While I normally focus on digital and social media, my focus has been completely distracted by the current economic turmoil and political season. The world is facing a very difficult challenge that will likely result in many disruptive changes for everyone. I wanted to get my thinking straight on some of this stuff and I thought I would share. I hope you find it useful. If you have thoughts you would like to add, please leave a comment.

The Seven Trends of the Current Economic Storm

1. Recognition by everyone that this is a severe economic crisis.
   We are experiencing a massive economic disruption. The mortgage meltdown, the credit default swap market meltdown, and the freezing of the commercial credit markets are causing massive turmoil in the financial markets. It’s driving a self reinforcing cycle of fear and chaos. Jobs are being cut, consumer credit is maxing out, foreclosures are accelerating, pension plans devastated. This is a bad, bad, bad situation and people everywhere are going to know and feel its impact.
2. Consumers will/have started making cost cutting a priority.
   We will be buying Mac and Cheese from Wal-Mart, instead of eating out. Discretionary cash will be in very short supply. They will spend even more time looking for bargains.
3. Demand has stalled for high end purchases by the mass market.
   The auto market is down by 30+%. That’s a huge drop. I was speaking with someone from a major car company earlier this week and he described how $10 billion in revenue just disappeared. Factories that were working hard are coming to a screeching halt. This will mean even more job loss and consumer distress.
4. Businesses are making cost reduction an urgent priority.
   Layoffs are beginning to gain momentum and will continue. Discretionary projects will be put on hold. The cost pressure will be so severe that we will see some radical, but very disruptive innovation.
5. Businesses will slow/put the brakes on capital spending and payables.
   Hording cash will be a key to survival. Businesses will react by slowing and cutting the spending on capital projects, and like consumers they will stretch out their payables as long as possible.
6. People and organizations with cash to invest will buy distressed assets at bargain prices
   Just look at Warren Buffet and his actions recently. He knows that when times are bad, it’s time to get greedy. There will be lots of cash strapped asset owners desperate enough to cut really attractive deals for investors. This will shift money from investment in new growth opportunities to investment in cash producing assets. This is really bad for start ups and anyone who needs venture capital. There will be very little money going to new things in the next 12 months.
7. The government reaction will increase substantially
   The problems we are facing will require even more government action.  There will be increased government deficit spending, cuts to interest rates, stimulus checks to the mass market, big government infrastructure projects and maybe even broad tax cuts. Given the current political trends, friends of Democrats (unions, trial lawyers, Hollywood, etc) are likely see more money coming their way and friends of Republicans (oil, pharma, Halliburton, etc) are likely to be punished as being the bad guys. As the government settles down, they will start putting in incentives to get businesses to invest and spend cash. 

Some preliminary thoughts on what this means

I think that these trends will definitely sway the financial rebound of different companies.

It is clear to me that delays and cut backs in discretionary, high end purchases are bad for the auto, consumer electronics, consumer durables, restaurants and other sectors that depend on these types of purchases. It is time to stay away from this stuff until consumers catch their breath and start feeling some job/financial security.

Companies that can help us cut costs, work out our debt, shop more effectively and help us get credit should be advantaged in this market. Experian looks like a company that should be able to take advantage of this. This is also an attractive potential area for social networking and media to the extent it can help people work out their problems together.

Companies that offer the ability to get results at much lower costs will rebound much more quickly. For example, the extraordinary cost effectiveness of search and online advertising will accelerate the share shift from offline to online. We may not see huge growth online, but offline advertising will get hammered, especially given the importance of the financial and automotive industries to ad spending. Stay away from offline publishers. On the flip side, this makes Google look more interesting and maybe even Yahoo.

This need for much lower costs will also accelerate share shift from costly physical channels to internet based channels.  This may be good for eBay and Amazon, but I’m interested in finding companies that are earlier in the process.  I’m not sure who to look at here.

Given the extraordinary cost cutting we will see in businesses, they will need ways to keep their businesses running with many fewer employees. This is probably good for effective productivity tools and outsource service providers. I think this is particualarly good for collaborative communication tools that really work, like Go To Meeting.  Companies that have cash will spend it very strategically and if you can get in front of  that trend it could be a good thing.

If you have cash to invest, it also makes sense to keep some dry powder waiting for opportunistic investment opportunities in distressed assets.

On the government front, it’s less clear to me which investment opportunities are worth exploring. I need to see the outcome of the election to really know who the winners and losers will be. I think I’m going to take a look at donations to each party to see who looks interesting.

Lastly, for those of you looking for venture capital, it is going to be a serious dry spell. It is time to hunker down hard.

My caveat on all this is that I’m not a stock picker. I think good investments are as much about buying at the right valuation as they are about picking the right areas. I have no perspective on whether or not the companies I’ve talked about have attractive valuations or not. At the time I write this, I don’t own stock in any of the companies I’ve written about, but that may change by the end of the day.

I would love to hear you’re thoughts on other major trends that are in play right now and what it all means. Leave a comment.

