- The Washington Times - Monday, December 31, 2001

Techies can be forgiven if they want to hit the delete button on 2001.
Even if you didn't notice it because of the national horror over the September 11 terrorist attacks, the technology industry experienced profound problems throughout the year. Companies that helped drive the economy's rapid growth stalled for the first time.
A record number of layoffs and bankruptcies has the technology industry longing for the good old days of maniacal venture capital investment that fed fast-growing companies. Chief executives responded by hiring legions of workers.
But investment has slowed dramatically since the halcyon days.
Venture capitalists invested $31 billion through the first nine months of 2001, down from $82.6 billion a year earlier, according to Venture Economics, a Newark, N.J., firm that compiles investment data.
Investment in Internet, software, semiconductor and computer hardware companies fell from $17.5 billion during the first nine months last year to $4.4 billion during the first nine months this year as the economy slowed and companies once thought to be safe bets by venture capitalists folded.
Declining investment figures aren't the only numbers attracting attention. A decline in equity meant companies stopped growing after years of aggressive expansion. They stopped investing in marketing and in research and development. Falling investment led to rising unemployment.
Nationwide, technology companies shed 653,598 jobs through the end of November, said John Challenger, president and chief executive of Chicago outplacement firm Challenger, Gray and Christmas.
"The tech sector has been hit harder than any other," he said.
At least 21 Internet companies shut down or declared bankruptcy in November, increasing to 516 the number of dot-coms that closed this year, according to WebMergers.com, a San Francisco firm tracking mergers and bankruptcies.
Other technology firms became easy targets for companies that wanted to buy their assets. So far this year, acquirers have spent more than $40 billion to buy more than 1,100 Internet companies, according to WebMergers.com.

Empty spaces
You can see the effect on the technology sector in myriad places.
Local bars catering to tech professionals have smaller crowds.
"We have noticed a few things. There are some regulars who don't come in because the company they worked at is gone, and there are some regulars who still come in, but they work for someone else," said Paul Loukas, who owns eCITI Cafe, the Tysons Corner bar he opened in May 2000.
Some of the banners hanging on eCITI's walls that bear the logos of local tech companies have had to come down.
The bar still considers itself a retreat for tech professionals.
"We still have the Ferraris and Lambourghinis in the parking lot, but not as many," Mr. Loukas said.
Networking events where techies go to meet other techies and search for business opportunities have seen attendance fall. They've been replaced by "pink slip" parties, where laid-off techies go to share their woes.
"It is not the market it has been. Fewer people are paying to attend events," said Christopher Stammer, president and founder of Wireless Wednesdays, a company he started to host conferences and networking events for technology industry workers.
Technology publications have folded, including the highly regarded Silicon Valley-based magazine Industry Standard. Tech magazines still publishing are slimmer as are other media because advertisers have reduced spending.
Those challenges have changed the way the tech industry works: fewer people, fewer companies, less money.

Songs for free
Other developments that simmered throughout the past year could change the way the industry looks and how consumers use technology.
Napster Inc.'s file-sharing service suffered a slow demise. Record companies triumphed over Napster in court, forcing it to block unauthorized, copyrighted songs. Napster, in Redwood City, Calif., said in late October it is negotiating with record companies to license content for the service and settle the lawsuit filed against it in 1999. It will re-emerge as a subscription service.
Despite that victory over Napster by the Recording Industry Association of America, record companies face other battles because new file-sharing programs are springing up that let consumers download songs.
Consumers transferred 1.81 billion digital media files using the Kazaa, MusicCity and Grokster file-sharing applications during October, up 20 percent from the 1.51 billion files downloaded during September, according to Webnoize, a research firm in Cambridge, Mass.
A group of 28 music and movie companies sued MusicCity, Grokster and FastTrack on Oct. 3 accusing them of copyright infringement.

The need for speed
Consumers are embracing other new technologies such as broadband, or high-speed Internet access.
The failure this month of At Home Corp., the nation's largest broadband company, isn't likely to put significant obstacles in the way of people who want to subscribe to high-speed Internet service.
At Home, the Redwood City, Calif., company with about 40 percent of the nation's 10 million broadband customers, was driven to financial ruin by the unexpected announcement Dec. 4 that AT&T; Corp. would withdraw an offer to buy At Home's broadband business. AT&T;, which owns 23 percent of At Home, made the decision after a bankruptcy judge ruled At Home could the plug on 850,000 of its high-speed Internet subscribers.
The failure of At Home, which had accumulated losses of $8.9 billion since the beginning of 2000 and filed for Chapter 11 bankruptcy protection Sept. 28, will speed up development of broadband products by the cable companies that had enlisted At Home.
Comcast Corp., the Philadelphia company that relied on At Home to provide its 793,000 subscribers with Internet access through cable connections, has been working on its own high-speed Internet service for the past year. Once At Home goes dark in February, Comcast will introduce its own broadband service.
But it is not ready now. Comcast and Cox Communications Inc., an Atlanta cable provider that also uses At Home to market high-speed Internet to its cable subscribers, agreed to give At Home $160 million each to fund operations through Feb. 28.
That gives both Cox and Comcast time to complete development of their Internet services.

Break for Baby Bells
Cable companies may not be the only businesses aggressively marketing high-speed Internet access next year. If a bill to ease restrictions on the former Bell companies sponsored by Rep. Billy Tauzin, Louisiana Republican, and Rep. John D. Dingell, Michigan Democrat, is approved, the Bells could invest heavily in technology that lets them deliver high-speed Internet access over telephone lines.
A House vote on the bill was put off earlier this month, but analysts say the legislation is far from dead.
"It is highly likely it will pass the House," said Scott Cleland, chief executive at the Precursor Group, an independent analyst firm in the District.
The Tauzin-Dingell bill would rewrite a portion of the Telecommunications Act of 1996 requiring the Baby Bells to prove they have opened their local phone markets before they can offer long-distance service including data services. Bell companies say the change will speed rollout of broadband to consumers, who are eager to have a faster Internet, but their opponents argue it will strengthen the Bells' local phone monopolies.
Despite the outcome of the debate, the Baby Bells will succeed by sending Congress a message that they are unhappy with the telecommunications act, Mr. Cleland said.
In fact, analysts predict the bill won't win Senate approval due to heavy opposition, but it won't be for lack of effort.
The U.S. Telecommunications Association, a Bell-funded group supporting passage of the Tauzin-Dingell bill, said earlier this month after a House vote on the legislation was delayed until next year that it will double its staff of lobbyists so it can push harder for regulatory changes.
That will not change the tech industry's misfortunes. And it is not clear how long technology companies will remain in the slumber that has been defined by layoffs, bankruptcies and lower investment. But it is clear that few in the industry will be sorry to see a tumultuous year come to a close.


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