The TROUBLE with TECH: Extravagant Parties Irk Investors.

DANNY Bonaduce, Paul Sorvino, members of the band Nine Inch Nails and Penny and Garry Marshall partied at the Playboy Mansion last week, but not at one of Hef's legendary bashes.

StreamSearch.com, a search engine focused on audio and video content, rented out the compound for an awards show honoring participants in the site's recent online film festival.

For an estimated cost of more than $275,000, 400 guests watched Garry Marshall emcee the first annual awards, indulged in an open bar and piles of food, and mingled with the estate's peacocks, flamingos and Playboy bunnies while grooving to a Brain Setzer Orchestra performance. No party would be complete without goody bags, guests at this event received packages including videos, a leather CD case and a Brian Setzer CD.

Extravagant parties like this one are common in Hollywood and the music industry, but those events have one important difference from the spate of high-end hoedowns being sponsored by today's dot-coms: the hosts, for the most part, are profitable established businesses blowing off a little cash on entertainment.

For those witnessing the violent Nasdaq swings last week, triggered by a court ruling against Microsoft Corp., such parties are prompting some serious questions - like when are these companies going to stop spending money and start earning it?

The lavish bashes held last week in connection with the Internet World conference at the downtown L.A. Convention Center were, for most of the hosts, considered a necessary marketing expense. But investors are starting to wonder if their hard-earned cash is really best spent on champagne and party favors.

"The market is becoming more discriminating, very rapidly," said Jon Funk, general partner at local venture capital firm Media Technology Ventures. "That's going to be eliminating those kinds of lavish excesses. Boards will say, 'Are we spending our marketing dollars wisely?"'

For StreamSearch, the event bolstered the company's name as a source for content on the Web.

"This party, although it was a lot of fun, had a very serious purpose," said Ellen Cooper, a StreamSearch spokeswoman. "The people invited were our current clients or people we're looking to do business with. We wanted them to know who StreamSearch is, what kind of services it provides, and we hope they got a real feeling that we're committed to providing entertainment through the Internet."

Analysts agree that parties can accomplish useful marketing goals, such as letting employees, business partners and venture capitalists network in an informal atmosphere, and letting the media meet executives and learn more about the company in a more memorable way than a press release.

"I'd say a lot of venture capitalists are probably somewhat skeptical, but whatever drives cost-effective awareness is worth doing," said Jeff Anderson, managing director at venture capital firm Mellon Ventures Inc.

Yet most investors would prefer to see their money spent on more concrete business functions.

Going too far

Probably the most notorious example of excess - and a tale that has taken on mythic proportions in the tech industry, prompting many dot-com executives to rethink their launch-party strategies - was the much-publicized "iBash" by San Juan Capistrano-based Pixelon Inc. last fall.

The Who headlined a concert that included Tony Bennett, Natalie Cole and the Dixie Chicks-all to celebrate and promote the launch of the netcaster's site. Fresh from a $23 million round of funding, Pixelon spent a reported $10 million on the event. The acts were performed in different cities, and the shows were supposed to be Webcast as an event that executives hoped would propel Pixelon to the top of the netcasting market.

But technical glitches marred the netcast, and attention turned to the enormous cost of the party. The still-operating company has since seen significant turnover in its upper ranks and has fallen out of the limelight.

Instead of being known for its product and services, the company is probably best remembered for its lavish party spending. As one observer put it, "And now, where's the company?"

Pixelon executives could not be reached for comment.

Many Internet investors differentiate between parties that go too far, like Pixelon's, and parties that serve as a legitimate marketing expense.

As a digital filmmaker and angel investor, Marc Ezralow has been both a party host and a guest. For more than $100,000, Ezralow's company, Revolution Multimedia, threw a party a couple of years ago at the Grand Havana Room in Beverly Hills to celebrate a deal made with Prodigy Communications Corp. The event was worth the cost, Ezralow said, because it celebrated progress and rewarded both companies' employees. But he's not in favor of throwing parties just to get attention.

"As an investor, when I'm on an advisory board and they're doing a launch party, I'm very concerned when they talk about a complete circus," Ezralow said. "After the angel round and the A, B and C rounds (of venture capital funding), I think a party is a do. It adds camaraderie."

The new Hollywood 

All too frequently, however, dot-coms are looking to throw those circus-style parties. Most of the businesses doing it, observers noted, are content-related - the type of companies that are taking the biggest hit in the market for spending huge amounts on marketing and generating major losses.

"You don't see a lot of infrastructure or business-to-business (sites) throwing these parties," Anderson said. "It's a function of the entertainment world seeping into the tech world, with big splashy premieres and a lot of marketing."

In fact, several observers drew comparisons between the tech industry and the entertainment industry.

"In the '80s, you used to go to premieres of movies and it was no holds barred. Then in the '90s, you would see very low-key premieres," Ezralow said. "I think the dot-coms took over where the movies left off. They're trying to be as splashy. A lot of these young guys, they used to work for people who got to go to all those premieres, so they're trying to outdo that."

There is some sign that the message is getting through. As investors grow less forgiving, some marketers are urging their clients to tone down their launch parties. Such events, the tech equivalent of a debutante ball, are fading in popularity.

Instead, companies are looking to hold other events, like StreamSearch's awards show or charity benefits, to make guests not just remember the party, but the company's goals as well.

Parties with a purpose

"A solid budget to have a nice event at a good-quality location with good food and drink and valet and a good band is about $400,000 to $500,000. This is not an insignificant amount of money," said Sally Olmsted, executive vice president at public relations firm Shandwick Convergence, which represents new-media companies and helps them organize events.

"In terms of bang for the buck, we'd like to have another theme or another focus (than a launch party),". Olmsted said. "It's so competitive, and there's so much money being spent. By trying to attract attention to themselves, it is wisest to focus on a theme and what they're trying to achieve. And by the way, we call them 'events,' not 'parties.' Calling it a party does not denote a good use of one's cash."

Online health and relationship advice site DrDrew.com plans a party that will both create content for the site and help market it - similar to Pixelon' s idea, but at a fraction of the cost.

DrDrew.com held its launch bash last October at Skybar in the Mondrian Hotel in West Hollywood. The company, named after cofounder and "Loveline" advice show co-host Dr. Drew Pinsky, spent $65,000 to treat about 600 guests to an open bar, food and valet parking. Now, the Pasadena-based company is preparing for its upcoming bash at the House of Blues to launch a show called "Blind Date," to be Webcast on DrDrew.com.

The April 25 event will treat about 1,200 guests to a Sugar Ray concert and is expected to cost up to $200,000. At the party, one guy and one girl out of six contenders will be chosen to star on "Blind Date," spending three months traveling the country and promoting DrDrew.com, all under the constant watchful eye of a Webcam. The result will be a show-promotion hybrid, and the House of Blues party will be Webcast to call additional attention to the show's kickoff.

"When I was mapping out our (marketing) budget for the year, I wanted to do some things aimed at the industry and a lot of things aimed at our target market, which is kids," said Heidi Sinclair, senior vice president of marketing for DrDrew.com. "On the industry side, I can buy ads in Industry Standard or Hollywood Reporter, I can do trade shows, or I can do parties. And parties are so much more fun."