YouTube announced the launch of YouTube Everywhere. This opens up YouTube services and functionality to be used on every website or application that wants to integrate with YouTube and use its services. You can set it up so that your users can upload videos to YouTube and never leave your site. You can retrieve your user’s videos and play them on your site, with a player that you get to brand. You can add/edit user and video metadata (titles, descriptions, ratings, comments, favorites, contacts, etc).

This move means that anyone can build a YouTube like capability into their website or application and take advantage of YouTube’s full capabilities and you can do it for free. This is an amazing tool kit that will allow people to build all kinds of interesting applications. All of this will be great to see.

There are also a number of other big implications:

• It increases rate at which GooTube will become the central repository for video content on the web.
• Google will become the largest content delivery network we’ve ever seen. This is bad news for the other players in video distribution business, such as Britecove or Maven Networks.
• And it could be bad news for players such as Akamai, if Google gets way ahead and opens up its content delivery network further.
• GooTube will collect enormous amounts of data about what’s happening with video everywhere on the net and that will be really valuable to advertisers.
• Everything everywhere will speed up a lot, and that means publishers and developers better figure out how they compete in that world.
• Flash/Adobe just increased in value as this will increase the dominance of Flash even further.

Here’s the video version of the release:

Leave a comment with other implications or applications you would like to see people build with this.

You can find more discussion at Techmeme.

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Technorati Tags: YouTube, Google, online video

Eric Schmidt, Google’s CEO, announced that the Google acquisition of Doubleclick is official. And then in true corporate mumbo jumbo he helps us read the tea leafs: Layoffs Coming Soon.

An immediate task we’ll undertake over the next few weeks is matching and aligning DoubleClick employees with our organizational plan for the business. This will involve determining the right staffing levels for all functions and will ensure that we have the right people assigned to the right responsibilities within Google. We plan to complete this process in the U.S. by early April.

Outside the U.S., the steps we will propose are subject to consultation with employee representatives where applicable, and of course any decisions will be made in accordance with local law. The exact timing of the process outside the U.S. will vary based on the needs and requirements of each region.

As with most mergers, there may be reductions in headcount. We expect these to take place in the U.S. and possibly in other regions as well. We know that DoubleClick is built on the strength of its people. For this reason we’ll strive to minimize the impact of this process on all of our clients and employees.

My translation:We will immediately figure out who at DoubleClick we want to keep and who we want to fire. That will happen now in the U.S. Outside the U.S., labor laws make it harder to fire people, but we will get rid of those people at some point too. And then we will get back to kicking Microhoo’s butt.

More discussion at Techmeme

Via a post by Dave Winer at Twitter:

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Technorati Tags: Google, Doubleclick, layoffs

The folks at Google must be smiling tonight. Microsoft has been lured into putting a bid in for Yahoo. This is a waste of time, money and energy by Microsoft and that should make the Google folks more confident that they are on their way to overtaking Microsoft in the battle for leading technology company on the planet.

Combining two companies that DO NOT GET IT is NOT a recipe for competing with one that does. So let me get specific about what I mean by NOT GETTING IT as it relates to Microsoft and Yahoo. Anyone who has used Google Adwords as an advertiser and Google Adsense as a publisher and done the tests on the competitive products from Microsoft and Yahoo knows what I’m about to describe.

When I set up a campaign at Google Adwords, it is an automated process that is rich with interaction and feedback. I can test a campaign, keywords and ads in a very responsive manner that allows me to set it up, test it and optimize it quickly. Yahoo’s equivalent service was a captive to the belief that permeated Overture/Goto that only human editors could screen ads to make sure that they were relevant. It would take days under that process to do what Google did in minutes As a result, I advertise at Google and do so with Yahoo when I get around to it, if ever. (BTW I told this to the senior team at Yahoo’s search marketing group, but they either didn’t want to hear it or could not change the business process that had been set in place 4-5 years before) Since then, Yahoo has tried to reinvent its ad platform and Microsoft has launched their own version, but both still lag way, way behind Google.

How will Microsoft be able to merge two hugely expensive computer platforms when neither is yet good enough to compete with Google’s ad platform? And the same problem exists when you look at it from the publisher side. Google’s Adsense delivers better ads than does the equivalent Yahoo product despite huge investment by Yahoo. What will Microsoft do, scrap one deficient set of systems for another or try to make both work? Either way, the path leads to doom and gloom for both Microsoft and Yahoo.

There is obviously much more to both Microsoft and Yahoo than search and search advertising, but let’s be clear. Search based advertising is the engine that powers Google and everything it does. Social networking/media, a la MySpace and Facebook, has huge potential and Yahoo should have been the king of that domain given all their acquisitions in that arena over the years, but if Yahoo can’t turn My Yahoo, Flickr, GeoCities, De.licio.us etc. into a Social Media powerhouse how can we expect Microsoft to do so.

I can only hope Yahoo turns down Microsoft and they come to their senses. Yahoo can still do great things with the audience and assets it owns by changing its focus to become the queen of social, instead of the king of search. Microsoft should stop listening to bankers and get back to making products that work well and can out perform the competition.

Technorati Tags: Yahoo, Microsoft, Google, social networking, social media, search