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Loudcloud IPO Won't Make Much Noise

It has a famous co-founder, is backed by tons of private capital and is positioned to be a major player in what promises to be a multibillion-dollar Internet sector.

That is the view investors would have had of managed services outsourcer Loudcloud as recently as a year ago, just before the Internet stock bubble burst. Back in those delusional days, the market was still starry-eyed and impressionable, easily swayed by "buzz" and eager to fixate on a company's vast potential while overlooking bothersome details such as losses.

These days, however, after a collective de-programming courtesy of a) gravity b) Alan Greenspan or c) both of the above, investors have come to their senses and are no longer mindlessly supplying rocket fuel for Internet IPO moonshots.

Which is why Loudcloud's initial public offering, slated for Wednesday, should be a decidedly grounded affair. Rather than focus on Marc Andreessen, $200 million in venture funding and analyst forecasts of an $11 billion market for managed Internet services, investors instead are likely to notice Loudcloud's short operating history (founded in September 1999), scant revenues ($6.5 million through last October) and huge deficit ($180 million and counting).

Indeed, so jaded has the market become that even the presence of Hollywood super-agent (and well-known Internet pioneer) Michael Ovitz on Loudcloud's board of directors may fail to induce the appropriate level of excitement. We live in godless times, my friends.

Loudcloud and its underwriters, Goldman Sachs and Morgan Stanley, certainly aren't naive. First filed last September, Loudcloud's IPO has been delayed for months in hopes that the market for initial public offerings would, if not return to its formerly robust form, at least show a pulse.

That hasn't happened, which is one reason why the company last month lowered its IPO price range to $8 to $10 from $10 to $12. It also doubled the number of shares to 20 million from 10 million. Loudcloud will trade on the Nasdaq exchange under the ticker symbol LDCL.

None of this will do much to boost Loudcloud in its debut, which makes you wonder why Loudcloud is daring to go public in the face of a slowing economy and growing investor skepticism about Internet stocks.

Some may attribute it to arrogance - although you think we'd all be humble by now - but Loudcloud's decision to go ahead with its offering is driven by the bottom line. The company needs the $180 million in hopes to raise in the offering because it its burning through cash fast and the private equity markets have dried up. Further, it must play catch-up with IBM, Exodus Communications , Digex and the many others that seem to have discovered the managed services market before September 1999.

Andreessen and his fellow Loudscape founders made their reputations at Netscape, a company that generated a lot of noise and excitement in the mid-1990s with its Internet browser, but which eventually lost a war with Microsoft and was bought by America Online. That doesn't sound like a blueprint for success in the vastly different arena of corporate Internet services. Unless, of course, Ovitz can hire someone to rewrite the script.