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(Editor's Note: This is the second half of a two-part analysis that looks at some of the issues facing Web design and consulting shops around the Alley; Tuesday's piece included a look at TIS Worldwide's decision not to go public.)

TIS Worldwide, Fort Point Partners, Greenwich Technology Partners, Zefer Corp.-- just some of the so-called e-Business solutions or Internet professional service providers who pulled or withdrew their plans to go public this year.

With the spring market correction for all things dot-com still sawing its way through the markets, these firms had no choice but to pull back from a marketplace already swimming in public Internet services companies.

But are the firms that stayed private better positioned to weather what is essentially an Internet-services recession? Some Alley players think so, especially given the low valuations the markets are bestowing on public agencies right now.

To wit: Shares of Agency.com, Razorfish, K2Design, Xceed and Rare Medium -- Alley companies that specialize in some form of Internet services and design -- are hovering near 52-week lows or drilling new ones by the day.

Not one of these companies' share prices has traded near or above $10 in recent weeks; Xceed's price, for example, has now dropped below a dollar after it announced annual losses of $174 million. All are feeling the pain of a major pullback on Web project outlays by major corporations -- not to mention the quick end to dot-com fundings that helped pad their bottom lines.

The pain is no less pronounced in other markets either. Chicago-based Internet services company marchFIRST, said it would have to re-shuffle its business strategy after it announced lowered earnings expectations for the first quarter of next year. Atlanta-based iXL Inc. just announced another re-structuring and another round of layoffs, this time, 850 job cuts, all related to lowered revenue expectations from the dot-com spending slowdown.

Yet others say it's a matter of perception -- of whether private pain is any less severe than pain out in front for all the world to see.

Publicly-held service firms whose market capitalization collapsed along with their stock prices are now hampered in their ability to retain key employees whose stock options are now worthless. Their ability to raise additional funds through secondary stock offerings is also hampered by low share prices. And press coverage of ongoing earnings warnings related to the slowdown only cements negative sentiment with investors.

So the sell-offs continue, despite the fact that many of these companies are sitting on a pile of cash raised in the public markets, some with $85 million and up, for example, which is much more than privately-held firms who are scrambling to generate financings or strategic investments.

But with too many Internet services companies chasing too few dot-com projects, analysts and Alley players alike are handicapping who will survive and who will be eaten in the coming consolidation, as investment bankers continue circulating pitch books on potential mergers and acquisitions.

Industry players note that private companies are part of the mix as well: companies that banked on going public that are now looking at being acquired as a fallback strategy. As far as positioning for consolidation, the edge might be going to mid-sized, private firms, experts say.

Some of the reasons involve the public pain for companies eyeing an M&A strategy, and the valuation squeezes that are underway. Some companies' share prices are trading at their cash levels or even below; potential buyers or matchmakers are looking askance at amortization costs of past acquisitions on a company's balance sheet, and no one wants to take on anyone else's overhead in an acquisition, local players note.

Even Internet service firms that have experienced revenue growth are struggling with share prices that barely reflect a multiple of perhaps one or two times revenue. It all makes for a tough environment to do deals, especially when they have to be reflected in an end-of-year quarter.

Ted Diggs is a managing partner with Quidnunc, a privately-held consulting firm that recently opened up offices in New York. Diggs, who also worked with Booz-Allen & Hamilton, says if you look at the major technology consulting firms such as Andersen Consulting for example, there's a reason virtually all of them have stayed private. Compensation for partners, who bring in the big $350-$450-an-hour jobs, is one reason, given that they don't have to share as much as public companies do.

But also, "consulting is a cyclical business, and when the corporate budgets get cut, the consultants are the first to go," he says. Publicly-traded firms now "have to go after the recurring revenue -- large outsourcing projects," for example. "The publicly-traded firms need to go after recurring revenue and need to eliminate the short jobs."

Yet one sign of how tough an order that is for public and private Internet services firms, according to local Alley players, is how the bigger Internet consulting firms are now chasing contracts for half a million dollars to a quarter of a million dollars, projects they once turned down for being too small. After all, everyone needs to show a healthy cash business to look attractive in an environment ripe for consolidation.

Christine Harmel, the CEO of TheInteractiveResource, a broker that brings clients and Web development agencies together, says the middle market for IT spending, which typically includes projects in the $20,000 to $250,000 range, is saturated right now. "But the smaller agencies are doing well" coping with the competition, she says. "Their overheads are not as high, and they have more flexibility on reallocating staff on projects. The bigger agencies can't afford to take on a $50,000 project," even though some are angling for the cash flow.

Bottom line, players note, if ever there was a critical time for these companies' management teams to execute strategy in a tough, hyper-competitive and awfully crowded market, it is now.

(Ed.Note: Deletes reference in first graph to ModemMedia, which went public in 1999 but pulled a secondary registration to sell more stock in March of this year)

*Erin Joyce is managing editor of atNewYork.com and welcomes feedback.