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Wal-Mart
Wal-Mart Stores, Inc. (NYSE: WMT) is an American public corporation, currently the world's 2nd largest corporation (behind Exxonmobil Corporation). according to the 2007 Fortune 500. It was founded by Sam Walton in 1962, incorporated on October 31, 1969, and listed on the New York Stock Exchange in 1972. It is the largest private employer in the world and world's fourth largest utility or commercial employer, only to the Chinese Army, the NHS and the Indian Railways . Wal-Mart is the largest grocery retailer in the United States, with an estimated 20% of the retail grocery and consumables business, and the largest toy seller in the U.S., with an estimated 45% of the retail toy business, having surpassed Toys "R" Us in the late 1990s.
Wal-Mart operates in Mexico as Walmex, in the United Kingdom as ASDA, and in Japan as The Seiyu Co., Ltd. Wholly owned operations are located in Argentina, Brazil, Canada, Puerto Rico, and the UK. Wal-Mart's investments outside North America have produced mixed results. In 2006, Wal-Mart sold its retail operations in South Korea and Germany due to sustained losses and a highly competitive market.
Wal-Mart has been the target of criticism from some community groups, women's rights groups, grassroots organizations, and labor unions. Specific criticisms include the company's extensive foreign product sourcing, low rates of employee health insurance, resistance to union representation, and alleged sexism, among other things.
The retailer's mascot is The Rollback Man, a smiley face character who appears in its ads.
History
Sam Walton's original Walton's Five and Dime, now the Wal-Mart Visitor's Center, Bentonville, Arkansas.
Sam Walton's original Walton's Five and Dime, now the Wal-Mart Visitor's Center, Bentonville, Arkansas.
Main article: History of Wal-Mart
Sam Walton's retailing career began when he accepted a job offer at a JCPenney store in Des Moines, Iowa on June 3, 1940 where he remained for 18 months. In 1945, he met with Butler Brothers, a regional retailer that owned a chain of variety stores called Ben Franklin. Butler Brothers offered him a Ben Franklin store in Newport, Arkansas.
Walton could not come to agreement on his lease renewal and could not find a new location in Newport; so he located a new variety store in Bentonville, Arkansas which he would open as another Ben Franklin franchise, but called "Walton's Five and Dime." Walton achieved higher sales volume by selling products with slightly smaller markups than most competitors.[2]
In 1962, Walton opened the first Wal-Mart store, Wal-Mart Discount City and within five years the company expanded to 24 stores across the state of Arkansas and reached $12.6 million in sales. In 1968, it opened its first stores outside Arkansas, in Sikeston, Missouri and Claremore, Oklahoma.[3]
The company was incorporated as Wal-Mart Stores, Inc. on October 31, 1969, and in 1970 opened its home office in Bentonville, Arkansas, and its first distribution center. There were now 38 stores operating with 1,500 employees and sales of $44.2 million. The company began trading stock at this time as a publicly held company on October 1, 1972, and was listed on the New York Stock Exchange shortly thereafter. The first stock split occurred in May 1971 at a market price of $47. By this time, Wal-Mart was operating in five states: Arkansas, Kansas, Louisiana, Missouri and Oklahoma, and entered Tennessee in 1973, and Kentucky and Mississippi in 1974. As it moved into Texas in 1975, there were 125 stores with 7,500 employees, and total sales of $340.3 million.[3]
Wal-Mart continued to grow rapidly during the 1980s, and by its twenty-fifth anniversary in 1987, there were 1,198 stores with sales of $15.9 billion and 200,000 associates.[3] This year also marked the completion of the company's satellite network, a $24 million investment, linking all operating units of the company with their Bentonville Office via two-way voice, data, and one-way video communication. At the time, this was the largest private satellite network, and allowed the corporate office to track inventory, sales, and send instant communication to their stores.[4] Company founder Sam Walton stepped down as CEO the following year, and was replaced by David Glass. [5] Walton remained on as Chairman of the Corporate Board of Directors, and the company also restructured their senior management positions, elevating a cadre of executives to positions of greater responsibility.
