Reality bites for dotcom professionals

Staff who have moved into the online world are more likely to be job-hunting than those who have always worked for traditional companies.

Networking professionals, in particular, are becoming disillusioned with their new dotcom careers and are returning to their old 'safe', well-paid jobs.

Startups, breakdowns and job cuts all appear to be facts of life in the extremely fluid online market. But the situation has been made worse by the high-profile failures of ecommerce darlings such as Clickmango and Boo.com, which have shaken the confidence of this new breed of professionals.

Even companies that have not failed completely are having problems. Letsbuyit has laid off 20 per cent of its staff to cut costs, followed by Jungle, which also saw one of its credit insurers withdraw part of its cover. Lastminute, although successful, has seen its share value collapse after an initial period of overvaluation following flotation.

And as share prices fall, stock options no longer seem such an attractive reason to work for a dotcom. The volatility of hi-tech shares has made executives want more secure incomes and you can be sure that more than a few regret the loss of their regular old salaries and profit-related bonuses.

Bricks and mortars fight back

In fact, pay packets in traditional UK software and IT services companies soared last year in an effort to counter the poaching of key staff by online startups. According to research by analysts at Richard Holway, many bricks and mortar companies have handed out pay rises of about 40 per cent, taking a board member's average annual salary to £225,000.

But the dotcom glamour has now faded and reality is setting in. Research by Challenger Gray & Christmas revealed that a cross section of 169 internet companies made 11,785 job cuts in the year to August. In July alone, 7592 dotcom employees lost their positions, with e-retailers hit the hardest.

The logical deduction, therefore, would be that conventional companies are much less likely to go into liquidation than dotcoms, which have tended to rely on unrealistic share price valuations rather than substantial 'real' profits to survive - and which, more importantly, often don't have the necessary cash reserves to cushion them when things get tough.

On a slightly more positive note, Jeremy Burnell, principal consultant at Harvey Nash, said: "I think the market has started to rekindle. People are still receptive to interesting new startups, but they need to have realistic strategies and good funding to be successful and attract the right calibre of professional."

"The internet companies that appear to be doing well and are the most likely to make good profit margins, are spin-offs from traditional big-name companies that are focusing on the internet market," he added. As a consequence, many blue chip firms are creating dotcoms with brand names that echo those of startups.

And while stock options are still a carrot to potential employees, dotcoms now need to entice experienced network professionals with comparable salaries to those offered by conventional employers. With the IT skills shortage expected to get worse before it gets better, dotcoms will not be able to get away with skimping on salaries and hyping up equity stakes.

A risky business

As a result of all this, Burnell believes that staff are thinking more carefully than ever about potentially risky moves into the internet economy.

"Employees are no longer jumping ship willy-nilly in the hope of making big bucks. Now they are considering the proposition much more closely," he said.

This is not to say that the internet bubble has burst completely. A recent study commissioned by Andersen Consulting found that three million web-related jobs will be created in Europe's five largest economies by 2002, up from a meagre 517,000 in 1998.

And Tony Lock, senior analyst at Bloor Research, attested that people should not lose faith in the online phenomenon because media hype about startup failures is probably overblown anyway. Staff who have lost their jobs due to a startup's failure should also have no problem finding new employment almost immediately. When staff at Boo left their Carnaby Street offices for the last time, recruitment consultants were already waiting outside ready to pounce.