The dream ended quietly for the once scorching Web site known as The Spot. Still nursing New Year's Eve hangovers, several twentysomethings dressed in shorts and flip-flops held a somber party at The Spot's hip offices in Marina del Rey, California, drinking beer and waiting for one last user to tap into their server. Huddled around a terminal, the creators of the Web's sexiest serial soap opera managed a final, joyless cheer before unplugging their computers for good.
Meanwhile in Manhattan, a group of slightly older editors cleaned out their desks in a more conventional fashion at the offices of The New York Times Company. Most of them walked around in a state of shock: The Times' board of directors had just voted to shut down the newspaper's foundering Web division, after a loss of $30 million in less than a year. "We thought we were surfing the rising wave of the Web," says Steve Rago, whose job as vice president for strategy and new business development at The Times' New Media division had just been deleted. "And then it crashed over our heads."
Whether it's California start-ups or elite East Coast media institutions, an extraordinary series of bankruptcies and layoffs is reverberating through the once burgeoning online world‰and making waves in the economy as a whole. A year ago the Internet was filled with promise and hype. The free-for-all frenzy of the summer of 1996 led the more idealistic of the young Web-site creators to label themselves "The Webstock Generation," dedicated to creating a "Webotopia" online. The euphoria spread to even the most traditional media companies, who saw in the Web the genesis of a new medium-and a potential new profit stream-for the 21st century.
Now reality has set in and the events of recent weeks are carrying a different title, drawn from the surfing metaphors long popular among Internet users-"The Great Web Wipeout." Few see the survival of free, commercially sponsored, original content on the Web. Says Mark Stahlman, co-founder of the New York New Media Association: "It's nothing less than the death of the Web."
Across the Internet, publishers of the largest Web sites are drowning in a sea of red ink. Beginning in 1995, the Web lured mainstream media companies who poured in big money-despite the lack of a sound business model. Young entrepreneurs and giddy investors blindly flocked to the Web in hopes of making paper fortunes overnight. Few listened to words of warning, including those of Time Inc. President Don Logan, who in late 1995 nicknamed the Web "The Black Hole." Today few can afford not to listen. Even the true believers, like those working at the hyperhip HotWired Web site, are now chastened. When pressed, even HotWired's founder Louis Rossetto says, "It'll take time."
For now, anyone in the world of the Web will have to scramble. Advertising and media analysts predict that by July more than 300 out of an estimated 500 commercial providers of original content on the Web-including virtually all of the large, high-profile sites-will disappear or radically scale back their operations. They leave behind an expanding group of intensely competitive index services-those constructing searchable catalogues of all material on the Web-and more than 30 million personal, noncommercial home pages, which continue to spread like kudzu. Also left behind: what computer columnist Stewart Alsop calls "the legacy of runaway hype, fed by the so-called visionaries of new media."
What caused the shakeout? There's general agreement among Web analysts that two factors drove the downward business spiral of original-content providers. First was their general inability to add bandwidth: the digital "pipes" carrying data to and from their computers had become sclerotic arteries, so clogged that a growing number of new Internet users couldn't reach them. According to an October 1996 survey by AT&T, 67% of sites were effectively "off the Net" for at least one hour per day because of overload.
New users then migrated to the vast range of personal sites, each of which may draw no more than a few thousand hits per week. Even the experts aren't trying anymore. Andrew Seybold, publisher of a respected computer industry newsletter, says he no longer bothers with high-volume commercial sites such as Starwave. "I just bag it and end up looking at pictures of my sister's kids on her home page."
Clogged pipes inevitably led to the second factor, a plunge in advertising revenues. Advertisers began challenging how many people actually reached their ad "banners''-and questioning the effectiveness of online advertising itself. Cutthroat competition from those aggressive Wal Marts of Web advertising, index services such as Alta Vista and Infoseek, sent advertising rates reeling. The prices charged for every thousand page views delivered-or CPMs-dropped from $15 per thousand at the beginning of 1996 to less than a dollar per thousand by the end of the year. As Halsey Minor, president and CEO of the C|net Web site, says: "The Yahoos of this world drove the price points into the basement."