Also in 1988, the first Wal-Mart Supercenter opened in Washington, Missouri.[6] Wal-Mart expanded their superstore concept during the 1990s, and shortly thereafter surpassed Toys "R" Us in toy sales.[7] The company also opened overseas stores during this period, entering the South American market in 1995 with stores in Argentina and Brazil, and purchasing ASDA in the United Kingdom for $10 billion in 1999.[8] In 1998, Wal-Mart entered the grocery business, introducing their Neighborhood Market concept with three stores in Arkansas.[9] By 2005, estimates indicate that the company controlled approximately 20% of the retail grocery and consumables business.[10]
By 2000, as H. Lee Scott was named President and CEO of the company, Wal-Mart's sales increased to $165 billion.[11] In 2002, Wal-Mart was listed for the first time on the Fortune 500 list of the world's largest corporations, with revenues of $219.8 billion and profits of $6.7 billion. The company was subsequently listed at #1 for every year after 2002 except for 2006.[12]
In 2005, Wal-Mart had $312.4 billion in sales, more than 6,200 facilities around the world, including 3,800 stores in the United States and 3,800 international units, and employing more than 1.6 million associates worldwide. In fact, their U.S. presence had grown so rapidly that there were only small pockets of the country that remained further than 60 miles away from the nearest Wal-Mart.[13] Also in 2005, focusing on becoming more ecologically-friendly, the company designed two new experimental stores, one in McKinney, Texas and the other in Aurora, Colorado, featuring wind turbines, photovoltaic solar panels, biofuel-capable boilers, water-cooled refrigerators, and xeriscape gardens.[14]
In March 2006, Wal-Mart sought to attempt to appeal to a more affluent demographic, with the opening of a new supercenter in Plano, Texas, and is intended to compete against stores that some view as more upscale and appealing, such as Target.[15] The new store features wooden floors, wider aisles, a sushi bar, a coffee/sandwich shop (with free Wi-Fi Internet access), and higher-end items such as microbrew beer, expensive wines, and high-end electronics. The exterior sports the less-common hunter green background behind the Wal-Mart letters instead of the trademark blue.
Subsidiaries
See also: List of assets owned by Wal-Mart Stores, Inc.
Wal-Mart's operations are comprised primarily in three retailing subsidiaries! Wal-Mart Stores Division U.S., Sam's Club (second biggest to Costco), and Wal-Mart International.[16] Wal-Mart does business under nine different retail formats: supercenters, food and drugs, general merchandise stores, bodegas (small markets), cash and carry stores, membership warehouse clubs, apparel stores, soft discount stores and restaurants.
Sam's Club
Main article: Sam's Club
Wal-Mart operates Sam's Club, a chain of warehouse clubs that sells groceries and general merchandise, often in large quantities or volume. Sam's Club stores are only open to customers who subscribe to a paid, annual membership. Some locations also sell gasoline. The first Sam's Club opened in 1983 in Midwest City, Oklahoma.
According to Wal-Mart's 2006 Annual Report, Sam's Club accounted for approximately 12.7% of fiscal 2006 sales. Competitors of Wal-Mart's Sam's Club division are Costco, and the smaller BJ's Wholesale Club chain operating mainly in the eastern US.
As of May 31, 2007, there were 584 Sam's Clubs in the United States.
