Average startup profitability is to decrease by 30-40% in 2008-2018

Posted on February 22, 2008
Filed Under Startups |

Despite the fact that I am currently only partly involved in the “ community” I am starting to observe trends in the industry that will influence the way investors look at .

It was in 2001-2002 that mature economies experienced the burst of the bubble. In the US investors lost millions of dollars and when the “big guys” that share prices reached completely unrealistic levels far from what economists call fundamentals. After six years I am pretty sure we are likely to see many companies lose of about 30-40% (if is taken into account). There are at least three main reasons for it:

1. recently there hasn’t been any significant innovation on the market and demand for services currently offered is to remain stable.
After the 2.0 craze started very little has been done to introduce new products or services that will revolutionize the . tv is at its early stage, telco is rather flat, and basically nothing has changed in networks in the last two years. This situation reminds me of cars lacking fuel. You can drive as long as you have at least bit of fuel, but it is obvious that it can’t last forever. Increasing and decreasing margins have lead to lower of average .

2. are now financed by investors from both mature economies and emerging markets
This trend is extremely positive positive, but at the same time it means that we are likely to witness in increase in (including very cheap ones), that will lead to market deterioration. A huge increase in number can’t be followed by the same increase in quality, which means basically means: quantity isn’t equal to quality.

3. the number of is increasing very fast, much faster than the number of users.
In the last 3-4 years there has been parallel increase of and users. This has been changed recently and the risk is that the bubble may burst soon. Too many fake and googles come up every day and it is highly probable that users will not be able to distinguish between high and low quality services/products anymore.

In a nutshell, it can be said that the average of is to decrease. Even though it is difficult to quantify the drop in revenues and profits it is higly probable that -30-40% is realistic.

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2 Responses to “Average startup profitability is to decrease by 30-40% in 2008-2018”

  1. Roger on February 24th, 2008 9:03 pm

    It seems you have written a very insightful article. Everyone is so happy about his/her startup that they seem not to care about profitability. A perfect website is a one that delivers high quality and is profitable. I don’t think it is right to criticize those who want to earn few bucks on the net, and in my opinion profitability it’s a key issue.

  2. Bart on February 25th, 2008 1:15 pm

    I think that what he means is that competition will drive profitability down as we cannot expect to see a new google like invention coming up every year. this sounds reasonable to me. I have doubts about the figures, but the idea is definitely correct.

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