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Are All Dot-Com Layoffs Created Equal?

By Michael Mahoney
Jan 10, 2001 12:00 AM PT

In December, the job placement firm of Challenger, Gray and Christmas released a report saying that Internet job losses had increased for seven straight months, and that more than 40,000 dot-com jobs had disappeared in a 12-month period.

Are All Dot-Com Layoffs Created Equal?

The sheer number of layoffs have gotten most of the attention from industry observers, for good reason. On the other hand, the fact that the causes of the layoffs have varied considerably has often gone unnoticed.

"In the beginning, not many dot-com companies took layoffs, because they were trying to up their burn rate, fight for market share, and create recognition," John Challenger, chief executive officer of the Chicago, Illinois-based firm, told the E-Commerce Times. "They were racing to hit their critical branding period, everyone was rushing to get there -- and when layoffs did occur it was because a company simply wasn't making it."

However, by the end of May, more and more dot-coms began putting themselves on austerity plans in order to limit their cash flow, according to Challenger. Layoffs became less a sign of immediate failure than a strategy for survival -- a way to make the cash last through the end of the fiscal year.

"There's been some more situational layoffs in recent months," Challenger said. "Most companies targeted the year's end as an important time to take a good hard look at where they stand. Many companies took layoffs in the last six months to stretch capital in the hope they could turn the corner by year end."

Challenger, whose firm has been informally tracking dot-com job cuts for nearly two years, also said the business-to-business (B2B) sector is going through the same types of cash flow difficulties faced by e-tailers late last year, as well as having a tough time getting new rounds of financing.

Hung Jury

Looking ahead for 2001, Challenger said that he does expect further shakeups as e-tailers continue looking at their year-end results, but there is plenty of gray area concerning how many jobs will be affected.

"The jury is still out," Challenger said. "We'll see an increase in the number of companies that are failing over the next months, there will be more that just don't make it, but that doesn't necessarily mean more layoffs. It will be interesting to see if we hit the [job cuts] peak at end of the year or if the shakeout process will continue on unabated."

Recent layoffs in the dot-com industry have come from one industry in particular: content providers. The New York Times, News Corp., Knight Ridder and the Tribune Co. have all announced layoffs in recent weeks.

"[Content sites] are having a hard time finding a revenue model," Challenger said.

Growing Discontent

Challenger also pointed to a new source of employment pressure on dot-coms in the new year: their own employees. Just like dot-com investors, many employees have purchased stock (through stock options) in their company, only to see them dwindle to little or no value.

This employee discontent has led to increased attempts by dot-com workers to unionize -- an effort that would certainly affect hiring and firing practices at Net businesses.

"Unionizing may topple over some companies, and losing their best employees makes it difficult to continue offering quality products," Challenger said.


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