Traffic Light At Internet Trade Shows

The nation’s largest Internet trade show still pulls in the crowds, but there’s clearly trouble brewing in paradise.

Exhibitors at this week’s Internet World at the Los Angeles Convention Center reported slower traffic than previous shows.

“Business here is less than what I saw here last year,” said Tom Davis, senior marketing representative for the Internal Revenue Service.

But he isn’t complaining too much. The IRS has snagged better floor space in the main exhibitor’s hall to help browsers understand some of the security and cost issues associated with filing tax returns electronically.

Antoinette Giles, a representative with the finance arm of United Parcel Service Inc. (UPS), thought the same.

“We’re by the door [to enter the exhibitor floor], but I kind of feel like there’s light traffic,” she said.

The floor of the convention center’s exhibitor hall is not filled up. And overflow halls used at last year’s Internet World spring conference are vacant.

The show is sponsored by Penton Media Inc. (PME). The show’s chairman, Jack Powers, confirmed what everyone already knows.

Internet business is down, budgets have been cut and attendance is falling — even if this is the second-largest Internet World conference ever.

The five-day conference began early this week, with more than 50,000 attendees converging on one of the industry’s biggest trade shows. That’s only 5,000 fewer than last year’s spring show. The conference also fell short of its Fall 2000 Internet conference in New York City as the largest Web tradeshow ever with nearly 60,000 attendees.

Mr. Powers said there are 500 exhibitors at this season’s trade show, down 300 from the spring show a year ago.

“Certainly, the lack of venture capital has hurt some of the more speculative members who attended in the past,” he said. “The meltdown actually started last year.”

Even getting the 350 to 400 speakers herded up for the event was difficult this year, as some were forced to cancel at the last minute, he said.

“It used to be you’d come to the show with pneumonia to speak, or crawl on your belly,” Mr. Powers said.

For sure, there are plenty of big-name exhibitors on the convention’s floor, yet another sign of the shift toward brick-and-mortar companies taking over the Web space once dominated by the thousands of tiny Internet startups.

Besides the IRS and UPS, the U.S. Postal Service, AT&T Corp. (T), Worldcom Inc. (WCOM), Sprint Corp. (FON), and SBC Communications Inc.’s (SBC) Pacific Bell unit, were the most visible.

“Big companies can weather this kind of economic storm,” Mr. Powers said.

Barry Diller, chief executive of USA Networks Inc. (USAI), who spoke this week at the conference, had a warning for some who think the worst is over.

“The thud will be much greater than what you have right now,” said Mr. Diller, referring to the Internet bubble that many thought burst last year.

No surprise, this gloomy setting at the convention center wasn’t any more uplifting just a few blocks away where the Los Angeles Venture Association, or LAVA, was holding its annual convention at the Westin Bonaventure Hotel.

“Amateur hour is over,” said Byron Roth, chairman and chief executive officer of Roth Capital Partners LLC, a Newport Beach, Calif., investment banking firm.

The venture-capital folks aren’t faring any better — though firms like Mr. Roth’s are experiencing a boom in private placements and mergers and acquisitions among companies with small capitalizations of under $500 million.

Last year was LAVA’s best attendance, with more than 1,500 venture capitalists. This year, these people with the money used to fund businesses are tightening their belts. Only 970 attended Wednesday’s session.

“In a stiff wind, turkeys will fly,” said Frank R. Kline, managing partner with Kline Hawkes & Co., a venture capital firm based in Los Angeles.

“I guess, in some ways, I’m pleased that the crowds are as big as they are,” Mr. Roth said. “People aren’t packing their bags.”

Venture-capital experts here sounded off on a similar theme: High-tech startups will clearly have a more difficult time getting funded in the future.

Companies will no longer get money for good ideas for business plans sent via e-mail, as some here have complained about past trends.

Now, these companies will need a clear vision, good management and show revenue and earnings potential.

Talk here was mostly about PIPEs — not the smoking kind — but what venture capitalists see as a growing opportunity in recapitalizing troubled public companies.

PIPEs is an acronym for “private investment into a public equity” company.

Typically, a public company that has experienced financial problems, and needs additional resources to grow or expand but can’t raise capital through the public markets, may look for private financing to help out.

Shares in the public company are purchased in a private, negotiated manner. The potential upswing comes from the stock price — such as the private investment into the public company.

“It’ll be harder to get venture capital now. You’ll need to have good references,” Mr. Kline said.

Copyright (c) 2001 Dow Jones & Company, Inc.