Here’s the state of play as I see it: it is expensive and difficult to borrow and this shows no sign of change; the US debt is rising instead of falling, propelled by the Iraq War and the reliance on China for material goods unreciprocated by a reliance from China on American goods; and this adds up to difficult times for business in America for at least three years and possibly longer. From these premises, it’s possible to cautiously guess at what the future will hold. (Bearing in mind that every day brings new revelations about the grim state of world finance, so the crystal ball is murky at best)

First, this recession will be good for innovation because recessions generally are. During boom times, companies direct development and occupy great talent with at best evolutionary improvements over the state of the art. Companies are great chasers of new things, but aren’t great at making new things. A recession means technologists cease to be paid vast amounts to duplicate the work of others. The Great Tech Bust of Ought Two gave us 37Signals, Flickr, and del.icio.us and there’s a strong argument to be made that many companies spent the next six years chasing what they created.

Second, this recession will be great for free and open source because of the shortage of cash. Last recession saw the mainstream legitimisation of open source operating systems (youngsters, take note: there was a time when it wasn’t automatically okay for an IT department to use Linux) because it was clear and away the most cost-effective choice. The saying I use is, “come for the price, stay for the quality”. Perhaps this recession will legitimise many of the applications (CRM, finance, etc.) higher up the stack. (However, I’m not about to stick my neck out and predict 2009 as The Year of the Linux Desktop)

Third, open source services and cloud computing will benefit from the tight financial situation where conditions will favour opex and not capex. It wil be nigh impossible to borrow to buy hardware or a major software license. An open source software product is free to get through the door, and services around it are delivered from opex not capex. Similarly, cloud computing lets a company pay a little to use someone else’s enormous capital investment. It looks like, if the rumours are true, Microsoft will launch Windows Cloud just in time. Don’t expect to see anyone else putting in new data centres any time soon—in fact, the days of deep-pocketed investors covering high burn rates are over for a while.

Most consumer apps will be a harder sell with the US dollar in the gutter while the country haemorrhages cash overseas. This is bad but won’t make profit impossible, you just have to really be making something consumers need. Apps like Wesabe might find a whole new audience in a recession (disclaimer: O’Reilly is an investor in Wesabe). The conditions don’t suit speculative acquisitions, so expect a return to the focus on the bottom line that (very briefly) characterised the fallout from the ’01 tech bust. Sorry, dreams of getting people to pay for your toothpick collector social network may have to wait until the return of the stupid money in 2013.

As Phil Torrone said, people will have more time than money. This is good for open source software, but also for hardware and Make-style reconnection with the objects around us. The low-cost high-impact physical events we’ve created (Ignite, hacker meetups, coworking spaces, foo/bar camps) will thrive even as big-ticket conferences feel the effects of pinched pennies. The killer app in the “web meets world” space may just come from a Maker with spare time who sees a great need.

That’s how I see the world and what I think it might favour and disadvantage. How do you see it? What am I missing? Share your views in the comments, and a Head First SQL fridge magnet set for the commenter whom I find the most insightful.