Earlier today, I pointed out that half of the Seattle area venture capitalists polled in a survey expect their companies to cut staff during the third quarter.
Well, it appears as if the carnage may have begun. Wetpaint today laid off 15 staffers or 27 percent of its workforce, TechFlash has learned.
The move comes as the heavily-funded Seattle company struggles to monetize its network of 1.6 million Web sites, many of them tiny sites that attract only a few hundred page views each month.
The advertising dollars just aren't there for those small sites -- sometimes built around weddings, family reunions and other very targeted events, the company said.
And that's forcing Wetpaint to focus efforts on the bigger ticket entertainment sites that drive much of the traffic through the network. In recent months, Wetpaint has been pushing into those areas with promotion of its wiki-designed sites around TV shows, movies, games and other forms of entertainment.
When Wetpaint unveiled its TV Fandex last month, I noted the new entertainment focus of the company and pointed out the possible competition with Seattle's BuddyTV. That could be intensifying with today's announcement.
Having raised a $25 million venture round last year from DAG Ventures, Accel Partners, Frazier Technology Ventures and others, the company still has years of cash on the books, according to a spokesman. Total funding in the company -- which now employs 40 people -- stands at $40 million.
But the Wetpaint spokesman said that they needed to make adjustments to the cost structure of the business given the sharp declines in the prices rolling through remnant ad networks in recent months.
Wetpaint is now focusing on its top sites as well as partner sites. It is also putting more weight on a direct ad sales effort.
It will continue to support all of the sites in the network, though dollars will now be geared toward the new corporate focus of the bigger sites.
That switch speaks to a bigger trend in Internet advertising, one which could spell trouble for countless other online properties that were looking to monetize small audiences of niche-oriented content. Two years ago, the rage in the Internet business was the concept of the "long tail" -- the idea that collecting a massive number of eyeballs in hundreds or thousands of niche arenas could be more powerful than a few megasites.
When Wetpaint started, it built the business around that concept. But there have been problems trying to monetize those businesses as ad rates slumped. Just last week, Redmond-based Sampa -- which also tried to create a massive network of Web sites geared towards families -- closed down because it couldn't make money.
Wetpaint is hopeful that it can turn a profit by charging a premium against its top Web sites, which include sites for TV shows like "True Blood" and "NCIS" and music sites such as "MIley Cyrus Lovers" and "Jonas Brothers Fan Site."
UPDATE: Ning, a Wetpaint competitor that was founded by Marc Andreessen, has raised $15 million in new funding at a $750 million valuation. Total financing in the Silicon Valley upstart now stands at $119 million, reports BoomTown.
John Cook is co-founder of TechFlash. Follow on Twitter @johnhcook.
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