Wal-Mart International
Wal-Mart's international operations comprise 2,701 stores in 14 countries outside the United States.[20] According to Wal-Mart's 2006 Annual Report, International accounted for approximately 20.1% of fiscal 2006 sales.[16] Wholly owned operations are located in Argentina, Brazil, Canada, Puerto Rico and the United Kingdom (UK). With 1.8 million employees worldwide, the company is the largest private employer in the US and Mexico, and one of the largest private employers in Canada.[21]
Wal Mart store in Mexico City
Wal Mart store in Mexico City
Wal-Mart has operated in Canada since their acquisition of the Woolco division of Woolworth Canada, Inc.[22] Today, they operate 278 locations employing 70,000 Canadians, with a local home office in Mississauga, Ontario. On November 8, 2006, Wal-Mart Canada's first three Supercentres opened in Ancaster, London, and Stouffville, Ontario. As of January 31, 2007, there were six Wal-Mart Supercenters in Canada.[19] As of November 30, 2006, there were six Sam's Clubs Canada (all in Ontario: London, Richmond Hill, Vaughan, Cambridge, Pickering, and Toronto).[19] In December 2006, conversion of a Wal-Mart Discount Store into a Wal-Mart Supercentre has begun in Lethbridge, Alberta, making it the 7th in Canada and the first in Western Canada.
Sales in the fiscal year 2006 for Wal-Mart's UK subsidiary, ASDA (an abbreviation of ASquith and DAiries), were 42.7% of the International segment sales. In contrast to Wal-Mart's US operations, ASDA was originally and remains primarily a grocery chain, but it has a stronger focus on non-foods than most UK supermarket chains (a notable exception is Tesco, UK's largest grocery & Non-food retailer). At the end of fiscal year 2006, there were 236 ASDA stores, 10 George stores, 5 ASDA Living and 43 ASDA small stores.
In addition to its wholly owned international operations, Wal-Mart has joint ventures in China and several majority owned subsidiaries. Wal-Mart's majority owned subsidiary in Mexico is Walmex. In Japan, Wal-Mart owns approximately 53% of The Seiyu Co., Ltd.[23] Additionally, Wal-Mart owns 51% of the Central American Retail Holding Company (CARHCO) formed from more than 360 supermarkets and other store formats, operating in 5 Central American countries: Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica.[24]
In 2004, Wal-Mart bought the Bompreço supermarket chain, composed of 116 stores. Bompreço is the major supermarket chain in Northeastern Brazil. In late 2005, Wal-Mart took control of the Brazilian operations of Sonae Distribution Group through its new subsidiary, WMS Supermercados do Brasil, thus acquiring control of the Nacional and Mercadorama supermarket chains, the leaders in Rio Grande do Sul and Paraná states. None of those operations were rebranded. As of August 2006, Wal-Mart operates 71 Bompreço stores, 27 Hiper-Bompreço stores, 15 Balaio stores and 3 Hiper-Magazines (all originally part of Bompreço). It also runs 19 Wal-Mart Supercenters, 13 Sam's Club stores and 2 Todo Dia stores. With the acquisition of Bompreço and Sonae, Wal-Mart is currently the third largest supermarket chain in Brazil, behind Carrefour and Pão de Açúcar.
In July 2006, Wal-Mart announced its withdrawal of operations from Germany because of sustained losses in the highly-competitive German market. The stores were sold to the German company METRO AG.[25] The sale was completed in Wal-Mart's fiscal third quarter.
In November 2006, Wal-Mart announced a joint venture with Bharti Enterprises to open "hundreds" of retail stores in India. Since foreign corporations are not allowed to enter the retail sector in India directly, Wal-Mart is expected to operate through franchises and handle the wholesale end of the venture.[26] The partnership will involve two joint ventures. While Bharti would be managing the front-end that involves opening retail outlets, Wal-Mart would take care of the back-end such as cold chains and logistics.
Private label brands
Main article: List of Wal-Mart brands
Today, approximately 40% of products sold in Wal-Mart are private label store brands, or products offered by Wal-Mart and produced through subsidized contracts awarded to the lowest bidder.[27] Wal-Mart began offering private label brands in 1991 with the launch of Sam's Choice, a brand of drinks produced by Cott Beverages exclusively for Wal-Mart. Sam's Choice quickly became popular, and by 1993, was cited as #3 on the list of top beverage brands in the United States.[28] Other Wal-Mart brands include Great Value and Equate in the US and Smart Price in the United Kingdom. A 2006 study recently found that, "While clearly other results in this study point to the success of other retailers, we are struck by the magnitude of mind-share Wal-Mart appears to hold in shoppers' minds when it comes to awareness of private label brands and retailers.
