Earlier this year on-line content providers were taking the fall. I was so cocky that after a quick reassurance, I went to print proclaiming confidence in my tenure as editor of the local Internet.com site. Within weeks the site was gone.

This time last year the Nasdaq had crashed, the Internet bubble had burst and everyone was working overtime on damage control, lowering their expectations, cutting back investment and looking for dead wood.

The optimists soon came out in force saying the worst was over and recovery was in sight. They were wrong. Business to customer (B2C) sites have been side-swiped, now Internet service providers, telcos, consultants, services firms and business-to-business (B2B) providers are cowering before the tsunami.

Telecommunications companies are being hit hard. Between them Alcatel, Lucent, Siemens AG, Marconi, Nokia and Nortel have dumped 48,000 staff. And the wider computer industry is reeling from the shock waves as hardware, software, systems providers and desktop PC companies shed golden tears and slash staff.

Spending has slowed, the advertising market is at a 10-year low, investors and banks have the jitters and the pruning sheers are still out. In the US more than 100,000 people lost their jobs by mid-year – 80 per cent up on 2000. In June 53 dot.com firms folded compared to 17 the year before, bringing total failures over 18 months to 555.

The only good news seems reserved for cautious clicks and mortar operators who resisted the hype, and the vulture capitalists who’re in a fire sale feeding frenzy. In the first half of 2001, according to San Francisco-based Webmergers.com, $US29 billion was spent on mergers and acquisition involving 726 US companies.

The dotcom domino effect is not happening because consumers or businesses have given up on the web - there are more people logging on than ever. The root of the problem according to Federal Reserve chairman Alan Greenspan is "irrational exuberance" – a get rich quick mentality that suggests the old rules don’t apply to the new Internet economy.

Early this year Cisco announced it would drop 8000 staff in line with the global slowdown. CEO John Chambers warns the Internet has created a continually fluctuating economy. "There will be higher peaks, lower valleys and faster cycles."

The changes over the next five years will force companies to make more consistent use of resources, including staff, through outsourcing and sharing with partners and suppliers. Web-centric business models using a new wave of Internet applications will help put the focus back on creating revenue, he says.

While information technology has delivered competitive gains, sped up transactions and increased customer satisfaction it has done little for profitability, says 72-year former chief information officer for the US Department of Defence Paul Strassmann.

Investing in technology has maintained growth for the past decade but but now the US is taking the world to the brink of a recession. After 40-years research, he concludes there have been eight seven-year cycles of build and scrap since 1946. Each has cost incrementally more than the last. The current cycle involved $US200 billion or 47 per cent of investment - the next would require $US5000 billion but everyone’s run out of money. "We have come to the end of history as we know it."

Strassmann says the market is facing stagnation and business must now move from inefficient do-it-yourself internal IT resources to central servers and the network. The need for corporate IT departments is fading with the rise of plug-in IT services - the first wave being application service providers (ASPs) offering software for a monthly fee.

The entire information economy is in spasm. Everyone’s tired shell companies that rocket up the Nasdaq only to bomb when shareholders demand substance, and the endless round of ‘must have’ upgrades, add-ons and constant coding required to enter e-topia. It’s time for a reality check.

Batten down the hatches, the storm is not over yet. The information economy is in shake-down mode, anything that can be shaken will be. It’s time to consolidate, revisit your business strategy get tight within your organisation, decide who your friends are and watch your enemies. The optimists are now scheduling economic recovery for mid-2002.