What's it like at your end? Are a lot of your budgets and projects that seemed like slam-dunks a few months ago suddenly coming under scrutiny? Or are you finding there's still room to experiment and innovate, even - or, with some particularly visionary organizations, especially - in a recession?

More Noise to Signal.

Validas is ideal for the SMB (Small Medium Business) market. That includes all the bootstrapping Gritty Entrepreneurs as well as the VC funded start-ups that just got the "cut costs" memo from their pals at the VC fund. But it is also the 27 million Small Medium Businesses that employ 50% of Americans.

Validas can be used by a consumer. But an individual can probably spend a few minutes and figure it out themselves.

Nor is Validas ideal for Fortune 500. They can get the data from the carriers in a form that they can analyze any way they want, they can employ people to haggle with the carriers and have the clout to get results.

What if you are the CEO with 20 employees? You have other priorities. You can tell your Admin/Finance person to do it, but maybe his priority should be chasing receivables? You can tell all 20 of your people to figure out how to reduce all their cell phone bills? Well, if you are the kind of CEO that sprays employees with constant priorities that all get ignored, you could employ consultants to do it, but their fees might outweigh the savings.

Automating A Small Boring Job

Validas does what you would do if you took the trouble or if you employed somebody to do it. They just automate it, so they can do it fast and efficiently and thus make money in the process.

This is boring and it is small. So it should be really easy. It should fit into that quadrant that is Minor Impact/Easy To Do.

That is easy to say, but hard to pull off. Validas has the experience to deliver this. The founders, Tom Pepe and Todd Dunphy, left their safe jobs at Verizon Wireless to start Validas. They know all the tricks that carriers use to get those extra fees.

How It Works

To use Validas, you will need to be set up for online billing. Online billing is free from your carrier and you do not need to cancel your paper bill to use Validas. You can use Validas for bills from: AT&T, Verizon, Sprint, T-Mobile, and US Cellular.

Then you upload to Validas and view your potential savings. You can download this information into Excel or print out the reports.

Validas claims that the Current Average Yearly Savings Per Customer = $505. Presumably that is not per user and is for a small business of some type.

Validas pricing is simple, with various plans. The one they promote as best value costs $24 for 24 reports, audited every month. So that would work for a 24 person company. You can test it out with a $5 One Time Audit.

Validas fits the trend we are seeing of a return to simple "every day low prices" rather than fancy Freemium models supported by advertising. If it has value, charge for it.

The End Of Information Asymmetry

Validas looks like it is part of a big trend towards transparency, the end of "information asymmetry" that we noted in our Ten Trends To Bet On For Your Most Audacious Start-Up. We have seen start-ups doing this well in the car market. We suspect we will see more in financial services. In all cases, the start-up takes the side of the small buyer to get better deals from a large seller. Validas is a welcome entrant in the cell phone market.

In a word - profit. We are looking for companies that have some Web 2.0 characteristics. But we can be loose in that criteria. We are not looking for a "pure" Web 2.0 characteristics. Whatever works, works. But something that is using online technology to disrupt an existing market, maybe using SaaS, user generated content, social media, whatever works in the Web 2.0 bag of tricks.

But we do want to write about companies that have crossed the most important threshold, the one where cash flows from the business and not from investors. So, as we don't believe in overnight sensations, the company was probably founded before 2004. We want to hear from the CEO, who maybe the original founder or somebody who took over when the original business had failed.

We want to hear about massive skepticism, huge mistakes, changes of tactics and even of strategy, near death experiences, all the usual tales of derring-do.

The company can be bootstrapped, or funded by angels, friends and family or VC. No matter where the financing came from, the entrepreneur can now say to them a) no more dilution, and b) thanks for your help, enjoy the ride.

We are launching this series later today with a profile of Jigsaw and their Founder CEO, Jim Fowler. Our earlier profile of Zoho (Part 1 and Part 2) fits the bill too.

