By Hillel Aron
By Joseph Tsidulko
By Patrick Range McDonald
By David Futch
By Hillel Aron
By Dennis Romero
By Jill Stewart
By Dennis Romero
Massey claims he was the 20th employee to be hired by Soundbreak, which is owned by Acacia Research, an investment firm in Pasadena. By the middle of 1999, the staff had grown to 120. But by the start of February 2001, it was down to 35, and Massey, like so many others who had found their niches in the dot-com world, was out of a job. "It was a bent pipe of a year," he says. "You know, straight up, straight down. It's frustrating, and it hurt like hell."
In January, 15,400 Internet jobs were lost; in what's being called a "Valentine's massacre," online companies fired some 4,500 more in the next three weeks. And many of the companies that fired their employees lacked either the resources or the grace to be nice about it. "There are a lot of people who are bitter out there," according to Fiona Ng, a 27-year-old graduate of UC Irvine who was laid off last year from Hollywood.com, an online entertainment and listings site, which relocated its base of operations to Boca Raton, Florida, and cut most of its L.A. staff. "If you look at the message boards under each company on Yahoo!, you see how some people really can't get over it. And I kind of understand that. I mean, the way these companies ask people to pack up overnight -- well, even if you stay, it makes you question your own integrity."
IN LOS ANGELES, MUCH OF THE DOT-COM collapse is the result of entertainment providers' assumption that technology would keep pace with their ambitions. Pop, DEN and Soundbreak all intended to lure consumers to stare into their monitors the way they do their televisions, with the added incentive of interactivity.
"I think they thought that there would be millions of hits, that people would stay at sites longer," Massey says. "But the Web isn't interactive TV yet -- it's not a two-button press-and-play with a million holographic channels." Worse, the average home computer still sputters on streaming video. "The Web," he says, "was just not ready for what we were trying to do."
Still, it's conceivable that these entertainment sites could have waited it out -- that their initial rounds of funding might have been enough to sustain them while more homes got wired with the high-speed cable and DSL service necessary to enjoy streaming content, the equivalent of broadcast on the Internet. Or they could have developed a product while they waited for interest in the Internet, along with high-speed-access penetration, to build. (Internet traffic, up 17 percent in the year 2000, continues to increase. The number of surfers rose by 8 percent, to 56 million, in the last week of January. That same week, Amazon.com sent 1,300 staffers out the door with "nondisparagement gag orders.") Instead, in an effort to establish themselves as the next new, new thing, most young Internet companies blew their money promoting their product.
On March 20, 2000, Barron's ran a cover story titled "Burning Up," in which Jack Willoughby reported on an exclusive study commissioned from Pegasus Research International, an Internet stock evaluation firm. After looking at 207 of the then 371 publicly traded Internet companies, Pegasus concluded that 51 of those firms would "burn through their cash within the next 12 months." In the parlance of the financial world, Willoughby was talking about "burn rate," an inexact bit of math that predicts the number of days it will take for a business to go broke at its current rate of spending. "Among outfits likely to run out of funds soon are CDNow, Secure Computing, drkoop.com, Medscape, Infonautics, Intraware and Peapod," Willoughby reported. But even established Web firms were in trouble. "Perhaps one of the best-known ä companies on our list, Amazon.com, showed up with only 10 months' worth of cash left in the till."
The story spread fear among investors -- the kind who had put their money in Internet-company "incubators," as well as the more traditional kind who play the stock market. Share prices plummeted across the board, and hardest hit were the firms Willoughby mentioned. Yet of those 51 companies, most are still in business today, although some have been acquired by other firms, and others have seen their shares fall so low they're in danger of "delisting" -- being knocked off the stock market altogether. Of the 102 dot-coms to have folded since the story was published, only six were on Willoughby's list at all. But if Willoughby failed to predict which companies would go under, he did report the method by which the others would die: as "burn victims."
On February 15, three days after the courts upheld an injunction ordering Napster to cease facilitating the exchange of copyrighted material, and the day of my last interview with Massey, Soundbreak's vice president of corporate development, Brian Frank, sent out a letter to "Friends, Fans, and Associates" that was posted on a Web log called Fucked Company: "It seems that, as of today," he wrote, "Soundbreak will no longer be around." Massey delivered the news when he returned my call the next day. "Soundbreak went down," he said. "It's all over the news -- right out there, like a gaping, open wound."