How will the new economy survive a downturn in the real economy?

Amazon published their fourth quarter forecasts in the US last night predicting growth of between 6% and 23%. Most companies would doubtless kill for such figures in current times, but it nevertheless sent share prices in Amazon falling in after hours trading.

Investors were apparently disappointed by the wide range of the growth forecast and the fact that it wasn't as bullish as that predicted by the analysts.

Amazon has seen phenomenal growth over the past 10 years and it's not difficult to see why. Its website is easy to navigate, it 'learns' things that you might be interested in buying, is generally competitive price-wise, and you can read other customers reviews of products. I've never had a bad customer experience with Amazon, and it will probably continue to do well, even considering the coming recession.


Meanwhile Apple, with its iconic iPod and iPhone products, recently announced its very successful Q03 results with a 26 percent rise in profits on the back of selling 6.89m iPhones and 2.6m Macs. It has already met its target of selling 10m iPhones in 2008, but it too is relatively cautious about the next three months.


No one really knows how the downturn will affect these companies, as the last recession was before the internet existed and computers had nowhere near the penetration that they have now.

How this sector will perform over the next 12 months will depend to the extent to which customers judge that these consumer goods are now essentials.

Getting a DVD from Amazon makes for a fairly cheap night-in. Similarly I think that the computer games market will be relatively unaffected. While the price of new games can be eye-watering, there's little doubt that it makes for a good few hours of cheap leisure time. It's the same as Dominos Pizza - which believes it will be relatively unaffected by a downturn as getting a takeaway pizza in is a cheap option compared with going out to eat.

I am less bullish about the prospects for Apple et al. If customers are feeling squeezed, they can probably easily go without the latest high-tech must-have gadget from Apple.

This has already been partly shown in Nokia's Q03 results. The seemingly unstoppable mobile giant reported a 30% fall in profits and a 5.1% fall in sales. Competitive pressures in emerging markets and fierce competition (notably from Apple and RIM) in the high-end market led the average cost of a handset to fall €10 in the past year. Feeling squeezed many consumers are extending their replacement cycles making their existing phone last another six months, rather than upgrading every twelve months.


Ultimately, as ever, those companies with compelling and innovative products and services will weather the economic storms ahead.