As a professional party planner whose business is not Web-based,
Heather Keenan may seem like the last person to get stung by the dot-com
implosion and the sagging technology market.
But like many people in San Francisco, the president of San Francisco-based
Key Events felt the effect of the slowdown. One dot-com client on the verge
of bankruptcy has yet to pay her for a party she planned, and other
companies have scaled back on the lavish events like the ones they threw a
"There's no question that last year and the year before we enjoyed some
really juicy business that added to our bottom line nicely," said Keenan,
who has been in business for 11 years. "That's just not there anymore."
Keenan's company is one of several offline businesses that have been hit by
the plunging dot-com sector
over the last year or so. Old Economy companies have seen their business
slow down or shift as customers from the technology market cut back on
spending or disappear entirely.
Boston-based law firm Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC has
seen its staff double in the past two years due in large part to business
from high-tech companies. Clients have included America Online and Akamai Technologies.
But now with the troubles in the tech market, the firm has had to make
revisions. For instance, lawyers handling initial public offerings have
shifted some of their practice to private equity, and venture-capital
lawyers are doing more merger and acquisition work, said Irwin Heller,
"And we've seen our bankruptcy (division) go to full utility," he said.
Reverberations in the media
Within the last two weeks, The San Jose Mercury News, The New York
Times, and Dow Jones, publisher of The Wall Street Journal have
trimmed expectations or announced layoffs. All cited the sluggish
Located in the heart of Silicon Valley, the Mercury News was hit
hard. The newspaper's recruitment-advertising sales dropped significantly as
technology companies in the area cut back on employment or stopped hiring.
At The Wall Street Journal, the volume of advertising sales has
shrunk to 32.1 percent on a per-issue basis in February, compared with a
42.1 percent increase a year earlier, Dow Jones said. The publisher expects
its advertising volume to be down by a similar percentage in March.
Technology companies and financial institutions accounted for about half of
the publication's advertising sales. Spending by dot-coms is "virtually
nonexistent" compared with a year ago, Dow Jones said.
Other Old Economy media companies feeling the pinch of dot-com cutbacks are
radio and billboard companies.
Viacom CEO Mel Karmazin recently told analysts that his company's radio and
billboard divisions would face tough revenue comparisons this year against
the numbers posted a year ago when dot-coms were spending freely.
Down in Silicon Valley
The new thriftiness is probably most evident in Silicon Valley, where
businesses prospered during the boom days.
"I would say the super excessiveness that was noted in the last couple of
years has been cut back," said Laura Lyons, managing partner at San
Francisco-based Global Gourmet Catering, which does business with many
businesses in the Valley. "It's not necessarily because clients don't have
money or budgets, but they don't want to appear to be excessive."
Companies put up a lot of cash a year ago to hire big-name performers like
the B-52s and Elvis Costello, she said. Those same companies are still
planning events, Lyons said, but "they just don't bring in $100,000 to
$550,000 headline talent anymore."
Silicon Valley's real-estate market, which has been one of the most
expensive in the country, is also feeling the slowdown.
San Mateo recently approved a moratorium on new office space in its
Downtown district. In San Francisco, artists and city planners last year were so
concerned about dot-coms taking over San Francisco's historic districts that
they proposed slow-growth initiatives in the city.
More room ahead?
While the real-estate market still isn't cheap, there are some signs that
things are easing up.
Up to about 8 million square feet of office space in San Francisco, the San
Francisco peninsula and Silicon Valley has gone back on the market either
through sub-leases from tenants or directly from landlords, said Hernan
Santos, a director of Cushman & Wakefield in the San Jose office.
He said companies like Ariba and Excite@Home are either not occupying space
they're leasing or they are subleasing their extra space. A spokeswoman for
Excite confirmed that the company is subleasing one of its offices in
Redwood City; it was "just smart business" to fill up the buildings they
have and lease out the extra space, she said.
"Today I spoke to a company that has 100 employees and they're looking for
space. Last year they would have been lucky to find maybe a handful of
alternatives. Today they can get 20," Santos said. "Today if space comes up,
there's a chance there are not going to be any bids."
Santos pointed out, however, that even with new space on the market, vacancy
rates will remain in the single digits in most areas in the Valley and the
San Francisco area.