Closing of 2000: More signs of dot-com doom

More signs of troubles ahead for dot-coms. The Internet just isn't transforming consumer behavior as quickly as some had expected.

PALO ALTO, Calif. (Reuters) -- Nobody expected a repeat of last year, when the entire Internet industry rang in the new millennium calculating stock option riches and proclaiming the old economy dead.

But nobody expected this much gloom and doom either.

The slow bleed that has taken out thousands of workers and upward of 100 Internet companies in recent months turned into a flood of bad news last week in what would normally be a festive week.

As U.S. stock indexes sank and some of the nation's largest companies hunkered down for hard times, the storm proved more than many fledgling dot-coms could endure.

Some closed up shop right before Christmas, while others delivered pink slips to as many as half their employees and warned that the outlook for 2001 was even more bleak.

Workers who once boasted about rationing sleep to four hours a night in order to have more time to build an Internet business that would change the world said they now were just weary. Twentysomethings who had sworn off jobs in the old, brick-and-mortar economy were eating their words.

"All my laid-off friends are turning out to have been fair-weather new economists. One is trying to get a job marketing vodka for a big beverage company and another just got a job at Clorox. The fad has lifted," said Cabe Franklin, who works for a San Francisco-based Internet startup that is still in business.

Some struggling companies canceled holiday parties, put on a shoestring celebration with a cash bar, or offered workers a week off without pay to preserve dwindling cash.

Others bit the bullet. Inc, a Santa Monica, Calif. company selling products and services to other businesses, announced last week that it was closing its doors and laying off 190 employees. Inc, a similar company based in Seattle, cut close to 50 percent of its staff, on top of another substantial cut just two months ago. Asked what slicing the staff in half had done to morale, an Onvia spokeswoman replied that there was a "macro-mood and a micro-mood."

"The macro-mood is that people are excited thinking about the future of the company," said Gretchen Sorenson.

And the micro-mood?

"Well, it's a company where we've tried to foster a lot of team spirit," she sighed, her voice trailing off.

Onvia might deserve the award for compassion: in an industry where sacked workers sometimes have just hours to clean their desks before the lights go off, Onvia offered 60 days notice and months of severance.

Justin Jaffe was not so fortunate. When his employer, the online text book store pulled the plug earlier this fall, he got a check for only a week's severance.

A bad check, as it turned out. Jaffe is now pursuing a claim against his old employer for the week's pay plus $4 for the bank fee he was charged when the paycheck bounced.

Behind this anecdotal evidence of a downturn, there were some more official signs that the Internet just was not transforming consumer behavior as quickly as some had expected.

One study of online retailing showed that shoppers were leaving the Web in large numbers as Christmas approached and heading for the malls, unwilling to believe the guarantees of many Web sites that they would deliver orders placed as late as Dec. 23.

Another study offered some reason for concern for the Internet content sites struggling to turn a profit. For the first time in the short history of the Web, the study found, online advertising sales were down in the latest quarter.

It was not just the die-hard dot-commers feeling pain either. Many Wall Street analysts who follow the industry were humbled as investors dumped Internet stocks faster than they could downgrade them.

"Remember when it used to be fun to be an Internet analyst?" sighed Scott Reamer of the brokerage S.G. Cowen and Co. Reamer spent much of last week explaining why investors should stay clear of onetime favorite stocks like Yahoo Inc. and Inc., even though they were trading at what would seem to be bargain basement prices, at least 80 percent off their 52-week highs.

Another tangential dot-com community to take a hit was the group of journalists who write about the Internet or publish online. Both Red Herring magazine, which covers the technology behind the new economy, and and the online magazine laid off some writers.

"I've never worked so hard in my career for this amount of revenue," said Michael O'Donnell, Chief Executive of Salon, which slashed its revenue forecasts for the upcoming quarter to around $2.3 million.

Red Herring said its layoffs were more strategic than economic.

One online publisher that saw its audience swell along with the pink slips was F*, an irreverent site that tracks dot-com failures.

The site, which had been posting periodic updates, sent a notice to subscribers last week that to keep up with all the bad news, it would start updating every day, throughout the day.

Of course, not everything pointed to the sky falling. Plenty of signs of last year's Internet wealth and excess remained.

A person who attended the Yahoo company holiday party described a scene reminiscent of giddier times, with staffers feasting on oversized platters of shrimp and oysters while downing "blue yahoo martinis" that were poured through giant ice sculptures.

Many companies said they were still having a hard time finding talented labor. An entrepreneur in Connecticut who is starting an online auction site for businesses, said he was trying to locate a group of laid-off workers in Seattle, and might even offer them relocation assistance.

And in Silicon Valley, there was no hint of real estate prices coming anywhere near down to earth. The median price for a house in Santa Clara County topped half a million dollars.