The playing field shifted further toward the index sites last September when the research firm Dataquest released a report titled "Redefining Internet Usage." Widely accepted by advertisers as the definitive study of Web traffic patterns, Dataquest's report uncovered what one Web-site owner calls "the dirty little secrets of the Web." It proved, for example, that the widely used Nielsen-I/Pro usage reports, which purported to measure the time users spent on a Web page, gave false readings. "They claimed people spent five minutes viewing a page with an ad," says Santa Monica, California, advertising executive Jim Smith, "when in fact they were spending five minutes waiting for it to appear on their screens."
That revelation was followed in October by a more startling statistic: a close examination of the pages viewed by Web users showed only 10% of the hits were attributable to individuals. The remaining 90% were generated by "spiders" and "crawlers"-the index services' software engines that travel the Net cataloguing new sites. Competition among indexers had ratcheted up the pace of updates: spiders and crawlers appeared to be hitting Web sites hourly-even minute by minute-in a race to be the most up-to-date. The findings indicate that in a world of nearly infinite choices, information about the choices is more valuable than the choices themselves. Says Wired magazine Executive Editor Kevin Kelly: "Face it, TV Guide makes more money than the three major TV networks combined."
The final blow came at the end of the year with the publication of a study ominously titled "Chronic Web Congestion,'' put out by Hans-Werner Braun of the San Diego Supercomputer Center. Citing infrastructure problems extending into the foreseeable future, the study argued that the Web slowdown was not due to temporary growing pains-it was all but permanent. That highly publicized report gave substance to Web developers' worst fears. Many had spent 1996 determined to ride out the storm until they could begin to make money. The report gave many executives the nudge they needed to finally bail out. "The truth is," says Braun, "there's no end in sight."
To be sure, some nonindex services will survive this crisis. Those offering name-brand cheesecake-particularly Playboy and Penthouse-can charge high monthly subscription fees at the front door. Revenue from subscriptions, added to advertising revenue, pumps big cash into their operations, which allows them to splurge on bandwidth and keep up with climbing demand. Playboy, for example, expects to sign up more than 5 million Web subscribers worldwide by June 1997, with each one paying $12.95 per month for access to an online collection of interviews, fashion guides and, of course, full-screen photos of naked women.
The death of commercial publishing on the Web doesn't mean the death of the Web itself, of course. Millions of users continue to pour onto the Internet, using E-mail, building home pages, and surfing those of their neighbors. By the end of 1997, analysts expect some 40 million people in North America will use the Net at least once each week; in the same period, worldwide users may approach 80 million.
For the most part, they'll do what they've always done: communicate with friends, meet people from around the world and create a culture now approaching its fourth decade of existence. Far from dismayed by the demise of commercial Web sites, Net commentator Howard Rheingold, author of the book The Virtual Community, says, "Publishers never understood that people didn't want their content-they wanted a global jam session."
That's no solace to the out-of-work Web editors at companies like The New York Times. Many of them have little hope of returning to their careers in "old media" now that their new careers have been stranded ashore by The Web Wipeout's receding wave. And many an executive will have a difficult time passing the blame for these big-buck boondogglesas media companies return to their tried-and-true core businesses, which proved to be the wiser investment after all. "We learned a thing or two," said Time Warner Chairman Gerald Levin, only half-jokingly, at a recent raucous shareholder meeting. "Gangsta rap-yes. World Wide Web-no."
Meanwhile, the bitterness of The Webstock Generation who built places like The Spot is tinged with hope for the future. Many of them plan to returnto the colleges and graduate schools they only recently fled in pursuit of their Net dreams. By the time most of them finally graduate, the 21st century will have arrived-and maybe then the world will be ready to answer their calls for a media revolution.
