There’s always a boom-and-bust cycle, says Wales.

Question: What effect will the recession have on the Internet?

Jimmy Wales: Yeah, I mean, there’s always this cycle of sort of boom or  bust.  I think because the-- at least, just speaking of the internet market, the most recent boom, which is still going on as far as I can tell, has not been nearly as insane as the first boom.  I don’t think we’ll have anything like that again.  It’s much more of a-- we’re in an industry that’s getting much closer to a more normal business cycle type of thing, where things are up, and things are down, and you sort of tumble along through it.  As opposed to this really fairly astonishing overvaluations that were going on, and then the fairly astonishing under-valuations that are going on.  I mean, it was a bloodbath beyond all belief, and I don’t think we’ll see that again.  I think we’ve got, you know, businesses that’re turning profits.  We’ve got businesses that are on their way to profitability.  We have business models that people understand, so that we kind of have an idea of what can be sustained and what can’t.  So you know, in this round we haven’t seen billion dollar investments in delivering groceries to people’s houses and things like that, which just never worked out in the old one, right?  So yeah, I mean, I think it’d be fine to have a little shakeout, and sort of, you know, clean up those extraneous web video sites.  I’m not sure what that means.  I don’t know how those sites are doing.  I remember hearing, just I don’t know, randomly hearing before YouTube was bought that they were spending a million dollars a month on bandwidth, and they had no idea how they were gonna monetize their business model.  And I just said, “Well, they’re gonna flame out really quick.”  Boy, I was wrong!  They got bought for $1.5 billion or whatever.  But even now, you know, if you look at-- I have no idea what their bandwidth bill would be today, but the thing is, when you look at a company like Google, let’s say they spend $2 million a month on bandwidth, and they’re not monetizing it.  They can afford it, right?  That’s a $24 million a year investment in a major brand.  They can just subsidize it.  They can just carry it forever as sort of part of the Google brand, and just part of the image.  Why not?  I think it probably costs a little more than that to keep YouTube going, but it does pose a problem, though, for a lot of the smaller sites.  They may not have that luxury of saying, “Oh, we can just lose money forever, because we’re just part of a brand image, right?”

Recorded on: 04/30/2008