The past year has seen the speeding dot-com train derailed. But new data show the sector's woes might finally be ebbing, if only because the pool of potential victims has practically evaporated.
According to a survey by Challenger Gray & Christmas, the number of Internet-related job cuts was 4,899 in the four weeks ending Aug. 24, down almost 50% from 8,697 in the prior month. It's also down sharply from the record number of layoffs earlier this year -- 17,554 in April and 13,419 in May.
At the same time, however, 21 companies shut their doors in August, up from nine in July. Since January, Challenger has recorded 248 shutdowns and 87,995 job cuts for both public and private Internet businesses. The decline in staff reductions doesn't necessarily indicate an imminent turnaround, said John Challenger, the firm's chief executive. But, he added, dot-coms are running out of employees to fire.
The data, although mixed, suggest to some analysts that the carnage in the sector could be ending. "We're in the latter stages of the shakeout," said John Challenger. "The Internet industry is getting to the point where there is the right number of companies to support market demand."
Of the firms that closed in August, more than half of them were Internet technology outfits, which build and maintain the Net's infrastructure, such as servers, networking devices, telecom services and equipment. That group accounted for 23% of the total monthly job cuts.
The companies that closed in August included
, while Kmart's Bluelight.com imposed big staff cuts.
"Internet technology, (or infrastructure) firms, are likely to see some of the heaviest job cutting, since these firms provide the support system for all other Internet firms," said Challenger.
John Corcoran, an Internet analyst at CIBC World Markets, pointed to the DSL (digital subscriber line) business as a microcosm for problems in the industry, which has seen a number of bankruptcies this year. Companies such as
have all filed for Chapter 11. That has left space for major players like
AOL Time Warner
to raise prices.
"It's a smarter group, which is growing at a more reasonable pace," Corcoran said.
Successes have been chronicled elsewhere in the industry, too. In a recent study,
, a journal published by the consulting firm, compiled data from more than 200 business-to-consumer firms. The report showed that 20% of the firms are making an operating profit. The report also revealed relative strength. Transaction sites, it found, are creating a lot more value than content sites.
In the end, the Internet story is about the survival of the fittest. And there are going to be far fewer firms. But experts are hopeful: "When the fallout is over, the companies that remain will have quality business models and management," said Corcoran.
He continued: "We're going to wind up with a couple of companies -- with very defensible businesses -- within each segment of the Internet space. There isn't room for 15 different DSL providers."