Facing red ink, dotcoms temper their idealism

The dotcom world's riches-to-rags story this year is measured largely in numbers: more closures and more layoffs.

But as painful as layoffs are, the souring economics of Internet start-ups is only half the story. The downturn, say a number of analysts, is changing the basic character of the dotcom world, and some presumptions of how America's Old and New Economies interact.

For some social historians, dotcom workers represent a kind of vanguard force, leading but also bearing the brunt of social and economic change as an old industrial world morphs into a new digital one.

And so far, a prevailing lesson appears to be that the process of change will be more about blending than wholesale replacement.

For instance, foosball tables, casual dress, and flexible hours are here to stay, say a number of dotcom experts. In fact, workplace changes pioneered by dotcom firms have spread into traditional companies and are increasingly the norm.

But the "change the world" idealism and get-rich mentality of the Internet workforce are clearly being moderated by the old-fashioned school of economic hard knocks.

A social phenomenon

John Challenger, whose Chicago outplacement firm tracks dotcom layoffs nationally, sees the dotcom generation as a social as well as economic phenomenon. "It's a classic youth movement, not unlike the 1960s in many ways," he says.

And like the often-rocky incorporation of '60s radicals into the social mainstream, a similar cultural reality check is under way with members of the dotcom generation. "They thought the old world would be razed, but they're finding things are going to evolve more slowly than that," says Mr. Challenger.

Traditional economic forces are doing the tutoring.

Challenger, Gray & Christmas reported this week that dotcom layoffs nationally reached nearly 9,000 in November - a record high. Dotcom failures, ranging from online sellers of plants to pet food, are also expected to set a new record this month, according to Webmergers.com.

And analysts see the numbers getting worse before they get better.

For many investors, this holiday season is a make-or-break test for many dotcom companies, says Kirk Walden of PricewaterhouseCoopers, which monitors venture capital investments in technology. Mr. Walden predicts that investors will pull the plug quickly on wobbly firms involved in consumer e-tailing that don't perform strongly during December.

After a spectacular and steady climb that began in late 1998, venture capital investments in dotcom companies offering services online declined by over $2 billion from the second to the third quarter this year.

What's gone wrong? "The cart got way ahead of the horse," says Walden, meaning the proliferation of online services raced far ahead of consumer buying practices.

For many, this economic shock is a just comeuppance for dotcom workers who had found the path to wealth so seemingly easy.

But the picture of dotcom workers as fixated only on money is not complete. Many social scientists now depict the dotcom phenomenon as a social movement as well as an industry.

"A big part of the students I deal with see the Internet and dotcoms as an opportunity to affect the world," says Richard Florida, a professor of public policy at Carnegie Mellon in Pittsburgh. "This shakeout now is separating the fad and fashionable from the deep and enduring."

Some changes here to stay

Mr. Florida says technology, and dotcoms in particular, have radically altered the American workplace. Changes like casual dress, flexible work hours, and a sense of individual freedom are rapidly spreading to more traditional companies.

But other work-related habits may be changing. Minimal company loyalty and a high acceptance of risk could give way to a greater emphasis on security as the Internet goes through its first real down cycle.

The impact of the downturn on the dotcom world's social ethos is harder to decipher.

Parallels with the youth movement of the 1960s are imperfect. While the latter was overtly political and suspect of capitalism, the dotcom world is neither. But energizing each has been a thirst for change.

Dotcom disillusionment?

For many, the Internet represents a means of spreading power that obeys none of the traditional geographic or institutional boundaries. It is a free space that establishes many of its own rules as it evolves.

Larry Warshaw of Austin, Texas, was the former policy director for the mayor of Austin, but left that job for the dotcom world, convinced he could spur change more effectively, and make a better living to boot.

"I think there definitely is a kind of passion in the dotcom culture to build things and change things. It still exists, but it's become more cautious" because of the economic turmoil, says Mr. Warshaw.

Clearly, dotcom workers have been rattled by what is going on around them.

"Workers now want cash, not stocks. Some want severance agreements. And more look at the company's viability before joining," says Jay Whitehead, founder of Employeeservice.com, which puts personnel resources online for companies.

While the economic turmoil is significant, most analysts point out that the dotcom sector, a small part of the technology industry overall, is too small to drag down the economy as a whole.

Further, for most displaced dotcom workers, another job is waiting. With an extraordinarily tight labor market in technology, "the employee still rules," says Mr. Whitehead.

Still, as Challenger compiles his increasingly grim statistics each month, he worries most about its collective impact.

"We have to guard against the disenchantment of this dotcom generation," he says. "We don't want to lose their optimism and faith that the world was going to change."

A host of Web sites have sprung up catering to laid-off dotcom workers, and the chat rooms are busy with bitter tales of getting the ax. Recruiting firms report growing numbers of former dotcom employees seeking work outside that industry.

But disillusionment?

"Not really," says Park Greg, who was laid off by an Internet firm recently and has now started his own dotcom in Austin. "We've just seen that there is an old-fashioned way of doing business that might not be so old-fashioned."

(c) Copyright 2000. The Christian Science Publishing Society