X-SciTech

Dot-Com Dog Days

By CBSNews.com staff CBSNews.com staff

June 17, 2000 / 10:13 AM EDT / CBS

All that glitters is not gold. In Internet terms, CBS News Correspondent Anthony Mason reports some of what has appeared to be glitter has turned out to be virtual fool's gold.

A number of dot-com companies that had been favorites of Wall Street are darlings no more if they're not turning a profit.

For instance, Joe Krakoviak of the cash-strapped crime Web site apb.com, says the staff was called in earlier this month and told "that the company had exhausted all it's funding and was forced to fire all the employees. 140 employees in one fell swoop."

The firm has managed to keep going, relying on a skeletal staff and volunteers while it looks for new investors.

But Krakoviak has found that "the market is just closed. That spigot has been turned off and the handle has been thrown in the backyard."

The result: the romance that last year set the Nasdaq on fire has left hundreds of unprofitable Internet companies begging for love and money.

"Really the froth and euphoria is over, and it's going to be difficult for Wall Street to get excited about any company at this point," according to analyst Henry Blodget of Merrill Lynch.

And the numbers would appear to bear that out. The average Internet stock is down two-thirds from it's 52-week high, according to a recent study by Morgan Stanley Dean Witter. And nearly half have fallen below their offering price.

But that's not to say the Internet is dead. To the contrary, it's still growing nearly 50 percent per year worldwide.

"It's not going to be the solution to everything. But it's going to be the solution for many things," says Kevin Rollins of Dell Computer.

But, Rollins says, now companies have to be fast and first. "There's only the quick and the dead."

The graveyard of dot.com failures continues to grow with one truth hitting home for those who have been abandoned by investors. "There's only so long you can go on a wing and a prayer without funding," says Krakoviak, whose apbnews.com is struggling not to join the list.

In the meantime, the skies are crowded with former Internet high flyers now riding on a wing and a prayer.

London retailer Boo.com and Reel.com have already gone out of business. 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 & Co. analyst Anthony Noto said last month.

And experts think the Internet shakeout has only just begun. Of today's thousands of companies, only 20 percent are expected to survive to the year 2002.

"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, chief executive of Chicago-based job-placement company Challenger, Gray & 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," he says.