Capitalism is all about business cycles, and a lot of public policy and management challenges can be understood as efforts to understand and smooth out the boom-and-bust nature of the free market. The financial world, of course, has entered an extreme down cycle (corresponding to the extreme up cycle of the prior decades) and is now taking much of the global economy along with it; politicians and business leaders are desperately trying to prevent it from reaching the depths of the great down cycle known as the Great Depression.

The internet and technology industries historically have had cycles all their own, because the forces of innovation tend to be strong enough to overpower the normal undulations of the macro economy. The personal computer revolution was born in the 1970s (when the economy was bad) and the computer business as a whole experienced a brutal shake-out in the mid-1980s (when the economy was good).

The dot-com boom of the late 1990s coincided with a strong economy, but it was a direct result of the invention of the web browser and other technological advances, many of which happened during the recessionary early 1990s. The bust of 2000 was a result of the internet euphoria getting more than a little out of hand. While the dot-com economy helped the overall economy on the way up and hurt it on the way down, in many ways it was remarkably disconnected (as long as you didn't buy the stocks, you were probably fine).

Today the big question in the internet world is whether web 2.0, which represents the latest great cycle in technological innovation, is powerful enough to march through the macroeconomic down cycle. On the money end of the business, extreme caution – if not outright panic – certainly rules the day. Companies across Silicon Valley are in cut-back mode, and sentiment towards many types of start-up companies is gloomy indeed.

Yet consider the other side. Google, even though its stock price has dropped dramatically, shows no signs of scaling back its immense ambitions, and its money machine – Adwords – is doing better than ever. Apple, similarly, remains a juggernaut; personally I think it will see a slowdown in sales growth as consumers pull back spending, but note that doesn't mean an actual decline in sales. If the company can continue to take market share in massive businesses like mobile phones and personal computers, even a major recession won't slow it down too much.

Many if not most Web 2.0 businesses are supported by advertising, and one of the biggest questions right now is how badly internet advertising will be hurt in the recession. My belief is that online advertising, which had been growing at 15 to 20 per cent a year over the past few years, will still see growth, albeit in the low single digits, over the next couple of years as it continues to take share from traditional media. But that is not a given.

Because of seasonal cycles – the fourth quarter is the best time for most ad-supported businesses, and the first quarter the worst – we won't know for a few months yet how badly advertising will be hit.

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Jonathan Weber is the founder and editor in chief of NewWest.Net, a regional news service focused on the Rocky Mountain West in the United States. He was previously the co-founder and editor in chief of the Industry Standard