example, a good rule of thumb for local and regional newspaper advertising has been that in downturns you lose 50% of your ad revenue in the first year, and a further 50% the next year for example. The length of time since the last serious advertising recession, combined with the youthfulness of many internet firms and their staff, means it would be no surprise if we find out that several have financial models which are essentially based on the assumption that the bad times are no more.

If a major free internet service faces going bust, it may be bailed out by another firm, but there’s no guarantee – and no certainty that everyone’s data will be seamlessly moved over to any new, merged, ongoing service. So in the meantime – an extra backup or two may be a wise move.

* Note: please bookmark this post and in 18 months time come back to it and either say, “Why, that Mark was a damn fine sage, wasn’t he?” or “Someone must have really disliked Mark to hack into the website and plant such a daft story as that in his name.”