In Europe, "dot-coms" are going belly-up, and starry-eyed high-tech yuppies are hocking their laptops to pay the rent, in record numbers, as the global stock market tightens up and scales down. That shock wave is already hitting US shores. "Merrill Lynch forecasts that as many as 75% of today's Net companies will fail. " 'The number of people [losing their investments or their jobs] will be bigger than any of us imagine. People have been dreading this moment for so long ...' '' Business Week: June 12, 2000 News: Analysis & Commentary: The Tech Economy It's Layoff Time in Dot-Com Land Call the offices of toysmart.com, one of the latest Net companies to go belly-up, and you will hear a recording giving directions for employers aiming to recruit the company's staff. Activated just two days after toysmart's May 22 announcement that it was shutting down, the recording came in reaction to an avalanche of calls from 200 companies looking to scoop up toysmart's 170 employees. ``It was either put that up or my assistant was going to kill herself,'' jokes CEO David N. Lord. A laughing CEO is about the last thing you would expect to find at the helm of a company gone bust. But 36-year-old Lord exemplifies the optimism many Net employees still feel, despite the carnage now coursing through the dot-coms. ``I think 75% of our people will end up in tech startups or next stage companies,'' says Lord. Heck, he expects to join another dot-com before too long himself. TEMPORARY. It's layoff time in dot-com land--and like everything else that has taken place in that sometimes unreal world, the experience bears little resemblance to its counterpart in the brick-and-mortar universe. Even as many once-optimistic dot-coms shed employees to cut costs or file for bankruptcy as they run out of funds altogether, many Net employees are still willing to stay in the game. Betting that the downturn is only temporary, they figure that the initial-public-offering market will open up again, and that venture capitalists, still flush with cash and in need of investments, will keep the funds flowing. Is this a smart bet? Clearly, the sector has only felt the very first stings of digital Darwinism. As investors increasingly demand profits, dot-coms are being forced to ax bloated marketing budgets and prune overstaffed operations. To date, that pressure has been felt only by the predictable weak sisters of the sector, such as drkoop.com, which has laid off 35% of its staff since April, and living.com, where 13% of workers lost their jobs in May. But most analysts say there are many more cutbacks, layoffs, and bankruptcies to come. Indeed, Merrill Lynch & Co.'s Henry M. Blodget forecasts that as many as 75% of today's Net companies will fail. ``The number of people getting pink slips will be bigger than any of us imagine,'' warns Tuck Rickards, executive director at recruiter Russell Reynolds Associates Inc. In the face of such predictions, even those dot-coms that are not running out of money tomorrow now feel the need to increase fiscal discipline. Many are reassessing budget decisions and staffing levels set six to eight months ago, when cash was plentiful. Portal AltaVista Co., for instance, fired 5% of its workforce in May in order to improve its still-pending projected profitability in advance of its initial public offering. ``People have been dreading this moment for so long; the economy has been so good,'' says Lorin Kalisky, director of content and communications at AirTreks.com, an online travel service. This lesson, however, is not being lost on erstwhile Kool-Aid-quaffing dot-com devotees. They too are exercising a lot more discipline as they look for dot-com jobs. Most of those with some experience are no longer willing to sign on with long-shot Net operations, even though those have brought the biggest return in the sector's favorite currency: stock options. Well aware that getting rich quick on a Net IPO may now be more the exception than the rule, employees are demanding more assurances. They are asking for better severance and benefits packages and are doing due diligence on management and funding of dot-coms. They are also looking for safe havens. Suddenly, companies that offer profitable balance sheets, such as Yahoo! and eBay, or the online units of Old Economy giants, are far more attractive, even though they provide far less opportunity to strike it rich. In the past, these companies, with their established big valuations, didn't have much allure for those hoping to make a quick killing with stock options or with an IPO. Now, eBay Inc. and Yahoo Inc. say they have had an uptick in the number or the quality of potential recruits. ``It's a very challenging market--don't get me wrong. Frankly, there were people we couldn't get three months ago who are returning our calls now,'' says Rebecca Guerra, eBay's vice-president for human resources. NOT THE SAME. Moreover, when it comes to finding a new job in technology, the recently laid-off hardly have to worry. With unemployment overall at 3.9%--and just 2% in Silicon Valley--those with skills remain heavily in demand. What's more, venture capitalists still are flush with money to invest in startups. ``I think there is enormous amount of growth left in different spaces of the Internet,'' says Ken Gelmann, who was laid off by Amazon.com in January and recently joined Webforia, a startup that provides information for business exchanges. And if the jobs may still exist, the salaries and certainly the lucrative stock options may not to the same extent. And that has definitely taken the bloom off the rose for Old Economy executives who had considered making the jump. One 39-year-old who left publishing to work 18 hour days at a content dot-com says a big payoff might have made the experience worthwhile. Without it, she is considering a return to Corporate America. ``This is the end of the beginning,'' says Riley McDonough, who in the past two years has been at three dot-coms, two of which were sold. ``If you aren't committed to the long-term opportunity this represents, then you aren't suited for this business.'' For prospective job candidates, the question may no longer be whether they can stick it out for a distant payoff. It's whether their dot-com employer will. By Heather Green in New York Copyright 2000 The McGraw-Hill Companies, Inc. All rights reserved. Any use is subject to (1) terms and conditions of this service and (2) rules stated under ``Read This First'' in the ``About Business Week'' area.
