Report: Dot-com fallout may be slowing

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By Elinor Abreu

(IDG) -- The Internet industry, which has weathered a year of mounting shutdowns, may have seen the worst of the carnage, according to a report released Wednesday.

The number of dot-coms closing their doors dropped to 41 in March from a high of 53 in both January and February, according to Webmergers.com, which compiled statistics on shutdown and merger-and-acquisition activity in the first quarter.

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"One month does not a trend make, but I really think it's time for the shutdown to start peaking," said Webmergers President Tim Miller, who authored the report. "The bulk of the bulge has moved through the python."

Part of the explanation may be that there are fewer surviving at-risk dot-coms left to fold. Since the beginning of last year about 370 Internet companies have folded, including nearly 150 in 2001 alone, according to the San Francisco-based firm.

Webmergers launched in mid-1999 to help dot-coms trying to sell their businesses. It also compiles closures and mergers-and-acquisition statistics.

While e-commerce companies bore the brunt of the shutdowns last year, professional Web services firms are getting hit this year, the report shows. In 2000, e-commerce outfits comprised 54 percent of all failed Internet companies, compared with 43 percent this year. Meanwhile, the percentage of professional services firms that went under rose to 7 percent from 4 percent.

A steep drop in information technology and outsourcing spending and the loss of dot-com clients is forcing smaller professional services and consulting firms, such as Osage Systems, Quintus, and Firetalk Communications, out of business, Miller said. The trend is also prompting layoffs at companies such as Viant, Organic, Sapient, Scient, and Razorfish, as well as a massive sell-off of assets by MarchFirst.

Another emerging trend is the free fall of ad-based Web companies offering free stuff, such as Internet access and disk storage space. "The myth that you can give massive amounts of things away for free on the Internet and still make money has been disproved," Miller said.

Companies that have survived the shakeout are holding onto their cash or spending less on acquisitions than they did last year. Buyers spent $13.2 billion for about 380 companies during the first quarter, including $2.2 billion on 184 companies that serve as destination sites. That compares with nearly $52 billion spent on about 230 Internet destination sites in the first quarter of 2000. For all of 2000, buyers spent more than $87 billion on 910 acquisitions involving Internet destinations. Figures for non-destination mergers and acquisitions for last year were not ready for release, Miller said.

The decline in mergers and acquisitions and in spending from last year reflects "the extreme caution among buyers, a dramatic decline in valuations and a relative lack of large blockbuster deals," the report concluded.

The high-flying days of the Internet industry started taking a turn for the worse a year ago this month. Until then, VC funding was flowing, dot-com jobs were abundant and a new Web company opened almost daily. Prior to April 2000, a few dot-coms quietly shut down, but what was once a rarity became a trend with the demise of Healthshop.com and Violet.com. May 2000 was a banner month for closures with big names such as Boo.com, Toysmart.com and Digital Entertainment Network, as well as Pixelon, whose evangelical founder landed in jail, and BBQ.com.

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Study: Bay Area dot-com industry verges on major collapse
(Network World Fusion)
Organic to cut 35% of staff
(The Industry Standard)
Study: More than 400,000 tech jobs to go unfilled in 2001
(InfoWorld.com)
Akamai to layoff 14%
(Publish.com)
The tech bust's silver lining
(Publish.com)
24 hours in the dot-com implosion
(The Industry Standard)
What dot-com disaster?
(The Industry Standard)
Europe to leapfrog U.S. in e-business arena
(IDG.net)

Webmergers.com

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