We will also give unsolicited advice to these gritty entrepreneurs about the Great Credit Crisis (we're hoping you help us out in the comments on this).

We Want Names

If you know any gritty entrepreneurs, or you are one yourself, we want to hear from you. Send us an email or leave a comment below.

Obligatory cat pic: pasma

UPDATE: Gritty Entrepreneurs: Jigsaw, a Profitable Web 2.0 Venture; the first post in this series

- One big negative impact of the market mayhem on the start-up world.
- One big positive impact of the market mayhem on the start-up world.
- One trend that seemed to be everywhere.

In other words, like Twitter and 37 Signals, I was deliberately reducing, cutting out, eliminating, restricting to ONE thing in each case. So here goes...

One big positive impact of the market mayhem on the start-up world - this is like the Boston area when DEC and Wang imploded. Thousands of really smart people were left without a paycheck. Many of them started great companies. You heard this vividly at the Conference. The phrase "refugee" was common as in "I am Bear Stearns refugee". And then they went on to pitch their start-up. You cannot possibly say it feels good now, there were some bruised people walking around, but it may well be that we will look back on this moment as the genuine transformational moment in the New York start-up economy. Did I mention that I am an optimist?

The one trend that seemed to be everywhere - a focus on near term revenue. There were exceptions, of two types: firstly, the fortunate entrepreneur who had closed a big enough "fund me through the downturn round" and, sadly, a few ostriches with their heads in the sand.

The ones I enjoyed meeting were the "true grit entrepreneurs" who had hustled their way to profitability over many years. They will do great. In the last downturn in 2002, one VC remarked to me that they were only interested in two types of venture. One had been started well before the boom - that makes the ideal birth date today in the 2001 to 2003 era, perhaps 2004. The other was something starting up right now as everything was imploding. Everything in the middle was likely to be riddled with overoptimistic assumptions, expectations of instant wealth without effort. That means start-ups born from 2005 to 2007 had better either have enough capital to sustain their burn for a couple of years, or are profitable or very nearly so.

Oh and one final takeaway. The food at Javits is awful and expensive. You have to walk a few blocks, but on the corner of 38th and Ninth is a really good Italian restaurant and it's really not much more expensive than the Javits chow. Cannot remember the name but 3 blocks west on 38th and you are there. How is that for useful advice on ReadWriteWeb?

Dot Coms 2.0? Say it Ain't So...

Maybe we are all just fooling ourselves. When the Internet bubble started to burst in March 2000, most people were saying "that's them crazy Dot Coms, not us". Gradually, it was all of us who were in any way associated with technology.

After 18 months, in the summer of 2002, everybody had capitulated. You could buy shares of Rational Corp (the leading supplier of software tools after Microsoft, bought by IBM) for a valuation of $1 billion when they had $1 billion in the bank and $1 billion in revenues (oh, yes, and a couple of bad quarters which made it obvious that nobody would buy software ever again). You could walk into a VC with a patented machine to turn mud into gold and be greeted with a sceptical "but what if gold falls in value?". You could prove that your $50k software would have $500k savings to a company within 6 months and the response was still "we will get back to you". The technology nuclear winter was very, very cold.

So maybe it is coming again in the technology business. No more funding, no more deals, no more parties. Maybe the hangover is coming.

Innovation Economy Still Thriving

But it does not look that way from what I am seeing. VCs are saying that their companies are doing well (and not all are hyping their portfolio). It also coincides with what I am seeing from companies that I know well. Companies are either growing revenues or getting more funding or doing both. I have interviewed two founders at the Web 2.0 Expo in New York that have broken into profitability. Even if VCs run for the hills they will be fine. These upstarts are taking business from higher cost alternatives.

I have also heard first hand of big deals from large companies awarded to small, young ventures. And I have seen large enterprises that are working on large social media rollouts.

