Newspaper article The Christian Science Monitor

Reality Douses Dotcom Delirium ; Retrenchment Hits an Industry That Now Makes Up 10 Percent of US Economy and Is the Fastest-Growing Sector

Newspaper article The Christian Science Monitor

Reality Douses Dotcom Delirium ; Retrenchment Hits an Industry That Now Makes Up 10 Percent of US Economy and Is the Fastest-Growing Sector

Article excerpt

America's New Economy is facing some jolting truths from the old one: Profits, hard-nosed business plans, and experienced management count.

Those truths are behind the swooning dotcom world of the past several months, say economists and Internet experts. And they expect to see dotcoms and Internet start-ups experience more layoffs, meandering stock prices, and headline-making turmoil through the summer and fall.

But those gyrations are only tempering the spectacular rise of the Internet industry, which promises to remain a leader in overall economic growth.

"This is not like the auto or steel industry downturns of the past, which slowed the economy," says economist Stephen Levy of the Center for Continuing Study of the California economy. "This is an industry slowing down while still growing way ahead of the economy as a whole."

Viewed from the inside, though, the dotcom shakeout has been traumatic, changing both its culture and economics.

"The Internet has created the most Darwinian environment in business history," says Jay Whitehead, CEO of EmployeeService.com in San Francisco. "You can now fail faster in the dotcom world than ever before."

Many have in recent weeks. The crime and justice site APBnews.com, retailer Boo.com, and HealthShop have all been shuttered. Pink slips have fallen on a host of other dotcoms, ranging from AltaVista, an online search engine, to the CBS Internet news division. "It's all just a sign that we're moving into the next stage of the dotcom revolution," says John Challenger of Challenger, Gray & Christmas, whichtracks layoffs nationally. In fact, dotcom layoffs are so new that the Chicago firm only began monitoring them in May.

But Mr. Challenger predicts layoffs will accelerate this month and into the summer, even though that doesn't necessarily portend a retrenchment for the industry. "It's not shrinking, just growing more slowly," he says of the dotcom job base.

The Internet economy barreled into 2000, accounting for close to 10 percent of the US economy and nearly one-third of its current growth. A study this month by the University of Texas and sponsored by Cisco, an Internet hardwaremaker, found that the Internet sector of the economy directly employs nearly 2.5 million people.

While that represents a small share of the total workforce - about 2 percent - it's growing far faster than the economy as a whole. Internet jobs grew 36 percent in 1999, the study found. And, says coauthor Andrew Whinston, dotcome employment will "continue to grow and ... the overall employment opportunities will be tremendous."

Still, turmoil in the dotcom world is reflected in falling stock prices. The technology-laden Nasdaq index remains about 1,200 points below its peak in March. One of the latest victims: Amazon. …

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