"Web Firms Putting on the Ritz" from the Los
Angeles Times, February 8, 2000. © 2000 Los
Angeles Times. Reprinted with permission.
Tuesday February 8, 2000
Web Firms Putting On the Ritz
* Internet companies flush with venture capital are competing
to hold the most lavish party for investors, media and tech insiders.
Some say it's necessary to establish credibility; others say it's
a waste of money.
Home Edition, Page A-1
By JOSEPH MENN, TIMES STAFF WRITER
SAN FRANCISCO -- The business model for Respond.com, which links
people shopping for hard-to-find items with thousands of merchants,
is utterly untested. The company barely has any revenue and may
well never earn a dime.
But it throws one heck of a party.
On a recent weeknight in a trendy South of Market art gallery
here, the start-up company spent more than $200,000 for a glorious
bash, entertaining hundreds of guests from the "dot-com"
and media worlds with circus performers, free sushi and an open
bar. Employees handed out $50 bottles of Veuve Cliquot champagne
as party favors.
It was one of several competing Web company parties that night,
part of a confounding experiment in buzz creation that has swept
San Francisco and New York and is rapidly spreading in Los Angeles,
Seattle and other hubs. One recent Thursday evening in San Francisco
saw invitations to at least six such parties circulating via e-mail,
including those issued by Web sites Productopia and LookSmart,
two by start-ups, one by venture firm Hummer Winblad and a "Eurotrash
Cocktail" networking party.
The companies, flush with venture capital, give a variety of
reasons for the saturnalia. Being in a constant struggle to recruit
talented labor, they need to look like fun places to work. And
if enough investors, members of the media and other "influencers"
show up at such a party, their chatter could lead to interest
in greater circles or even to press coverage.
"The whole story of the Web has to do with guerrilla marketing
and viral strategy," said John Hummer of Hummer Winblad Venture
Partners, which invested about $12 million in Redwood City, Calif.-based
Respond.com. "All of this stuff is about customer acquisition.
If this costs $200,000 and we get 200,000 customers out of it,
it's a pretty good deal."
In Respond's case, however, it's not clear whether the company
did indeed get any customers out of it. Chief Executive Will Clemens
said Web traffic increased afterward, but he wouldn't say by how
much. The party, he said, was more about celebrating "employees
who have been working very hard."
As with movie stars at a Hollywood premiere, the presence of
Hummer and fellow venture capitalists Jim Barksdale and Bill Gurley
drew many to the party. They fielded one-minute pitches from would-be
entrepreneurs who had to shout to be heard above the din.
Some business does actually get done this way. But most of the
energy goes toward talking with friends, eating, drinking and
Looking to Los Angeles
More than anything else, the parties are simply feeding on themselves.
Because everyone else is throwing a blowout, it has become a necessary
rite of passage for a new tech company.
"You can't launch a start-up without a party, particularly
in the B2C [business-to-consumer Web site] space. It's just not
an option," said Margit Wennmachers of Outcast Communications,
the San Francisco public relations agency that designed the Respond
The prospect of more and bigger galas in Los Angeles has some
in the event business drooling.
Web firms "are increasingly calling and speculating about
how they could do an event, how they could have the same amount
of glamour as a Hollywood premiere," said Pat Ryan, president
of Party Planners West in Los Angeles. "I could see them
becoming much more of the big-event marketplace in L.A."
Critics say the ostentation is fiscally irresponsible--the rich
celebrating their own good fortune, or foolishness, in a way that
benefits no one else.
Their Exhibit No. 1: an Oct. 29 event in Las Vegas not long after
a start-up named Pixelon.com raised $23 million from venture capitalists
for its Web-casting business.
To celebrate, make a splash and record live performances for
its site, Pixelon put on a concert at the MGM Grand featuring
10 performers, among them Natalie Cole, Tony Bennett and Sugar
But why stop there? The concert was headlined by the Who.
Total price tag: about $10 million, the company says. It's not
really sure, pending the results of an audit.
If Pixelon's "iBash" is an extreme case, it fairly
underscores the excess.
In the last six months, the competition among Bay Area and New
York blowouts for the highest-profile attendees and the best buzz
has reached feverish intensity.
"We've gone from a manufacturing economy, to a service economy,
to an information economy, to an attention economy," said
Darian Heyman, who co-founded Web advertising agency Beyond Interactive
of Ann Arbor, Mich., and attended the Respond bash. "You
need more and more crazy stuff."
Stories of oddness and extremes abound: After all, the whole
point is to get people talking.
Two weeks after the Respond bash, RuPaul was the featured personality
at a San Francisco party by WebEx.com, one of several companies
that facilitate online meetings. (Did RuPaul, who stars in its
ad campaign, get stock options? "A lady never discusses business,"
the transvestite performer demurred.)
