Web Street Lays an Egg

Why, asked Marc Singer, doesn’t anyone write about the difference “between companies that were trying to take advantage of the euphoria” and the other companies that “were working for the long haul and products they believed in”?

Mr. Singer, founder of a Silicon Alley firm ToggleThis, which designs e-mail marketing campaigns with cute animated characters, had the tone of the assaulted man on the edge, besieged, attacked, bewildered.

Why, Mr. Singer asked, can’t they see the difference between the labors of love, great Ideas…and the bloodsuckers dragging down the entire industry?

Here’s why. There is an Internet apocalypse going on out there. It is impossible to deny–no matter how cheerily the chief executives and their flacks try to spin a layoff of half their staff as “a restructuring” that “will help us reach profitability”–that the big shakeout is here.

Consider this: According to the trade dailies, since Sept. 14 Pseudo Programs shut down completely, laying off 175 people; so did RedConnect, with about 500 workers; MaMaMedia has shed 44 jobs (40 percent of its total staff); Small World fired 40 people (one-third); Promotions.com, 30 people (13 percent); Space.com, 22 employees (20 percent); Snickleways Interactive, 20 jobs (14 percent); MTVi, 105 staffers (25 percent); Xceed, 75 people (12 percent); and StarMedia Networks, 125 people (15 percent).

Add those numbers up, and that’s 1,136 people fired in just three weeks.

Fear and anger have swept through Silicon Alley. Whether your company managed to go public in the euphoria of 1998 and 1999 or whether you are still a private start-up, it is a changed landscape.

While C.E.O.’s used to walk around town doing quick mental calculations, multiplying the number of shares they have by their current price–now Silicon Alley stocks are worth less than 30 percent of what they were at the beginning of this year–a new calculation has taken its place: Divide how much cash is left in the bank by how much money the company loses in a month. The result: the date that all the chief executives and financial officers know that their company will be broke.

Nearly everyone chalks up the dot-com dystopia to April 14, 2000, when the Nasdaq Composite Index lost 355 points in a day. It is no exaggeration to compare April 14 to another famous date in New York history: October 19, 1987, or Black Monday, when the Dow Jones Industrial Index declined 508 points, ending the era of the Big Swinging Dicks on Wall Street.

Mr. Singer said he’s as confident as ever in the economic potential of the Internet. Nobody disputes him. Wall Street did not disappear after Black Monday, although securities firms eventually fired 15,000 people and the brokerages lost their Gordon Gecko sheen.

“Entertainment is going to be radically transformed by the Internet–somebody has to say that,” Mr. Singer said. Nevertheless, he’s been in Los Angeles recently working on movie projects. Pointedly, he says he’s in the “entertainment” field. “I’ve always been very interested in interactive entertainment and entertainment,” he said. “And that’s probably where I’ll do something next.”

Richard Metzger, creative director of Disinformation, has been spending a lot of time in Los Angeles, too–in his case, working on turning the content on his Web site, which looks at fringe topics like conspiracy theories and witchcraft, into a television series for Britain’s Channel 4.

“I don’t think what I am doing right now has that much of the stench of dot-com on it–and it is the stench of dot-com,” Mr. Metzger said. “As far as I’m concerned, I’m as much a TV producer with a companion Web site. It’s what I do.”

“When I arrived in New York in 1997,” he said, “there were so many parties and it seemed like everybody had so much money to spend. It definitely felt like something new was happening in New York. Does it feel like that anymore? No–not at all. It’s not even business as usual; you’re seeing the downside of a cycle. This is the tail end of it.”

Josh Harris, founder of now-defunct Pseudo Programs Inc., was sitting in his Soho loft apartment at a table crammed up against the windows; the rest of the apartment is taken apart for the installation of tiny cameras and video editing equipment that he plans to put to use broadcasting the life of him and his girlfriend, Tanya Corrin. He was waiting for a call about an apple farm that he is buying upstate and trying his best to show he’s not a dot-com guy anymore.

On Sept. 18, Pseudo fired its entire staff, and on Oct. 3, the company filed for bankruptcy. Mr. Harris, who had invested millions in the company, was at some pains not to seem very upset about the death of the company he had started in 1994; Mr. Harris has moved on.

“That’s old news,” he said. “I’m in the middle of production,” he continued, pointing to the state of his apartment. He said that he had invested in a performing-arts boxing series, that he had “two movies in production, plus I have apple farms to worry about, and I’ve got to figure out how to pay for all this shit, the art. So worrying about a company that, really, is in the midst of a simple transaction, worrying about the fact that it got the lowest possible price in a transaction versus the best possible price, is already done.”

The dream seemed a long time ago.

It was only a little more than two years ago that, while D.J.’s spun techno records and skate kids breakdanced on the sixth floor of Pseudo’s Broadway office, a tall and lanky 24-year-old kid named Roland Coggin, who worked on a show called Freq , expounded on the deeper meaning of streaming video on the Internet.

