Wall Street responded with a selling spree. Five analysts (CIBC World Markets, Dain Rauscher Wessels, George K. Baum & Co., Janney Montgomery Scott and WR Hambrecht) downgraded the stock, sending it plunging 2.937, or almost 40 percent, to close at 4.5625 -- a 52-week low and 95 percent off its March high of 85.5.

Breakaway said its third-quarter revenues would either equal or barely exceed the $35.2 million it received in the second quarter, missing the low end of analyst predictions by 7 percent.

The company also said it would lose between 2 and 4 cents a share, as compared to a First Call/Thomson Financial survey of 12 analysts who'd predicted a 1 cent-a-share loss.

Gordon Brooks, Breakaway's president and chief executive, said the shortfall resulted from the general malaise affecting many dot-com companies. With both venture and market cash less plentiful, e-businesses clients have canceled, delayed or scaled back projects, and fewer new clients have added business.

Similarly weak demand this quarter has smacked e-consulting agencies across the board. A look across the sector sees a trail of woe since August: iXL Enterprises has lost 80 percent of its value; Lante, 84 percent; Luminant Worldwide, 69 percent; Razorfish, 62 percent; Sapient, 54 percent; Scient, 78 percent; Viant, 88 percent; and Xpedior, 79 percent.

Brooks added that bricks-and-mortar companies also play a role in the revenue slowdown. With weaker competition than predicted from pure dot-coms, many old-line businesses have not moved to the Web as quickly as expected, the CEO said. And those companies can demand a deliberate, careful transition, lengthening the consultancies' sales cycles.

Breakaway is responding by cutting costs, primarily by laying off 9 percent of its workers. At the end of last year the Boston agency had 565 employees and has added workers since, meaning at least 50 people would be fired.

Breakaway said it would cut other general and administrative costs. In addition, the firm said it would seek more clients in Europe and Asia, in part by continuing to expand its sales force, which grew from 33 to 61 over the second quarter.

LATEST NEWS

Microsoft's Dynamics ERP to Gain New Services
Barnes & Noble's e-Reader Nook Sold Out Already
Memory Market Due for Big Shift in 2010
Microsoft: No 'Back Door' in Windows 7
Tech's H-1B Hiring Faces 'Employ America Act'

Brooks put a brave face on the news, citing a fact that less than 1 percent of overall business is conducted over the Net: "We believe there is still a lot of work to be done. The value that Breakaway Solutions provides to its customers will outlast any temporary fluctuations in the marketplace."