This is not good for big tech companies. But it does look good for small, low cost, agile upstarts. The smart companies have worked out how to reduce risk for clients. What's the risk of implementing Basecamp or Zoho?

I call this the "innovation economy" and that is a tad worrying. It sounds like "New Economy" and we all know where that ended up. I did not want to say the "technology industry" as huge parts of the tech industry now simply follow economic cycles. The fortunes of Microsoft, Oracle, Dell, HP, IBM, Cisco tend to rise and fall in line with global GDP. Bigco is not the heart of the innovation economy.

Shift in Power to Smallcos

It is more likely to do with a fundamental secular shift in power from large business to small business. The Internet and Coase's law would be the theoretical underpinning for that. Something dramatic may have quietly happened, making the playing field not just level for start-ups vs incumbents, but tilted in their favor. It might have something to do with the tools that enable you to run a global business with all virtual operations and almost no infrastructure cost. You can simply scale faster and cheaper than your incumbents.

Conclusion

The market mayhem this week has been unprecedented, far worse than even my worst imaginings and I was thinking it was going to be bad. So this is bad. It will spill over into everything. Many parts of the Web 2.0 industry will be in trouble, specifically those with dependency on consumer advertising or financial services.

But the gritty entrepreneurs are building value and getting profitable and have better opportunities than ever before to get their case heard. VCs who keep their nerve will do enormously well, just as they did from deals done in the 2002/2003 era.

What do you think? Is it tough times for all? Or tough times for the slow and good times for the fast?

Image credit: Thomas Hawk

But a new report from PubMatic appears to indicate otherwise. Their May AdPrice Index, which was prepared by independent statisticians Dr. Albert Madansky and Dr. Michele Madansky, indicates that ad prices are starting to drop.

The report found that ad prices (based on effective CPMs) in April across all sites fell an average of 23%. This was most acutely felt by large sites (over 100 million page views per month), led by social networking sites, which saw eCPMs plummet 47% from March to April. Medium-sized web site monetization was essentially flat, while small sites (less than 1 million page views per month) saw modest gains month-over-month.

Social networking eCPMs sit at 19 cents, according to the AdPrice Index report, below January lows of 22 cents. The technology sector was basically flat from month-to-month, but still well off beginning of the year highs.

This all could indicate that a general US economic downturn is starting to be felt on the web. While the study didn't look specifically at search ads -- which analysts have said would be the last to feel the pain of a recession -- and it didn't differentiate between display and text ads, or between eCPMs from ad network to ad network, it is a general indicator of a slow down in the online ad market. Granted, this is only a couple of months of data, so it would be hard to create concrete trend predictions from it.

PubMatic's AdPrice Index is made up of over 3,000 web sites, about 85% of which are based in the US.

2. The best businesses IPO when markets are down. It shows strength. Who cares if it takes 12 months for markets to pickup? Insiders will be locked-in for a while anyway.

3. Facebook cannot IPO. Their $15bn valuation won’t wash with public investors and they can hardly do a down round. So LinkedIn gets the mindshare and public currency to win the next round.

5. LinkedIn keeps innovating, such as their recent move into expert networks to compete with Gerson Lehman Group. This move is an obvious revenue earner.

6. LinkedIn’s revenue model is not tied to advertising and is therefore more recession proof.

7. The bloom is off the Facebook rose, so strike while the iron is hot (sorry about mixed metaphors Ed)

8. We all need some cheery news amidst all this recession talk.

9. Somebody needs to show that public markets are suitable for high growth, high tech businesses and not just dividend-spouting oil companies.

10. Because I forecast that they would and I would love to be proved right.

Finally, why do we always need 10 items on these lists?

It's nice being the industry leader. People start to forget that economic principles apply to you as much as anyone else. Say, you're an executive at Google and you have a conference call with analysts to announce lower-than-expected Q4 2007 results.

Why did no one ask whether the bulk of this drop was not attributable to lower-than-normal click-through rates (CTR) in a softening market?

