Dear Web 2.0: It Is the Economy, Stupid!–Part 2

Before the recent crash-and-burn of the overall U.S. economy, BoomTown went all Cassandra and started talking about the worrisome weak tech stocks at the beginning of September.

Then in mid-September, after listening to the frothy statements at two demo conferences from a series of start-ups, I got even grumpier in a post called “Dear Web 2.0: It’s Still the Economy, Stupid!”

In Greek mythology, Cassandra was given the gift of prophecy, except–due to her rejection of Apollo’s affections–nobody would ever believe her warnings.

Well, this time you might want to believe it–for Silicon Valley, it really is the economy now.

Today, as with the rest of Wall Street, tech stocks started tumbling severely on analyst reports and general worries about the economy and consumer spending.

Apple (AAPL) shares slid almost 15 percent after two analysts downgraded their ratings on the company, with one citing the “worsening consumer spending environment.”

No kidding!

And more: Google (GOOG), for the first time in two years, fell below $400 a share, before bouncing back up a bit. Yahoo (YHOO) dipped back below $18 a share. Microsoft (MSFT) had the sunniest results, just off 2 percent, to just below $27 a share.

Sources within all those companies tell me that cost-cutting has now moved to Job No. 1.

Google is going to be throttling back on its hiring boom, for example, while Yahoo’s top execs have been handed cost-slashing instructions that one exec described to me as “bone-cutting.” The same is true at every big tech company.

As I have written previously, this will have a deep impact on smaller Web 2.0 companies.

As I wrote several weeks ago:

Instead, most will likely fizzle away quietly, with no exits in sight as the economy weakens and puts a vise grip on companies that cannot survive the very tough financial road ahead.

That means the popular Web 2.0 maxim of ‘growth before profits’ is in for a very bumpy ride.”

In other words, hold on very tight.