Fast Forward to 2007

Markets come and go in cycles. Here’s Peter Rip’s insightful analysis of why Yahoo’s announcement of slowing ad spend is a harbinger to Enterprise 2.0, to be hurried in by the VCs looking for the next frontier in the next 12 months.

The startup market recovered from a prolonged ailment in early 2005 on the wings of a boom in Ad spending. Eyeballs became hot. MySpace’s acquisition by Murdoch launched the social media craze. Skype’s ridiculous acquisition by eBAY brought back valuation-without-revenue as an acceptable business model. VCs who were nervous for the previous 5 years started coming back into the market with a vengeance.

In 12 months, however, this feast will end. Dessert and coffee are already on the table.

Then what?

My thesis has been, for a long, long time, that the next frontier that needs to be cracked is the SME market. Armed with trillions of dollars in spending power, this segment buys everything from IT to Office Supplies, BPO Services to Media.

VCs have so far hated this segment. No worries. They have hated many others at different points of the game … e-commerce was hated, eye-balls were hated, enterprise software was hated, as was entertainment. Their logic changes often, conveniently, and depending on the hype cycle. If you ask Marc Benioff, he will tell you, it hasn’t stopped him from building Salesforce.com.

ALL vibrant economies depend, to a very large extent, on the health and well-being of their SME segments for job creation. Here is a passage from the US Government:

Many visitors from abroad are surprised to learn that even today, the U.S. economy is by no means dominated by giant corporations. Fully 99 percent of all independent enterprises in the country employ fewer than 500 people. These small enterprises account for 52 percent of all U.S. workers, according to the U.S. Small Business Administration (SBA). Some 19.6 million Americans work for companies employing fewer than 20 workers, 18.4 million work for firms employing between 20 and 99 workers, and 14.6 million work for firms with 100 to 499 workers. By contrast, 47.7 million Americans work for firms with 500 or more employees.

See why this segment is so incredibly important?