The night after that, comedian Dana Carvey hosted a San Francisco
ball and charity auction thrown by Bay Area venture finance magazine
Around the same time in New York City, CarOrder.com plunked down
$1 million for a gimmick-filled extravaganza that included a performance
by Jim Belushi's rock band and free tolls for anyone taking the
Holland, Lincoln or Midtown tunnels that day.
"The first million-dollar party gets some ink," observed
Managing Director Alex Knight of Arch Venture Partners in Seattle.
"But you very quickly get into an arms race."
Part of the craze is a desire to imitate Hollywood, long known
for sparing no expense on premiere parties: It certainly wasn't
cheap to fly stars, other Tinseltown pooh-bahs and the media to
Alcatraz for the 1996 premiere of "The Rock," for example.
Ironically, just as spending for Net parties is exploding, many
movie studios are cutting back. Splashy events don't lead to favorable
media stories the way they used to, executives say, so the companies
are being more selective in deciding which movie gets the elaborate
The dot-com dos are different in other ways as well: They don't
show the product, and most barely even try to generate direct
news coverage on television or in print.
That strikes Hollywood pros as peculiar.
"Would I spend $300,000 on a premiere party that would generate
no coverage? I would probably say no," said Ed Russell, Sony
Pictures' executive vice president of publicity.
The tech-company party wasn't always this way.
In San Francisco and elsewhere, they began as small gatherings
where people would share ideas about the direction of the Internet,
without so much as a rock band or even a T-shirt giveaway to mark
Former Haight-Ashbury comedy club owner Bob Ayres, now 45, recalled
hosting small monthly gatherings of software people in his living
room in the early '90s. He decided he would have no part of the
giant, drink-fueled corporate or networking parties of today.
"It's ridiculous what's going on right now," he said.
"It's loud, it's drunk, and most of the people have no idea
what the companies do."
Instead, Ayres in 1997 started a series called "The Next
20 Years," with the likes of futurist Paul Saffo and Sun
Microsystems' John Gage appearing as speakers and taking questions.
"The conversations are so much more thoughtful," Ayres
Another precedent for the current big-party craze is the giant
technology trade shows such as Comdex and Internet World. Industry
people's eyes would glaze over with so many demonstration booths
competing for their attention. The after-show party was much more
relaxing and effective than yet another floor demonstration.
"You need to stand out of the crowd at the press level,
the finance level and at the industry level. A good event can
accomplish it," said Oliver Muoto, co-founder of Web site
software seller Epicentric. "And the demos always go smoother
after two pina coladas."
For many, the Respond bash's big draw was the presence of A-list
venture capitalists, who were bombarded with short pitches.
"The first $2 million I raised for Lumeria came from going
to parties," said San Francisco tech veteran Fred Davis,
CEO of the Net identity-management start-up firm.
Also common are schmooze-fests, like those of the Drink Exchange
in San Francisco and some of the Venice Interactive Community
gatherings in Los Angeles. Companies pay to be listed as sponsors,
and neophytes can make contacts.
About 1,200 people attended a Venice party last month, said organizer
Brad Nye, who added: "It's just insane."
Other variations are the employee-recruiting party, the we-got-bought
party and the we-got-funded party.
San Francisco-based Alexa Internet, which tracks paths that Web
users follow, threw one of those after its purchase last year
by Amazon.com. Epicentric's Muoto observed the under-clad Brazilian
dancers performing there and declared: "I lo-o-ove technology."
Even if there's no other point, the parties are held because
people expect them.
If a start-up raises $10 million or so and then fails to have
a party, "there's a lot of anxiety of people inside the company"
wondering what's wrong, said Muoto, who circulates an e-mail newsletter
rating upcoming tech social events.
"It's almost like a rite of passage," said WebEx.com
CEO Subrah Iyar, whose money-losing company spent $50,000 on the
RuPaul marketing-campaign launch party.
But how did things spiral to the point that companies would spend
millions in one night just to get positive word-of-mouth?
"In a word, desperation," Lumeria's Davis said. "That's
fueled by the ego that's rife among the 'dot-communists.' Obviously,
not all of these companies are going to survive."
As with the Internet stock bubble, participants disagree more
about when the party escalation will end than about whether it
"These are the good old days," said Red Herring Chairman
Tony Perkins, who thinks the end of the free-flowing champagne
is in sight. "There will end up being a lot of casualties."
Sooner or later, profit will matter.
That day may be approaching for Pixelon, the company that brought
the Who to Las Vegas.
The venture capitalists on the board of the San Juan Capistrano-based
company recently ousted founder-impresario Michael Fenne and brought
in Robert Carsia, a former Time Warner vice president and technology
consultant as CEO.
"One of the reasons I took over is because of that party,"
Carsia said, adding that Pixelon would get its site running better
before embarking on traditional marketing.
"I don't want to be known for the biggest party," Carsia
said. "I would rather hold the record for the biggest IPO."
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