Aggregate clicks were only up 30% from fourth-quarter 2006 to fourth-quarter 2007, in contrast to the 45% growth in the third quarter. Reyes said that the growth deceleration was likely due to the "impact of quality improvements" that Google made its ad platforms, like changing the clickable area of AdSense ads and standard algorithmic tweaks. The changes "reduced the number of accidental clicks," (Google CFO George) Reyes said.

There isn't a consensus view, but I think it's fairly safe to say that while analysts and commentators disagree on the impact of a recession on display advertising, they believe that paid search advertising will weather a recession fairly well. A recent piece in Wired magazine said that "Google Looks Recession Proof" and an analyst's note on Seeking Alpha suggested the same view. Broadly, the views shared by the biggest camps are:

• display advertising could either decline as a result of limited ability to track spend to sales, or
• display advertising could be propped up by ad dollars fleeing from traditional to online media, but
• paid search advertising (PPC Ads for simplicity's sake) is recession-proof, because Marketing Return on Investment (MROI) calculations are fairly simple given the level of tracking that PPC Ads offer, so ad dollars will leave this media last. After all, how do you motivate reducing ad spend on media that provides a clear MROI unless you've already trimmed all your other ad inventory budgets?

While it's true that Google's revenue is derived from its advertisers (not its searchers) and sophisticated advertisers will be loathe to reduce PPC budgets during a recession, to believe that this means that Google is recession-proof is to ignore the cross-side network effects that occur on the Google advertising platform between advertisers and searchers. The mechanism by which I suggest that Google's revenue from PPC ads reduces during an economic downturn is not through the reduction in advertiser budgets (which may or may not happen), but rather a highly likely reduction in its ability to monetise its ad inventory. As consumers tighten their belts, at least two things happen simultaneously online.

• Click-Though Rates Decline: Consumers will be less inclined to click on advertising and more inclined to research their acquisition more thoroughly in forums, review sites, etc. before making a purchase. Ceteris Paribus, CTR on organic listings will rise and Ad CTR on search engines and Google ad network sites will decline.
• Conversion Rates Decline: Searchers will click on more PPC ads and browse through more sites in order to get the best combined item pricing and shipping deals. The time that expires from the time that they decide to investigate the purchase, to the point where they have the best deal and finally committing themselves to making the purchase will take longer than was previously the case.

The impact of a reduction in the Adwords CTR on Google's revenue is clear: less revenue per impression served. The impact on Google of a reduction in site conversion rates is less clear. With the exception of small unsophisticated long-tail advertisers, merchants running PPC campaigns have cost per action or acquisition (CPA) targets. A decline in the conversion rate, means that in order for a merchant to achieve the same CPA he must pay a lower price per click for the search inventory. His alternatives are unlikely in a recession: increase price to regain sales margins or reduce sales margins by paying a higher CPA. Even though an advertiser may increase or maintain his PPC ad budget during a recession, for a given CPA, the rate at which the advertiser spends his budget, is lower than in more robust economic conditions. The long-tail advertisers may reduce their PPC ad spend, simply because they don't allocate budget to the media on the basis of its trackability, so its fair game.

It's fairly common knowledge in the online marketing industry that the biggest problem with search engine inventory is that there is not enough of it. Google cannot create new impressions in an existing developed marketplace in response to advertiser demand for more impressions, so the argument about the migration of ad dollars from traditional media to search during a recession is a moot point, except in market segments where there is currently little PPC competition (if you can find it, let me know!). Google can only grow its impressions by increasing:

• the frequency of searches by existing users,
• new searchers that didn't use search engines before, and
• users that migrate from other search engines
• the traffic to sites in its search and advertising networks (over which it has no direct control, unless... no, they wouldn't do that!)

Declining Paid Search ad click-through rates and site conversion rates during an economic downturn, together reduce the revenue per impression that Google earns (and consequently reduces its overall revenue) and there is precious little that Google can do about it.