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In 1999 and early 2000, legal vendors raised tens of millions of dollars and hired hundreds of new employees to build, market and maintain Web sites and other Internet services for the profession. As 2000 comes to a close, many of those millions are gone. And so, too, are some of the employees. Legal dot-coms have been caught in the downturn roiling Internet stocks and companies. Like their better-known peers, they are laying off employees and cutting costs. The numbers are not large, except in percentage terms. After all, legal vendors are not large companies. Pro2net.com, a content site for lawyers and accountants, laid off about 30 employees. USLaw.com, an online matchmaker between small firms and clients, recently laid off 16. Pro2Net, based in Seattle, and USLaw, based in Silver Spring, Md., are both left with about 80 employees. EAttorney.com, an Atlanta company that offers Web-based practice management and recruitment tools, laid off about 15 of 55 employees. Finally, Law.com, a content and e-services site, laid off some 30 to 40 employees, with more likely to follow. (A private capital fund has a separate majority interest in Law.com and American Lawyer Media, the parent company of The National Law Journal, which originally published this article.) Money is at the root of most of the layoffs. The companies are trying to save what they have in the bank, or are seeking fresh funds and are out to impress prospective investors with their lean operations. Says Sam Kellet, the founder and chief executive of eAttorney, “Getting [venture capital] today is very difficult. You got to be more careful about your burn [rate].” Less than a year ago, investors were flocking to the business-to-business market. In April, for example, USLaw.com closed a $10 million private financing. Many of the companies hoped to cash out by going public. And why not? IManage Inc., a document management and collaboration vendor, went public late last year at $11 a share during the heady days of Nasdaq. The stock briefly broke 40. But then came the cruel April meltdown. By late November, iManage’s stock was trading at less than 4. And, unlike many of the newer dot-coms, iManage is inching toward profitability. So far, the cutbacks are taking place at sites heavy on content. “It’s proven difficult in the Internet economy to profit from creating new content,” says Neal Simon, the chief executive of USLaw.com. “So the role of content becomes one that is much more about educating people, and then companies need other ways to … make money.” Many of the most prominent legal Web sites, such as www.serengetius.com and www.casecentral.com, are application service providers that rent software over the Web. These ASPs seem to have escaped the cutbacks, with one notable exception. Red Gorilla, a time-and-billing vendor that hoped to attract some small firms and sole practitioners, closed its site in October. But lawyers are not flocking to ASPs. A recent survey by the Legal Technology Institute at the University of Florida Fredric G. Levin College of Law showed that fewer than 9 percent of firms use an ASP. And that percentage may overstate usage because it includes legal research, an activity that predates ASPs. The plight of many of these legal vendors has been tracked on the doomsaying Web site, FuckedCompany.com, which grimly reports rumors of struggling dot-coms. In late October, the site posted a message that law.com had “laid off 58 people and flew the rest to Puerto Rico.” Chief executive Bill Feid declines to say how many employees were let go. Law.com recently purchased three companies, DocumentForum.com, realLegal.com and PMT Inc. The layoffs eliminated overlapping responsibilities, according to Feid. “There’s no reason to have three [administration] groups and three [human resources] groups,” he says. And the trip to Puerto Rico? “We went there during the off season, which is also known as the hurricane season,” explains Feid. “It was the least expensive place out of any other place we [looked at] in the U.S.” Feid says that in the long run, the acquisition of the three companies will strengthen law.com by diversifying its business. “Half of our revenue comes from applications,” says Feid. Kellet, the chief executive of eAttorney, says that he cut staff who had completed the projects for which they had been hired. “We were closing a round of financing, and VCs wanted us to cut as much as we could,” he says. In this era of tight money, many sites’ aggressive growth plans have been put on hold. “We’re just not expanding as fast as original plans called for,” says John Fitzpatrick, the chief executive of Pro2Net. “Most Internet companies have been built over the past few years by spinning ahead of revenues, supported by capital markets. Those days are fading.”

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