Coop's Corner

So much for finding safe refuge from the storm. Even a conference targeted at the quasi-esoteric world of software as a service is finding it tough to fill up the seats these days.

The SaaS Summit 2009 conference, slated to get underway next week in San Francisco, has chopped the price of its "full conference pass" to $495 from $1,195.

In a note, conference sponsor OpSource said it had reduced the cost because it "believes so strongly in the value and industry energy that will be created by bringing together the SaaS, Web, and cloud communities at SaaS Summit 2009 that we are offering our own On-Demand Stimulus Package."

Hardly a shocker, given the current economic climate. In fact, the granddaddy of them all, the Demo conference, also is feeling the pinch.

But here's to optimism: In its online promotional flyer for the SaaS Summit 2009, the organizers say the conference will focus "on the opportunities emerging from the depths of the current economic downturn for SaaS, Web, and cloud computing companies."

Presumably, that will include advice on how to make a buck with the daily drumbeat of financial news seemingly going from bad to worse.

A spokesman for the conference was not immediately available for comment.

On a day after the stock market suffered through one of its classic fits of pique at the news du jour, it's hard to find any bright side to a 382-point loss. But something's happening here and--apologies to the immortal Buffalo Springfield--what's taking place is becoming increasingly clear.

The conventional wisdom is that these are (among) the worst of times, with the tech economy hostage to the vagaries of the larger global economy. I suppose that it's reasonable to expect things to get a lot worse before they get any better. But how about some historical perspective?

As bad as things seem--and they ain't good--this still would not be the first time that Silicon Valley and the larger technology sector stumbled through a slowdown.

And keep in mind that the big innovations hatched during the times of trouble only became visible in history's rear-view mirror: 20-20 hindsight is never in short supply. That was true in each of the past three decades, and there's no reason not to believe it won't be equally true this time around.

But here's where the storyline needs an edit.

Ever since Wall Street's fall meltdown, the mantra has been that the reduced access to capital threatens to choke off technology innovation and force a lot of start-ups out of business and, oh, wouldn't that all be horrid for the "community."

I'm not so sure about that. And besides, not all innovation is grinding to a stop.

On the surface, there's no doubt that a number of start-ups will get wiped out by what Marc Andreessen once glibly referred to as the coming "nuclear winter" (Andreessen had no idea how prescient he would turn out to be.) But isn't that the way capitalism is supposed to work? And frankly, the world is not going to miss yet another widget maker or a social network for left-handed gimps.

Some perspective helps. For instance, the more interesting Web 2.0 companies aren't in dire straits. Andreessen's own Ning pocketed $44 million in July 2007 and another $60 million last April. Meanwhile, Facebook received $240 million from Microsoft in October 2007, giving Mark Zuckerberg more freedom to build the service brick by cyber brick.

The fact is that Web 2.0 has played out. The VCs who invest in this sort of thing continue to argue otherwise, but I've tuned them out. Nobody's offered a convincing explanation as to why Web 2.0's 15 minutes of fame aren't about up.

At the other end of the spectrum, this horrid economy is creating a paradox: the strongest technology companies are actually doubling down to extend their advantage.

Just this week, Intel disclosed its plans to spend $7 billion over the next couple of years. The investment will go to upgrade Intel's manufacturing technology here in the U.S. (stimulus bill or no stimulus bill) with an eye toward the introduction of 32-nanometer technology. That is quite a sum, but consider that Intel had about $12 billion in cash and investments on its balance sheet at the end of its last quarter. In other words, there's a lot more where that came from.

Elsewhere, pay attention to what's taking place at Cisco Systems. Talking with analysts earlier this month, CEO John Chambers didn't seem overly concerned as he warned sales might decline by as much as 20 percent in the current quarter. In fact, he predicted that a stronger Cisco will ultimately emerge, ready for the recovery.

Maybe he was telegraphing what was in store. On Monday, Cisco announced that it was selling $4 billion worth of bonds in what's the probably prelude to another Chambers shopping expedition. A company representative says that $500 million will go to pay down existing debt. That still leaves $3.5 billion in Monopoly money with which to go on a spree.

