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Harsh reality sets in for dot-com prospectors

The dot-com shakeout has produced a flurry of postings predicting or commenting on the failure of dot-com companies.  

June 30, 2000
Web posted at: 3:37 p.m. EDT (1937 GMT)

(CNN) -- After producing a multitude of millionaires, a new reality is setting in the frenzied Internet economy: profit or perish. From San Jose to Manhattan to dot-com outposts across the country, the Darwinian shakeout under way has left dozens of start-ups on the venture capitalist chopping block, with more to come.

One dot-com media executive in New York's tries to remain upbeat about the Internet, but acknowledges the growing risks.

"I think the Internet is the future of journalism. It's the future of the news business. At the same time, right now, it's a really high-risk business," said Hoag Levins, editor of APBnews.com, a 1.5-year-old crime news site that by many measures has achieved great success.

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  • Startupfailures.com
    A 12-step program for those who have tried and failed at start-up stardom

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    Gather gossip and compete with other deathwatchers by predicting the next dotcoms to fall
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    In 18 months the Web site went from zero to between 18 and 22 million page views a month, Levins said. But APBnews and its 140 employees became a casualty in the great dot-com shakeout in early June.

    "They told us, 'The money has run out. The investors won't put more money in. We can't pay you; in effect, you're all fired.' It was like, wow, hit me in the head with a hammer," Levins said.

    The company later hired back a core staff of two dozen employees and continues limited operations while looking for new investors.

    Just a week before the APBnews fallout, Internet clothing retailer Boo.com made headlines when it collapsed, after burning through $135 million in venture capital and just six months online.

    "The mood is very worried," said strategy and business editor Randall Rothenberg, adding that weak start-ups are falling victim to a new era of rationality in the Internet economy.

    "I'd say about 75 percent of today's publicly traded dot-coms will be out of business in three to five years ... the mood is very worried," he said.

    From online crime news to fashion commerce, from a portal for barbecue supplies to a Web site for the environment, the growing list of dead and dying dot-coms is the talk of the industry.

    Boo.com
    After its collapse in early June, the Boo.com site began pointing customers to FashionMall.com--the new owner of the British fashion retailer's viewing technology.  

    One way the industry copes is through dark humor and parody. Philip Kaplan started an Internet "death watch" for dot-com companies.

    "It's based on celebrity death watches, picking who's going to die and when they're going to die. It's all pretty morbid," said Kaplan, a 24-year-old Internet consultant.

    The Web site name is a take off on the new economy bible, "Fast Company." Instead of the word "fast," the URL uses the past tense of a popular but unprintable word that suggests such companies are in dire straits.

    "One weekend I was bored and as a sort of a joke I made this Web site," Kaplan said. "I originally made it for just my six friends. I had no idea that it would catch on, but a couple of days later, I had about 20,000 users and it's been growing exponentially since then." Visitors to the site compete by picking five dot-coms they think will fail. So far, more than 70,000 have entered the competition. Participants rack up points if chosen companies report bad news.

    "A company has to have some type of event, whether it lays off people, whether they recall their IPO (initial public offering). Maybe they're getting sued or an executive leaves. The points are based on the odds," Kaplan said.

    Napster's lawsuits have landed it on many magazine covers, making it a popular pick.

    But players can net more points choosing lower profile possible failures, like one prophetically-named breakfast cereal portal.

    Flake.com went broke, and based on Kaplan's scoring system, the company entered the Web site's hall of fame.

    Kaplan also posts sarcastic tidbits of company news or gossip, gleaned from the media and friends or memos and e-mail sent in by the site's fans.

    For example, an e-mail from a company called Fashion500.com said the company will allow no more paid vacations until the site launches months from now.

    "There will be no fun this summer," Kaplan said.

    Over its first few weeks his site has drawn more than 1 million visitors, many of them industry insiders.

    "Whether they work for dot-coms, whether they own dot-coms, a lot of them work for investment companies, banks, venture capitalists," Kaplan said. "I can look at people's e-mail addresses and there's very few AOL or Hotmail e-mail addresses. You see Price Waterhouse addresses and Andersen consulting e-mail addresses."

    GALLERY

    But rest assured, Kaplan will not solicit investors any time soon.

    "If somebody started a site like this to make money, I'd probably list them on the site as a doomed company. There's no real business model. There's no idea that's going to sustain a corporation for the next 40 years in this Web site ... and that's the problem with a lot of dot-coms today," he said.

    Ironically, the Web site seems to have reassured some of those caught in the dot-com shakeout. While visiting the site, some of those who have lost their jobs have found that many others shared their fate.

    "They say, '...I saw 20 other companies were listed the same day as laying off 100 people and it made me feel really good,'" Kaplan said.

    Northern California is starting to see the real-world effects of an Internet correction. San Francisco psychologist Jeffrey Kaye says he emotional stakes are often especially high for workers in high-tech professions.

    "The pace of the work, the expectations of management, the all-or-nothing, we're going to make it with this IPO and be rich or we're going to be bust, is very stressful," he said.

    "There's a lot of glamour to the field, or at least purported glamour. The Webbies (Web site awards) were held just up the street from my office. It had a lot of media coverage and was quite glamorous. And yet on a day-by-day basis, they go to their office, they work in a little tiny cubicle, they work very long hours. They miss out on friendships. They don't have time to enjoy themselves."

    Personal sacrifices can be magnified when the Internet pot of gold becomes more elusive. In the last month, for example, high profile IPOs like Reel.com and Kbkids.com were withdrawn or postponed.

    "There's a tremendous toll on the human side that start-ups take on people. And it just didn't seem like something that was being addressed," Kaye said.

    After failing at three start-ups, Nicholas Hall decided others could learn from his mistakes. He created Startupfailures.com, sort of an online 12-step program that takes the shame out of failure.

    "The purpose is to help people bounce back from start-up failures," Hall said.

    The site has an active message board that doubles as a support group. And certified career coaches respond to specific e-mail questions.

    "We also have a resource listing where we have a lot of links to sites to help people bounce back, for their mind, body, money and relationships," Hall said.

    "If people maybe haven't gone out on a date in a while, we have some different sites where they can go to maybe find a date."

    Hall's overarching message is as clear as it is simple.

    "My advice is to keep trying, to try and try again. For me, I want people to be able to enjoy the roller coaster ride."

    A worthwhile ride, even for some who have been thrown from the roller coaster, like APBnews.com's Hoag Levins:

    "I'm being shaken out. I think it's absolutely inevitable. There has never been a more volatile market than this one. There has never been a higher level of risk to bet your career on. But there's also never been such an exciting one."



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    CNN In-Depth Specials - Prospering in the New Economy: Small Business
    Job losses? Job gains? That's the Net economy
    June 6, 2000
    Internet economy -- with all its unknowns -- attractive to new grads
    April 5, 2000

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