What Would a Coronavirus-Fueled Recession Mean for Tech, PR and the Media?
Mar 11, 2020 Jason Morris
I was just like most other 22-year-old college graduates in 1998 - nervous about finding the job everyone expected me to get and luckily stumbling into decisions that would impact the rest of my life. Tech PR was booming in 1998 in ways that people today would never believe. Mid-sized agencies in Boston had $30,000 minimum retainers just for media relations with added on costs for speaking, awards and other programs. Tech companies with suspect business models got showered with venture financing and the IPO market was booming. Then, of course, the 2001 dotcom bust came not only for the tech companies with no proven revenue model but the PR agencies who had overextended themselves with those clients.
At work, I watched colleagues get laid off and learned what “LIFO” (last in, first out) means. I saw competing agencies go under and client budgets shrink. The Internet Standard, Red Herring, Upside and other tech advertising-fed magazines went from L.L. Bean catalog sized to the minimalism of an in-flight food menu virtually overnight.
The tech market would recover slowly - fueled by first-generation software-as-a-service companies like Salesforce and NetSuite and other innovations born from the dotcom bust’s ashes. Just outside of Boston in 2007, Beth co-founded InkHouse and would have just 18 to 20 months of economic growth on which to build the agency before the next big recession started.
Then in 2008 the real-estate bubble crashed, Lehman Brothers filed for bankruptcy, and I watched an Obama-McCain debate in the lobby of a San Diego hotel during a booming Solar Power International event in October thinking, “here we go again.” Cleantech or Climate Tech would help sustain some as the financial crisis deepened and, strangely, it made the depths of the “Great Recession” seem a little more shallow than the dotcom bust.
The Obama stimulus package would boost tech spending on energy and healthcare, while in more traditional tech, the birth of the iPhone in 2007 would lead to the burgeoning cloud and mobile landscape we know today. It was shortly after that time that consumer companies like Airbnb and Uber, and platform companies like Nutanix, Okta, Twilio and Stripe started creating or disrupting markets. Buzzfeed, Business Insider, Recode, Axios and VentureBeat launched either right before or in the years since the financial crisis, showing an ongoing appetite for tech news coverage in all its forms and flavors.
Things felt normal again by the end of 2011 in Silicon Valley. The past five years have felt more like the late 90s than the runup to the financial crisis - and maybe even better - as most well-funded startups have proven business models (WeWork notwithstanding) and the fundamentals of most cornerstones of the economy (real estate, consumer spending, etc.) feel more firmly footed than in 2007.
Beyond the heartbreaking impact the virus is having on the people who are suffering from it, there are also very real economic impacts. Economists, stock market pundits and respected venture capitalists have sounded the alarm on coronavirus saying that a global pandemic has already started to wreak havoc on things like supply chains, travel and tourism, and other sectors that rely on in-person contact and sales meetings. Those warnings have impacted the stock market - which as I write this sentence on March 9 saw suspended trading because of a 2,000 point plunge. Consecutive down quarters as a result of coronavirus can lead to a longer-term bear market, economic contraction and close the IPO window for companies.
But just like the learnings of the past in terms of what could happen, there are lessons in terms of how the industry will cope. Here are four things I have learned from previous global economic events and how they could play out in a short or longer-term recession.
- Down economies lead to stronger business models, better customer experience and better sector health - booming economies help prop up mediocre companies as growth can sometimes mask a below-average product or service, marginal customer experience or bad corporate culture. The coronavirus outbreak has also shined a light on companies who have a lack of supply chain diversity and are exposed to regional disasters. The PR agencies who survive downturns tend to be the ones who put their reputations ahead of growth at all costs during good economic times. The same can be said for tech companies and media organizations.
- Innovation thrives during down economies - downturns tend to be periods where really smart people have more downtime to invent and create solutions to real problems. Those inventions are brought to market with business models that were fleshed out during lean times, meaning they tend to be more economically sound. During each of the last two recessions venture capitalists continued to invest in Seed and Series A rounds as they tend to be smaller investments, but larger upside opportunities that have a payoff horizon well beyond a recession ends.
- PR (earned media) weathers downturns better than paid - the rise of growth, influencer and online paid marketing channels over the past eight to ten years has helped companies A/B test tactics, get more measurable and better align marketing with the complete funnel. That said, we still hear growth marketers admit that earned is a much more cost-effective means of customer acquisition. And in an age of paywalls where article views drive revenue for media outlets, it’s easier to align readership with staff investments than during the days of advertising only revenue models.
- Scrappy wins in any economy - this is really a summation of the three previous points. Being employee and customer-obsessed, starting a company, and driving earned v. paid results all take an inherent scrappiness. Scrappiness also speaks to not following conventional wisdom or the proverbial herd off of the cliff, and see opportunities where others don’t. Driving visibility, hiring fast and having a growth mindset are not differentiators during a booming market because everyone is trying to do the same thing. There is, however, a point during a down economy where the upside of investment overshadows the risk and becomes a calculated competitive advantage. The companies who follow a playbook and cut the most rarely gain market share during or coming out of a recession.
Economic downcycles are one of life’s few certainties and so it is when, not if, the economy ends its strong recent run. Even if this health crisis is short-lived and doesn’t impact the market the way some are predicting, there are lessons we can learn from the past on how to better cope with the outcome of future downturns.
*Disclosure: Salesforce, Nutanix and Okta, all of which are mentioned in this post, are InkHouse clients.