And it will. This is a company that thinks big and, more important, thinks strategically. Cisco bought for $500 million in 2003 A couple of years later, it paid $6.9 billion for . And in 2007, Cisco spent $3.2 billion for WebEx.

Chambers learned the hard way how to survive a rapid downturn. He was at Wang when it fell apart, and he had to make the tough choices on layoffs at Cisco when the dot-com boom ended. Ultimately, his quick decision-making allowed Cisco to emerge from the bust faster than many other tech companies. It wouldn't be a shock to see that same savvy management this time as well.

And like his counterparts at Intel, Chambers has money in the bank while so many others are struggling to hang on. You know that old cliche about cash being king? These days, it's more like the Holy Roman Emperor.

Cisco Systems' John Chambers may not be the top manager in techdom, but he's right at the top of anyone's short list of the best and the brightest. That's why when he says it's hairy out there, pay attention.

So it was that about a year ago, while the bozos inhabiting Cramerica were yammering about the Dow soaring past 15,000, Chambers was one of the first big-time CEOs to warn of cracks in the edifice. (At the time he described demand as "lumpy." That turned out to be the mother of all understatements.)

After listening to Chambers' conference call Wednesday afternoon discussing Cisco's first-quarter earnings, it's clear that those cracks are widening fast.

Even though Cisco's revenue in the quarter slightly topped estimates, the company plans to chop about $1 billion in expenses this fiscal year to compensate for slowing customer demand. At the same time, Chambers forecast sales would decline 5 percent to 10 percent in the current quarter.

The damage from this fall's financial meltdown has moved from the U.S. to other markets in Asia and Europe, according to Chambers, who said the slowdown now has spread from the financial and auto markets to other industries. If you want to take the glass half full approach, then consider that Chambers still believes Cisco can deliver on its long-term goal of delivering revenue growth between 12 percent and 17 percent.

However, it's unclear--even for as finely honed a forecasting machine as Cisco--exactly how the near-term is going to shape up. Chambers acknowledged that demand fell apart in October, and he described the current environment as one of the most difficult to forecast in his professional career.

"It would not be a big surprise to be on the positive side of that projection or the negative side of that projection," he said, adding that while Cisco felt it was "in uncharted waters," he would have a better idea in about 45 days.

But the conference call was vintage Chambers being Chambers. He runs a company with the size and resources that let him take a long-term perspective and pick off smaller acquisitions, biding time until the economy works through its current bout of dyspepsia (if that's what we can call it). At several points in his remarks, Chambers talked about going back to a now dogeared playbook that served Cisco well during previous slowdowns.

"We've been through this four or five times," he said. "So it's a team that knows how to handle this very effectively...This is a chance for us to break away from our peers, and we really intend to do that."

Comforting news if you're a Cisco shareholder but hardly much solace for tech start-ups facing an increasingly turbulent future.

With financial markets melting down amid predictions of a deep recession around the world, the conventional wisdom is that funding for tech start-ups is in a deep freeze.

But sometimes the conventional wisdom overstates the reality. The economy's in an awful rut but some tech start-ups are still raising money. Just in the last couple of weeks, there's been a rush of funding announcements hitting the transom. Of course, that news has been overshadowed because of the obvious attention being paid to the market's volatility. But consider the following:

•  Mail.com Media got $35 million in funding.

•  BillShrink raised $8 million in a Series B round.

•  Industrial Origami finished a third round--this time for $17 million.

•  Wide Orbit secured $10 million.

•  Trusteer gets a $6 million Series B round.

•  Bain Capital invested an undisclosed amount in Blip.TV.

And then Thursday, former SAP exec Shai Agassi secured a deal with AGL Energy and Macquarie Capital Group to raise $665 million to build an electric-car infrastructure in Australia.

I don't want to sugarcoat this. The IPO market is moribund and there still are a lot of layoff announcements in techdom--but this is one from the counterintuitive files. What's more, even as layoff announcements grab the headlines, many tech firms still say they are hiring. Yes, hiring!

How, then, to explain the apparent contradiction? First, check out the conversation I had earlier in the day with my CNET colleague Rafe Needleman, Webware's editor in chief.

A couple of points to consider.

