Could the economic downturn spell doom for Web 2.0 startups?

Very few people have been happy with the way the economy has been lately.  Of course there's always the bullish approach to a poor economy and start market - time to buy at record lows, right?  But what if you're a web 2.0 company with little to no funding and no business model?  There are a ton of sites out there these days that don't really have a means of monetization beyond advertising.  So then, what's going to happen to the Twitters of the world?

Let me start off by saying that I'm not really concerned about Twitter.  Twitter is much too viable to completely fade away into obscurity at this point.  After all, Britney Spears just opened a Twitter account, so that must mean something.  How about the Twitter clones though?  You've got Plurk, Jaiku, Zannel and even Pownce all competing for the same market.  Each service varies slightly but in the long run they offer the same service: micro-blogging.  None of these services charge a fee either, unless you take into account Pownce's nominal fee for the pro version of their service.  As I mentioned, that puts a lot of emphasis on the good old banner ad.

Now, I've heard a lot of people say that the first thing to go in an economic downturn, recession, whatever you want ot call it - is advertising.  Businesses trying to cut back on some spending end up turning to the marketing department in order to save some cash but cutting some of their promotional campaigns.  That's obviously bad news if you're Twitter.  Still, I'm not positive if web advertising will be hit the hardest.  You would think, if anything, web advertising might see a bump in all of this.  If companies are reining in spending on advertising they might want to turn to a cheaper alternative to popular media ads.  Seems to me like the web is a perfect place to move forward.

That's all well and good but there are a lot of sites out there that don't even advertise.  Not too long ago I did a few video walkthroughs on some cool web applications - 280slides.com and Pixlr.com.  Both provide excellent functionality but, because they're situated like a desktop application, fail to integrate any sort of banner ads or anything.  That's great for the end-user but not so great for the startup's bottom line.  How long before investors realize there's no money in a free online service like 280slides.com and decide to pull funding?  Of course they could always hope to be bought out by the Microsofts and Apples of the world (seriously - 280slides and Pixlr would make great additions to the Live/MobileMe suite of services).

I'm not really sure where I was going with this post, but it's just one of those things that I've been thinking about recently.  My favorite part about using the internet is having access to all these cool web applications and social networks, but you never know, we might finally be approaching the Web 2.0 equivalent of the dot-com crash from 2000.  That's a pretty cheery thought!

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