Tuesday Report - August 21, 2001

August 21, 2001

Will Venture Capitalists Take Barter Industry To The Next Level

In Monday's (August 20th) Orange County Register, the second largest newspaper in Southern California, a full page was devoted to our headline's question. Companies mentioned in the article included BarterNet, AllBusiness, Tradaq, and Ubarter.com.

Noted, and quoted per Bob Meyer, publisher of BarterNews, was the fact that expansion, by the venture-backed barter companies, hasn't occurred as fast as anticipated, but the potential and expectations are still in place.

Two members of Orange County based TradeAmericanCard were interviewed, and both expressed a view that large networked trade exchanges would be superior, i.e. able to offer them more opportunities to trade.

Mike Ames, founder of TradeAmericanCard, stated, "It's too hard to stay as a stand-alone exchange in any industry. If you hook up with the mother ship, you're able to strike big deals."

TradeAmericanCard, one of the BarterNet optionees, thinks BarterNet's acquisition plans (to acquire up to 30 independent trade exchanges) will come together sooner or later. "We're not in a big hurry. If it takes an extra year, that's OK with me. Let's do it right," Ames exclaimed.

BarterNet's COO, Jim Rossner explained, "We have acquired the first exchange in San Francisco, and we're close to acquiring two more. However," he added, "it's going slower than anyone imagined. The drop in the NASDAQ has affected our ability to raise money."

Executives from AllBusiness, Tradaq, and Ubarter apparently were not contacted, as they received no mention in the article.

Delta Continues To Reap Dividends From Barter Deal

Delta Airlines is planning to sell another 10 million shares of Priceline.com "as soon as practicable" according to a notice with the Securities and Exchange Commission.

Delta, the nation's third-largest carrier, holds 23.2 million shares or 10% of the name-your-own-price online retailer before the planned sale.

The shares were acquired through warrants Delta received when they agreed to be the first major carrier to sell some of their excess inventory (airline tickets) through Priceline. Delta previously sold Priceline stock in two different transactions which totaled approximately $270 million!

Ad Slump Bodes Well For Barter Industry

According to Jack Myers, a consultant who follows the economics of media trends, today's ad slump will continue until 2003. That's because it takes about 18 months to two years after advertisers cut their ad spending for them to increase their budgets again.

Media spending (which will total $196.7 billion in the U.S.) is expected to be down overall about 4% this year, but some sectors, like magazines, are reeling and down significantly more.

In addition the choices for advertising continues to grow. For example, it's expected that by 2005 the average household may have 180 television channels to choose from.

Another factor today is the increasing clout that ad agencies possess. Last month Interpublic Group, the world's largest advertising holding company, indicated they would pool more than $40 billion in global ad-buying power in a bold bid to get better pricing for their clients.

"The U.S. consumer isn't acting as if there is a dramatic downturn at hand."

--Michael P. Niemira,
Economist and Retail Analyst with the Bank of Tokyo-Mitsubishi

Consumers in July opened up their pocketbooks and bought more of virtually everything except autos, according to the Commerce Department. The economic resiliency of consumers has surprised many financial experts, especially as businesses have been cutting their spending to the bone. (Consumer spending accounts for two-thirds of the gross domestic product.)

Procter & Gamble is only spending 8% of sales for advertising--its lowest level since 1993. The company is moving more toward the use of "alternative marketing" like sampling or promotions in locations where people are likely to use a product...rather than spending its total advertising budget on the more traditional print and television.
The National Federation of Independent Businesses (NFIB) says small-business owners grew more optimistic about the economy's prospects in July, but so far they aren't taking action. Instead they're continuing to trim inventories and scale back capital-spending plans. Such cautious behavior will help delay any rebound in the economy in the second half of this year.
Noted bond-trader William Gross of Pimco, located in Newport Beach (CA), shared his outlook for the U.S. economy and the dollar by noting that foreigners own a huge amount of U.S. debt--45% of all "treasuries" and 25% of corporate bonds. As the dollar weakens foreigners sell, which could create additional problems for the nation's economy.
Vendor-financing deals (giving clients low-interest loans to help finance purchases) have brought some of America's largest companies in the telecommunications industry to their knees when clients couldn't repay the loans. Nonetheless, such financing efforts are now underway in Europe.

Under pressure, Ericsson, Nokia, and other hardware vendors have stepped up such vendor-financing deals because their customers, due to previous heavy borrowing and having to pay heavily for government licenses for 3G (next generation) networks, don't have the money for needed purchases!
Flooz.com, the company that sold a "currency" called Flooz, which users bought with hard currency and then were able to spend online, has suspended operations.

Editor's Note: It's difficult to understand why someone would buy Flooz dollars rather than using the de facto online currency--a credit card. Maybe they like Flooz's ad with the smiling face of company spokeswoman Whoopi Goldberg, who held considerable stock in the company for her sales efforts.
Only in California! Energy experts tell us that the state of California, which eagerly signed some long-term contracts through 2004 to guarantee electricity for its citizens, is now faced with a glut. Last month the state racked up $46 million in losses after selling its surplus power (because people are conserving way beyond expectations) for one-fifth the price they paid!!

The state is now in the paradoxical position of encouraging Californians to use more electricity to help the state avoid selling large amounts of unused power at a loss.
International Data Corp., a marketing research company, says spending for technology products and services in China will grow about 26% a year for the next four years. That compares with an average growth of 11% for the whole Asia-Pacific region including Japan.
Russia is moving forward to fulfill its potential by lowering personal income taxes to 13% and corporate profit taxes to 24%.
FedEx chairman and CEO Frederick Smith's bonus was cut recently but some non-cash compensation rose significantly...including the personal use of aircraft and financial counseling.