Obviously this is not good news for online retailers. Although the US online retail has been hit much harder, there is clear evidence that eCommerce in India is slowing down as well. The question has now shifted from “will the internet economy be affected?” to “how bad will the internet economy be affected?”

There is no question this downturn will be deadly for a considerable number of internet startups. However, some of the victims will not be killed by the recession itself; many would have inevitably failed because they didn’t have a sound, fundamental business case to begin with. A recession that makes it harder to generate revenue and to raise additional capital will simply speed up the dying process.

However, I am an optimist. I think there are plenty of reasons to believe that many entrepreneurs and smaller businesses may emerge from the coming downturn in just as good, if not better, shape than they went in. After all, many of today’s most successful companies began in tough times and many others have emerged out of previous downturns stronger than ever before. These are the times that will separate the wheat from the chaff.

Some people would argue that online shopping mainly involves products that classify as “discretionary spending”. Cellular phones, DVDs, LCD TVs are all example of items that might classify as discretionary, and therefore by definition, these are the products that are first to be cut from consumer’s shopping list in case of an economic downturn. Therefore, even if the online retailers have a strong business model, these times require extreme focus on cash flows and managing expenses. On the other hand, it is likely that the cost of software development and other spending categories is cheaper now than in boom times. Therefore, it is a good time to review spending categories such as Online Ad Spending, CPM, consulting partnerships etc. , because chances are that prices would have fallen in most of these spending categories.

Here are some tips on how to improve the chances of survival and emerge stronger out of the recession:

Think Nimble and Flexible

I am a strong believer of trends and cycles. Nothing stays the same way forever, and for the bold entrepreneurs these times may be just right to embark on something big. My only advise would be to build a lean and nimble venture that can quickly respond to the changing dynamics of the industry and economy. For example, instead of going on a hiring spree, consider partnering with services companies, who can probably provide as good, if not better talent in addition to much more flexibility around the financial commitment.

Focus on Value:

This is a high value market, buyers will be looking for and finding extreme deals, and if you have products that can be used to create those deals, or can use them as incentives to get sales, now is the time to be creative. Now is not the time to spend marketing dollars on artificial measures of success – such as increase user registrations, increase page views etc. Instead, this is the time to focus the marketing spend on categories which will add a direct value to consumers. Whether it is kick-back programs (e.g. buy XX now, and get YY Gift card for your next purchase) or aggressive product offers, the focus on direct and measurable results from marketing spend should be highest than ever.

Leveraging Social Networks

The other day I received an email from Sears which offered $5 Sears Gift Card just for signing up as a Sears Fan in Facebook. I immediately thought to myself – was Sears trying to buy friends on Facebook? Is that ethical? As I was thinking through this strategy, I became quite impressed with the potential outcome. On one hand, a $5 gift card would result in a guaranteed spend at Sears (in most cases for a higher order size – albeit at lower margins). On the other hand, Sears suddenly had tens of thousands of so called “fans” who were in a way promoting this store to their own friends and connections! All of this, with no immediate cash outlay because the discount would only be offered when Gift card is redeemed. Overall, I thought this was a great strategy.

Now I am not suggesting that this strategy would work for everyone. However, different variants of this strategy can generate solid results, with minimal upfront investment. It’s definitely possible to execute many of these activities by tapping into your staff’s talent to provide the right content.

Improving On-Page Conversions

The effective use of landing pages and video content has been shown to improve conversion rates on both service and product-related websites. Proven by case studies far and wide, and according to MarketingSherpa’s Search Marketing Benchmark Guide 2008, testing landing page elements improves conversion rates anywhere from 5% to 50%. In November 2007, eMarketer cited a study showing online shopping conversions increasing 35% with the aid of rich media, including video. Of course, succeeding at improving on-page conversions requires the proper analytics coupled with methodical testing.

How well do you track your competitors?

The basic business requirement of gathering competitive intelligence often gets pushed aside by many companies. Competitive intelligence is particularly critical in the online marketing space, since campaign management strategies constantly change and evolve due to the dynamic bidding process. Good intelligence gathering will reduce the probability of wasted advertising dollars. To establish what intelligence should be gathered, successful marketers need internal reports with specific campaign optimization recommendations, along with data on your competition, such as upstream and downstream traffic, advertising sources, and keyword volumes.

In this kind of climate, several companies will be forced to make decisions about their spending and business focus. Survival mode will kick in, and a lot of times, this will result in companies walking away from potential profitable market share – just because it may not be their “core business”.

When this process is occurring, there is often no better time to make a move. If you’re a startup on solid footing, exploit the situation to strengthen your business at the expense of vulnerable competitors.

If you’re an entrepreneur who doesn’t need a venture capital subsidy, put your own resources to work to build a company while those who can’t do the same sit on the sidelines and go back to their day jobs.

This is certainly not a good time to start a venture if you are just “testing the waters” or if you have a half baked business plan – without a clear knowledge of where the revenue will come from. However, if you have the conviction, a great team and a fundamentally sound business plan, this might just be the right time for you to jump in and build something that might get written up as a success story during the next cycle when markets go into another recession.

I, for one, have decided to begin a new journey in the world of entrepreneurship. I have started an eCommerce consulting firm – LeapMatrix and will be focusing my efforts in helping other startups and existing companies maximize their opportunities in these difficult times.