Web companies will survive the crisis, Silicon Valley entrepreneur Reid Hoffman tells RICHARD MILNE

REID HOFFMAN is renowned as one of the best-connected people in Silicon Valley, where he has operated as an investor, entrepreneur and chief executive. Now back at the helm of LinkedIn, the largest social network site for professional use, the 41-year-old is in charge of one of the internet’s hottest addresses.

LinkedIn has seen a huge rise in users during the credit crunch as people flock to put their career details on it in the hope of finding a job. But it faces a common challenge for many of the so-called Web 2.0 sites that deal in social networks: can they be viable in the long term?

Hoffman has founded several companies, including LinkedIn, and joined the board of directors of PayPal, the payment service later bought by Ebay, when it was set up.

He provided early capital as an angel investor to several popular websites, including Facebook, Digg and Friendster.

In an interview last week, he talked about why Web 2.0 companies will survive the downturn, why he would invest in advertising, and how Silicon Valley behaves like a teenager with the US government.

Will social network sites ever make a lot of money?

It depends a lot on what you think is a lot of money. Some of the very large sites already have enough page views that they’re generating [good] economics off. And my belief both as an investor and as an entrepreneur is that there is a strong future to come.

Do you think in this recession we are going to see a lot of these Web 2.0 companies disappearing?

I don’t think so. Web companies are much cheaper to run than they used to be, so the overall cost infrastructure is much lower. There’s [also] a variety of ways for them to make money.

There is still a massive shift from offline to online, which will benefit them.

Has the crisis shown the benefits of not being listed?

Yes. One of the things that makes a very big difference, which is one of the reasons Silicon Valley produces a lot of interesting companies, is that strategy should be run on a three- or five-year basis, whereas most public companies have to run it on a quarterly basis.

Twitter is seen as the next big thing – is it worth the hype?

It will almost certainly make money. They have yet to do the business model part of their strategy. It is a classic consumer internet path which LinkedIn itself did in the first few years to get growth and traction first and then start working on monetisation.

More broadly, what do you see as the next big thing?

I do get asked that question a lot by venture capitalists in Silicon Valley and one answer I gave recently was that I would be looking at advertising networks.

That’s almost counter-intuitive?

If you want to buy low and sell high, you have to be contrarian because that is the only way you get to buy low. I’m still very long [on] the consumer, and so a number of properties will actually need to be supported by interesting ad networks, and I think there is a lot of innovation there that has yet to be done.

How much trouble is the venture capital world in?

The venture world tends to get funded by agreements with in terms of cash calls, so there’s some trouble right now because [of] the general liquidity. They will obviously take a pretty hard look at the next cycle of funds they are going to invest in.

Where do you see the next big ideas coming from? Is Silicon Valley still in there?

It’s not accidental that Google, Yahoo and Ebay are all within 25 miles of each other. Silicon Valley still has a very robust ecosystem for generating a global capital for tech entrepreneurship . . . but there will also be very interesting things in China, India, Europe.

Silicon Valley is very optimistic about President Obama. Can he live up to it?

If you come in with a plan of saving the universe, it’s a little challenging. In very difficult times, Mr Obama has been doing well. I would hope the work they are doing ends up focusing much more on stimulating entrepreneurship and small businesses because the key thing is again time frames: what happens in three to seven years, not what happens next year in terms of a stable economy.

Silicon Valley’s relationship with the government is a little bit like a teenager. Which is: “Leave me alone and I’ll leave you alone.” I have actually always been curious to see how Silicon Valley will start relating with governments.

Are you seeing glimmers of hope in the economy?

It’s too early to fully see across the economy. We in Silicon Valley tend to be generally optimistic, because entrepreneurs – whenever they see anything, including a downturn – say: “Oh, there’s an opportunity. Build something new.” At LinkedIn, we’re seeing a lot of increased usage.

Is there a future for traditional media companies?

I hope so. Traditional media companies have created a lot of interesting products. The challenge is obviously that there is a massive switch of attention to online. And, as yet, relatively few traditional media companies have created the right product solutions there. Now, whether they will create it, buy it or partner or whatever, I do think there’s going to be a very strong shift online and then traditional media companies are going to need to navigate that or it will be very painful. – (Copyright The Financial Times Limited 2009)