Unlike Earlier Bubble Burst, This Recession Not Likely to Spur Tech Innovation

During a recession, will we get more ideas that foster the creation of innovative technologies? Or will incessant cost-cutting and increased unemployment stifle innovation for years to come? History, and surveys of the venture capital landscape, offer different takes.

On one hand, you can say the desire to find new business during a recession can spur innovation. When I interviewed Socialtext President and co-founder Ross Mayfield back in March, he aptly mentioned that a lot of successful Web 2.0 companies like his were launched, at least in part, as a result of the last recession.

“We saw there were these new kinds of tools emerging in the middle of the first recession for [Silicon] Valley,” he said. “A lot of blogging took off solely because of the high rates of unemployment. We saw an opportunity with these tools, which were first arising for consumers, to adapt them for enterprise use.”

In other words, people had a lot of time in front of their computers and were engaging in social technologies, opening up a new market. As this happened, enterprise Web 2.0 companies cropped up to innovate around the technologies and make them palatable for businesses and less techie users. Now, a few years later, Forrester predicts the enterprise Web 2.0 market will reach $4.6 billion by 2013.

But in this current recession, things could be different, for the mere reason that inventors and innovators might find it more difficult to get funding for their technologies. So far, we’ve seen a modest dip in overall venture capital spending across all industries, according to this article in the Wall Street Journal. According to recent surveys in that report, “investors put $7.1 billion into companies in the third quarter, down from $7.8 billion a year earlier.”

According to the same survey (by VentureSource) mentioned in the Journal, the IT industry will get hit very hard. In the third quarter, “270 financings totaling $2.7 billion took place, down from 342 deals totaling $3.4 billion a year earlier.” 

So what does this all mean? Will we have technologists who are more worried about watering their current systems and applications rather than building new ones? Or will people be building and inventing, hoping to find their niche in the market if (and when) the next boom (and the money) comes?

This will be an issue I examine more in our coverage moving forward, so I’d like to hear from you or feel free to comment below.