A startup folds, but workers feel no pain in Internet economy

SAN FRANCISCO - Top executives wept as they gathered the staff of Productopia.com together at 4 p.m. on a Monday to deliver the news.

After burning up $22 million developing a product-review Web site that had yet to turn a profit, funding had run out.

Just like that, all 60 employees joined the growing list of layoffs at U.S.-based Internet companies - more than 31,000 this year, according to the job placement firm Challenger, Gray & Christmas Inc.

It is known as the ''Dot-Com Shakeout,'' the end of the speculative ride that took off last year when venture capitalists fed hundreds of millions of dollars to e-commerce schemes hatched by mostly youthful entrepreneurs dreaming of absurd riches.

The stock market began recoiling at the notion last spring, and now many financiers acknowledge they squandered good money on bad dot-coms.

Anyone, however, who believes the shakeout augurs a troubling downturn at the epicenter of the Internet economy should think again.

Though certain types of Internet businesses are very visibly tanking, the computer and information services sector is still growing rapidly, adding 169,700 jobs over the past 12 months, according to the Bureau of Labor Statistics.

This is, then, a peculiar shakeout.

For technology workers and their deep-pocketed investors, it's more like reality therapy. And far from Rust Belt-style despair, these people are feeling very little pain.

All over San Francisco and neighboring Silicon Valley, wine glasses keep clinking and sport utility vehicles still roar.

Take, for example, the experience of those let go without so much as a severance package when Productopia shut down the first week in October.

In dozens of interviews with The Associated Press, former Productopians said that while the end of their startup was surprising, even traumatic, most encountered an extremely receptive job market in the Internet world.

Many quit startups and got higher salaries at bigger, more established Web companies.

Within a month, at least half had already found full-time or contract work. And a few weeks later, ex-Productopia employees said nearly all of their former colleagues had landed on their feet.

That was partly because Productopia was a respected site, despite its bottom line. And geographically speaking, the Productopians couldn't have been better situated.

The region's unemployment rate is just 2 percent, less than half the California-wide rate. With hundreds of technology companies in the area, skilled workers with Internet or computer programming experience are in short supply.

Thus, desperate recruiters besieged Productopians with e-mails and phone calls almost immediately.

''No sweat, whatsoever. I had five, six interviews right off the bat and really took my time to fish around,'' said Scott Love, 33, former director of product management at Productopia.

Love decided to move back to his native Colorado and become a marketing director at Circadence Corp., a Boulder-based video game company.

''It's still very hard to find quality people in the entire space,'' he said. ''People can pretty much pick and choose what they want to do.''

There is a sense, however, that the party is over. Stock options - the wampum of the dot-com explosion - have become less attractive than a steady paycheck, and few Internet workers now expect to retire as multimillionaires at age 40.

''The dot-com flower has wilted,'' said Rik Myslewski, 50, Productopia's former vice president of editorial, who was quickly snapped up by Imagine Media, a company that runs several print and online magazines. ''Making enormous amounts of money for doing nothing has never made sense.''

''There's a solid business here for people who have solid business models,'' he added. ''A lot of people are going to more stable companies than start-ups because stability is a wonderful thing. It's much easier to incubate good ideas inside of a going concerns than inside a start-up. That wasn't true last year, but it's true this year.''

The reason for that is the same reason Productopia didn't survive - a tightening of the purse strings by the venture capital firms that fund most Internet start-ups.

When Wall Street's Internet giddiness subsided, and investors began rejecting companies that weren't sure moneymakers - especially dot-coms dependent on advertising revenue - venture capitalists had to become far more selective.

Rob Novotny, who co-founded Productopia in 1999, believes his company was on its way to turning a decent profit, but not enough to satisfy the financiers who controlled its fate.

''If we would have run out of money three months earlier, we would have gotten funded because the stock market and the VCs weren't in a panic mode,'' said Novotny, 43, who is taking time off to work on a new house and consider his next step.

The employees weren't the only Productopia components that found new homes in the Internet. To pay its debts, the company sold nearly all its remaining assets - computers, servers and office furniture - for more than $600,000 on the business auction site www.dovebid.com.

Imagine Media bought the domain name, www.productopia.com, though for now visitors are being directed to www.mysimon.com, a price-and-product-comparison site.

After the millions of dollars that came and went, the dozens of employees that were hired and fired, and the millions of words churned out about consumer products, almost all that remains of Productopia is its lease for office space in a hip San Francisco high-rise.

Productopia's owners are negotiating a transfer of the lease - possibly to another Internet company.

Of course, the surge of the new economy is not just felt in the San Francisco Bay area.

Lynie Arden managed content for Productopia, but she did it on a free-lance basis over the Internet from relatively low-tech Ashland, Ore., and never met a single one of the writers and editors she worked with.

She found it disconcerting when Productopia folded, but wasn't worried about her next step. With all that's available for people with Internet experience, Arden decided to take it easy for a while, confident she can get more work with a few phone calls or e-mails.

After all, she just had a book published, one she wrote even before Productopia went under.

The title? ''101 Best Dot-Coms to Start.''

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On the Net:

The Industry Standard's tallies of layoffs and Dot-Com flops:

http://search.thestandard.com/texis/trackers/layoff

http://search.thestandard.com/texis/trackers/flop