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. Last Updated: 07/27/2016

Craze Fades as Layoffs Strike Internet Industry




PALO ALTO, California -- AltaVista chief executive Rod Schlock steps into his office, his face bearing the strain of the turmoil in the Internet industry.


After rapidly expanding last year and pouring millions into advertising, AltaVista in the past few months has laid off 50 of its 800 employees, reassigned 60 and admitted defeat in an effort to dethrone Yahoo as the world's leading Internet search engine.


Many dot.coms are seeing stratospheric stock prices are falling back to Earth, and financing drying up. Instead of dispensing stock options, many are handing out pink slips.


"Frankly, my view is the Internet industry, the craze around the Internet, ultimately caused unhealthy behavior,'' Schrock says, his eyes red-rimmed from a long week of strategy reviews. "That behavior was: 'Focus on acquiring an audience at all costs, regardless of costs.'''


The list of troubled businesses is long: Value America, DrKoop.com, KBkids.com, Quepasa.com, Petplace.com, Petstore.com, CarOrder.com, Salon.com, TurboLinux. Even Amazon.com f viewed as one of the most stable web companies f is cutting the fat.


"The first phase of the Internet, characterized by little more than exuberance and an uncertainty about what the industry was going to look like, is coming to an end,'' says John Challenger, chairman of Chicago-based job-placement firm Challenger, Gray and Christmas.


"Now we're moving into the second phase of the digital revolution where we're going to sort out the companies that don't produce. There's no doubt you're going to see a summer littered with dot.com layoffs.''


PlanetRx.com, Autoweb.com, Buy.com. CDNow, Drugstore.com, Egghead.com, Fogdog.com, Garden.com, HomeGrocer.com and Streamline.com are among those that will run out of money in the next 12 months unless they get more funding, Goldman, Sachs and Co. analyst Anthony Noto said last month.


Forrester Research went even further in the gloom-and-doom predictions category, saying the majority of dot.coms will go out of business by 2001.


Among the first were London retailer Boo.com, New York news agency APBNews.com and, just in the past week, Reel.com.


At AltaVista, Schrock chafes at being lumped in with those companies. He says chief stakeholder CMGI remains committed to seeing AltaVista through its makeover, despite stock turmoil that forced AltaVista to postpone indefinitely its initial public offering.


The company is now positioning itself as a "web-wide knowledge resource," that allows visitors to search for comprehensive information on a topic before changing sites. It is also licensing its search technology to other e-commerce sites, which accounts for nearly 15 percent of its annual revenue.


"There are going to be several Internet companies that are going to have to consolidate or dramatically reshape their expectations,'' Schrock says. "Venture capitalists have closed the golden doors right now, but we're backed by a company that has $500 million in cash. They're fully prepared to help us develop in the long-term.''


But Challenger and other job-placement services say the high-tech industry is still scrambling for qualified employees in a tight labor market.


"It was more of an inconvenience than anything else,'' says 51-year-old Francine Schwartz, who was laid off by Healthshop.com, a San Francisco company that sold natural-health products before shutting down in April.


She took a position three weeks later at San Rafael-based ICPlanet.com, a site that connects recruiters and consultants.


"It was very easy to find a job. I didn't really have to look, to tell you the truth,'' she says. "I found myself talking to people on the phone where I truly felt I was interviewing them more than they were interviewing me. Now I have a better job paying more money that's closer to home.''


Other laid-off workers are taking a new look at traditional brick-and-mortar firms that are now expanding online.


"The skills these people have developed are in great demand, and they still can write their ticket if they're willing to be flexible,'' Challenger says.