“It’s almost like a theology today,” Mr. Coggin had said. “It’s a whole, like, where religion’s at today is almost like this, like, one-world concept of, like, a synthesis of all scriptures, like we now have access to being able to read scriptures, to being able to study the history and like the whole, like, the whole process of religion and history and stuff like that.… Every human in this day and age is blessed with the ability because of the Information Revolution to draw little pieces and parts from everything, whether it’s music or whether it’s fiction, whether it’s like the food they eat to where they live, you know, there’s all these different cross-currents and influences.”

Working at Pseudo required–like most other Internet start-ups–a messianic commitment that what you are doing is not simply a nifty way to make money, but a matter of Changing the World.

But that world has shrieked to a halt, freezing the aberrant environment where technology and Wall Street came together to allow kids like Roland to pursue the cutting edge without actually running businesses. So now the suits have come in, and the special sheen of the Internet business doesn’t look that much more interesting than regular old businesses. Razorfish is in–or at least trying to get into–the same business as PriceWaterhouseCoopers, and delivery service Kozmo.com doesn’t look all that different than Domino’s.

Mr. Harris said he pretty much resigned himself to the fact that Pseudo would die earlier this year. “For me, I don’t know, it’s almost a relief. It was weighing on me. It could be worse,” Mr. Harris said. “It could have been acquired. I would never have gotten my dough back, and it would have been bastardized on the way out. This way, it died a nice peaceful death. It died in its sleep. Or put to sleep.”

And even so, Mr. Harris said, Pseudo’s brand of cutting edge was wearing him down.

“The excitement of having it going and hanging around the hip-hop world, the electronica world, the art scene, the alien people, the vampire people, the rock ‘n’ roll people constantly running through my life had finally worn off,” he said. “I graduated. Pseudo was not a place that you stayed at; it was a place you graduated from. Get on CBS and for 10 seconds you’ve got more total viewership than Pseudo had in its entire existence. We were triple-A ball at best.”

That’s a remarkable statement from the man who once announced “Our competition is CBS!” and who had hired David Bohrman, the former head of CNN-FN to run Pseudo.com for him.

But that was another world. Maybe this kind of speculation ran rampant at the dawn of electricity, and airplane flight, and the telegraph, claiming as many victims as technology developed. But these Internet companies weren’t built to be businesses. They were fantasies, built on a wing and a prayer (and maybe not even the prayer), floated around town on business plans, drawing venture capital like plants draw chlorophyll. The idea was to start the companies in an intense production rush and then hope they would cash in.

In the heady summer days of 1999–in July alone that year, 71 companies conducted their initial public offerings, virtually all of them Internet companies, raising altogether $12.4 billion–Molly O’Neill, the food writer for The New York Times , along with her husband Arthur Samuelson, who had recently left editing at Random House, had the idea, what about food…a food portal! What if they were able to follow the lead of James J. Cramer of TheStreet.com and leverage Ms. O’Neill’s expertise into dot-com millions?

By October, the idea became OneBigTable.com, which, the site’s boilerplate described as “the world’s biggest dinner party.”

Money was raised–how much is in some dispute–office space was rented, employees were hired, food luminaries such as Julia Childs were approached to affiliate themselves with the site. Packed into a small one-room office on the 10th floor of a building on West 36th Street, the team got to work.

Rebecca Fisher, a cooking school graduate and former intern of Ms. O’Neill had some computer background and was in charge of the technical side of the operation as a systems analyst. “At the beginning, it’s very exciting,” Ms. Fisher said. “You know, we were going to build this huge site, everybody was going to get rich and, you know, it was this really exciting venture,” she said.

Previous published reports said Ms. O’Neill had $10 million of funding. Ms. Fisher said she thought the initial financing was far less. Though Ms. O’Neill and Mr. Samuelson had told her different numbers, they were all less than $4 million. And as the company expanded–first taking over the entire 6th floor in their building and then leasing another floor in a building two blocks away–by the spring of this year, OneBigTable.com needed another injection of funds.

“The whole idea of the second round of funding came along and things just weren’t happening,” Ms. Fisher said. “There was always one more meeting and, we’re going to seal the deal. One more talk with these people and money was going to come in, so just hold on. And after a lot of those, I think we started to see that things were not as rosy as they had seemed a year before.”

After no money came in, the company fired 11 people this past July. That day, Ms. O’Neill had a staff meeting to buck up the remaining 9 people. “Are you in or are you out?” Ms. Fisher said Ms. O’Neill asked. “Because if you’re not in, maybe we can save one of these people we’re letting go now.”

Ms. O’Neill disagreed with this characterization.

At that point, Ms. Fisher asked Ms. O’Neill directly just how much longer the company could run without raising any more money. “Because at that point I was about ready to sign a mortgage for a house, I should know…how long do we have funding for,” Ms. Fisher said. “And I was told November.”

A couple of weeks later after the first round of lay-offs, the company missed payroll. By Sept. 5, Ms. O’Neill laid off everyone except the core corporate staff, owing everybody nearly 6 weeks of pay. Earlier this month, OneBigTable.com paid some of the salary owed to employees.