Even during severe downturns, new technology development never grinds to a complete halt. As Rafe suggests, the question boils down to whether a company can remain sufficiently lean to outlast the hard times. It helps if it's not under pressure to turn an immediate profit. If, as expected, the economy can return to something approximating normalcy within the next couple of years, history will repeat itself and another generation of tech start-ups should emerge from this squall in fine fettle.

Of course, if the nimrods in Washington mishandle the recession and it turns into a full-bore depression, then we'll all be commiserating on the bread lines before long.

You're likely as sick as I am hearing about our supposed inevitable rendezvous with Armageddon. But there is a major difference between how the technology industry handled the dot-com bubble burst and how it's managing through one of the more extraordinary periods in the history of capitalism.

First, the bad old days. You doubtless remember irrational exuberance. With the exception of Cisco's John Chambers and a handful of other executives who were among the earliest to warn that clouds were gathering, most of the digerati in late 1999/early 2000 remained blithely upbeat about the future--until, that is, it was too late.

This time around their mood is quite grim and perhaps that's the best news anyone could have asked for.

•  Expecting the worst, companies are ripping up their budgets and starting over from scratch.

•  There's a feeling that we've been through this already (which is true) and managers know where to cut in order to survive a prolonged crisis.

Who knows how IT managers will react if the bottom completely falls out. But so far, I'm not seeing signs of panic. What's more, any company that survived the near-death experience of the 2000-2002 IT recession presumably logged enough institutional knowledge to help get through the tough times once again.

Don't take this as reason to pop out the champagne. Nobody really knows how "tough" things are likely to become and there's little clarity about what's supposed to happen next. Speaking after the company posted its third quarter results on Tuesday, Intel's CEO Paul Otellini said fourth quarter sales could be anywhere between $10.1 billion and $10.9 billion. Which result is more likely? The best answer is that it all depends--hardly.

I was talking earlier with ZDNet's Larry Dignan, who reported on Gartner's IT conference held this week in Orlando, Fla. Larry, who picked up on a more sober vibe at the conference, which attracts a roster of major hitters from the IT business each year, also heard that there will be increasing customer pressure on vendors to renegotiate terms of existing contracts.

That's quite an interesting news nugget to consider. If that behavior becomes the norm, it is going to severely pressure profit margins at the big software makers. (And put a major hurt on the smaller ones.) That assumes customers will have the upper hand in any negotiation. But with the Dow Jones Industrial Average collapsing before our eyes, the old rules don't apply.

George Carlin said that when you live in the United States, you're guaranteed a front row seat to the freak show. Events of the last few weeks only reconfirm how right he was.

But first, think back a few years.

The deflating of the Internet bubble, which began in 2000, wasn't a one-day blowup. Instead, the pain was spread over months and only ended after dozens of one-time high-flying technology companies got obliterated.

Out of the rubble emerged a new generation of start-ups that went on to operate under the Web 2.0 rubric. And since 2002, the innovation in consumer and social-network services has been the more interesting story in tech.

But this latest market upset takes place at a very inconvenient time. (When is it not inconvenient?) It's hard to know exactly, but most of these start-ups aren't swimming in cash. Before it's over, this may become a particularly hard transition for companies that depend on Internet advertising to pay the bills. Especially companies that operate according to the "freemium" model.

What's "freemium"? Fred Wilson of Union Square Ventures nicely defines how the model is supposed to work.

Give your service away for free, possibly ad-supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc., then offer premium-priced, value-added services or an enhanced version of your service to your customer base.

The idea is predicated on the assumption that you'll be around long enough to collect. In normal times, that might work. Does anyone believe we're living in normal times? Even if Bush convinces congressional renegades in his party who opposed the Wall Street bailout, this economy's getting worse by the week.

If past is prologue, the technology business may emerge changed, and ready for the next big challenge. But that's the longer-term perspective. In the meantime, there's that matter of meeting payroll. "Freemium" was a grand experiment but its practitioners don't have the luxury of time any more.

And so it starts.

Earlier Friday, analysts lowered estimates on Amazon.com and Yahoo, setting off renewed worries about the earnings outlook for Internet companies. The Nasdaq finished Friday in the red, even as the Dow Jones climbed back from an early morning sell-off with a triple-digit gain, ostensibly, on hopes that Congress would come up with a financial bailout plan.