Ms. Fisher saw that things were grim but still she could not bring herself to bail out. “The clock was ticking, I just needed to know how long it was going to tick,” she said. “Should I leave today, or O.K., through November, then I can take some more time to look for another job and see what happens, because I liked what we were trying to do. And even at that sort of desperate point, somehow we all had this idea that somehow they could pull it off.”

Ms. Fisher dropped by the OneBigTable office recently and found Ms. O’Neill, Mr. Samuelson, and senior vice president Alp Ercil still working away. Ms. O’Neill said the company is still looking at its options. “Over the summer, we began a variety of conversations that had to do with strategic alliances, placement of certain initiatives and outright purchase. We’re continuing those conversations,” she said. “It’s like you climb a mountain to find out that you’re just at the trail-head of the next mountain, and you’re doing it with a 20-pound pack and a stopwatch.”

Ms. O’Neill and the remaining employees are back in the one-room office on 36th Street. Ms. Fisher observed, “We started off in one room together and it’s slowly all coming back. It expanded and contracted in one year.”

As serial entrepreneurs–launching three, four companies is still a badge of honor in Silicon Alley–the dot-com set never seemed to make very good corporate builders. There is, of course, Doubleclick, an online advertising and marketing firm that now employs 1,386 people and is worth $3 billion despite the tech-crash. And consulting firms Razorfish, Agency.com, Jupiter Communications (also founded by Mr. Harris). These companies are still around, and every day looking more like the rest of corporate America.

“Do I think about Jupiter fondly anymore?” Mr. Harris asked himself. “Honest opinion? No. I thank my lucky stars for Gene and Kurt,” he said, referring to Jupiter chief executive Gene DeRose and President Kurt Abrahamson. “I don’t go and visit for old time’s sakes. You know, I went there the day they went public, just because, but it wasn’t as if I felt this great pang of accomplishment or anything,” he added.

Mr. Harris’ professional role model is not an old media titan like Time Inc. founder Henry Luce. “A Luce would be [AOL chief executive] Steve Case,” he said. “I’d rather be Michael Todd meets Andy Warhol than Steve Case meets Henry Luce,” he said referring to the flamboyant producer of Around the World in Eighty Days . “Michael Todd is much more interesting to me. Michael Todd was the greatest showman of the last century, Barnum and Bailey excluded.”

Michael Todd hired Madison Square Garden for his 50th birthday and rode an elephant, but Michael Todd had profits. Josh Harris had Pseudo.

Like most of the dot-coms that have gone bust this year, the end at Pseudo came with advance warnings via the office rumor mill. Two or three weeks before 58 people were fired on June 23, Jim Downs, the executive producer of Pseudo’s All Games Network said he got a call from another Pseudo employee.

“I have big news for you, you have to know this,” Mr. Downs remembered his friend saying. “She said, ’80 people are going down. Yep, they’re not only cutting back, but they’re going to change the company completely.'”

That was the beginning of the end for Mr. Downs. Of all the strange offerings on Pseudo.com, the All Games Network seemed like one of the more promising. It had what other Pseudo shows lacked: an audience–mostly video-game obsessed teenaged boys–that was already on the Internet in droves and an obvious advertising source, the vast video game industry.

The day before the lay-offs were announced, a couple of Pseudo workers assembled many white cardboard boxes for, as staff later learned, the fired to carry out their things. The boxes came to be known as “coffins.”

The next day, a Friday, David Bohrman, the CEO, held a all-hands staff meeting, announcing that along with a reorganization of the company from a collection of channels to all-talk show format, many people would be fired by the end of the day.

Mr. Bohrman and Tony Asnes, the president, arranged to visit each of the Pseudo channels that day and announce who had been terminated. When it came time to fire five members of Mr. Downs’ All Games Network, Mr. Asnes and the in-house lawyer Amy Weinrich came into their office and coolly read a list of the doomed. They were to leave the offices that day. Extra security guards were brought in to make sure the laid-off weren’t carrying stolen company property in their cardboard coffins.

“It dismantled everything we had,” Mr. Downs said.

The reorganization of Pseudo was certainly needed to turn the company into something resembling an actual business. The webcaster had been founded on the idea of producing lots of shows that would appeal to niche audiences. But the talk-show format that emerged, dubbed “Pseudo Center” put the hosts of those shows in a studio and turned the shows into small clips.

But what had held Pseudo together for six years was the idea that what the people were doing there represented the future. There was no business there. It was a huge, revenue-less gamble. Someday, Josh Harris insisted, webcasting would replace broadcasting. That’s where the “My competition is CBS,” quote came from. And while Mr. Bohrman and the other executives who led the company at the end were acting in the good faith to save an otherwise doomed money-losing organization, with the reorganization Pseudo was eviscerated.

“We at least had a theme that, for all its difficulties, everyone believed in,” Mr. Downs said. “I mean I had been there for 3 and a half years, believing in something that was really cool downtown, before anyone else was doing it and then it became just a 7-11 of Internet television. Just garbage. So I said, you know, I don’t need this, and I put in my notice.”

Mr. Downs resigned in late July. Web Street Lays an Egg