What to make of all this? Up until lately, most of the people involved in Internet companies (and particularly, Web 2.0 types) shrugged off the gyrations in the financial markets as Wall Street's problem. The standard refrain was that the Internet economy "is a lot different."

Well, not really. Go back a few years and you'll find that was pretty much the same line of jive peddled by the folks pumping Internet stocks. That lesson got learned the hard way. Fact is that the economy is intertwined and the ripples--both for good and ill--touch every sector. So it was that more than a few of today's current class of born-again pumpers snorted derisively when Marc Andreessen last year quipped that Ning's decision to raise $60 million in private equity would prove handy during the coming nuclear winter. They're going to eat their words before long.

Talking about his August channel checks at Amazon, Lazard Capital analyst Colin Sebastian reports that online spending trends "remain challenging" and may have deteriorated since then. Citing a customer survey by Billme, an Internet payment services provider, Sebastian notes that almost half of the consumers polled said economic uncertainty had convinced them to delay purchases, with 42 percent saying they intend to cut back on credit cards. What's more, Sebastian expects competitive holiday promotions to hit even earlier than usual.

Was there any good news out there? Well, sort of. "We continue to believe that e-commerce growth should outpace brick-and-mortar retail as consumers seek better values online and are now more accustomed to shopping online for the holidays," he wrote.

Meanwhile, Collins Stewart analyst Sandeep Aggarwal's dismal note on Yahoo easily could apply to any number of advertising-dependent Internet companies:

We believe that the fundamentals at YHOO are deteriorating. On the one hand economic headwinds and turmoil in the financial markets are causing weaker display ad revenues. On the other hand changes with the minimum bid with search and a possible GOOG/YHOO deal are causing an outcry among many advertisers. To further complicate the situation is an ongoing loss of talent which might accelerate with the renewed restructuring efforts. We don't see any near-term upside in the shares of YHOO on fundamental basis. However, we would not rule out a possible MSFT/YHOO deal in the future.

The evidence is piling up every day. During the just-concluded Advertising Week conference in New York, Wenda Millard, the co-CEO of Martha Stewart Living Omnimedia, said during a panel that the financial crisis is going to reverberate through the economy with "pretty severe implications for medium-sized and smaller businesses and consumers."

The venture capitalists who've invested in sundry Internet start-ups (most with unpronounceable names) are spinning this as a passing event. Once Congress and the president agree on the $700 billion bailout (or rescue, if you prefer), we'll return to normalcy. Suuure.

I can't put it any better than did AllThingsD's Kara Swisher's recent post, where she wrote that "the economic crisis is likely to become a whirlpool that will be hard for any ad business to avoid, even the often recession-proof digital sector."

Translation: It's only a matter of time before the stuff hits the fan in a big, big way.

So Ben (Bailout) Bernanke has been testifying before Congress the last couple of days, predicting a possible contraction in the first half of the year. Lovely. Though considering the Fed's predictive track record, I wouldn't hit the panic button just yet.

How all of this economic upset is going to affect e-commerce obviously continues to be the big unanswered question on Wall Street. Piper Jaffray just came out with the results of a survey of 200 consumers which, among other things, suggests that the grim spending outlook for the remainder of this year will be, well, grim.

These things move in cycles but right now, the signs point in the direction of a trough. The level of consumer confidence remains low, even after the passage of President Bush's stimulus package. The survey suggests that we're entering a period which will be punctuated by less spending on e-commerce. The highlights (or should that be "lowlights"?) include the following:

•  36% say they are worse off financially today compared with a year ago. While 41% reported no change, 23% indicated that things were better.

•  Just 31% of respondents say they are "most likely" to buy goods and services with the rebate checks. More people--40%--are planning to cut discretionary purchases while 53% plan on spending the same as in 2007.

•  Among the Web shoppers surveyed, 33% plan to buy fewer discretionary goods online, 55% say the amount will remain about the same while only 12% expect to purchase more.

•  27% of online shoppers expect to reduce what they buy. (This is an across-the-board decrease spanning consumer electronics, computers, and jewelry verticals.)

•  When it comes to buying high ticket items. 40% of the respondents plan to spend less than $500 per purchase. Half say things will remain unchanged while 10% expect to buy more high ticket items in 2008.