Competition
In North America, Wal-Mart's primary competition includes department stores like Kmart, Target, ShopKo, Meijer, or Canada's Zellers, Winners, or Giant Tiger. Wal-Mart's move into the grocery business in the late 1990s has also positioned it against major supermarket chains in both the United States and Canada. Several smaller retailers, primarily dollar stores, such as Family Dollar and Dollar General, have been able to find a small niche market and compete successfully against Wal-Mart for home consumer sales.[39] In 2004, Wal-Mart responded by testing their own dollar store concept, a subsection of some stores known as "Pennies-n-Cents."[40]
Wal-Mart has struggled in other foreign markets. For example, in Germany, it had captured just 2% of German food sales following its entry into the market in 1997 and had remained "a secondary player" compared to competitor Aldi which boasts 19% share of the German market.[41] In July 2006, Wal-Mart announced its withdrawal of operations from Germany because of sustained losses. Its stores are to be sold to German company METRO AG[25] In China, Wal-Mart is "a small fish" as its strategy of "everyday low prices" has not been successful against "Chinese mom-and-pop shops that are used to cutthroat pricing."[42] In May 2006, Wal-Mart withdrew from the South Korean market when it agreed to sell all 16 of its South Korean outlets to Shinsegae, a local retailer, for $882 million who are as of late 2006 re-branding the country's Wal-Marts as E-mart. Wal-Mart had originally entered the South Korea market in 1998.[43] In the UK, Wal-Mart's ASDA subsidiary is the second largest chain after Tesco.[44] Specifically, ASDA is a distant second to Tesco in the UK grocery market, and as of 2006 the gap is widening, based on market share figures published by TNS Worldpanel.
Customer base
Each week, approximately 100 million customers, or one-third of the US population, visits Wal-Mart's US stores.[45] Wal-Mart customers place low prices as the most important reason for shopping at Wal-Mart, reflecting a, "Low prices, always," message that Wal-Mart had had from 1962 until 2006.[46] Wal-Mart's average US customer's income is below the national average, and analysts have recently estimated that more than one-fifth do not have a bank account, twice the national rate.[47] A Wal-Mart financial report in 2006 also indicated that Wal-Mart customers are sensitive to higher utility costs and gas prices.[48] A poll prior to the 2004 US Presidential Election indicated that 76% of voters who shopped at Wal-Mart once per week planned to vote for George W. Bush, while only 23% planned to vote for John Kerry.[49] When measured against other similar retailers in the US, frequent Wal-Mart shoppers were rated the most politically conservative.[50]
In 2006, Wal-Mart made steps to expand its US customer base, announcing a modification in its US stores from a, "one-size-fits-all," merchandising strategy to a custom-fitting merchandise assortment designed to, "reflect each of six demographic groups – African-Americans, the affluent, empty-nesters, Hispanics, suburbanites and rural residents."[51] About six months later, the company went public with a variation on their customer profile: "Saving people money so they can live better lives."[46] This reflects what Wal-Mart identifies as the three main groups that its 200 million customers are organized into: "brand aspirationals" (people with low incomes who are obsessed with names like KitchenAid), "price-sensitive affluents" (wealthier shoppers who love deals), and "value-price shoppers" (who like low prices and cannot afford much more).[46] Wal-Mart has also made steps to appeal to more liberal customers, for example, by rejecting the American Family Association's recommendations and carrying the DVD Brokeback Mountain, a love story about two gay cowboys in Wyoming.
Employee and labor relations
See also: Criticism of Wal-Mart
Wal-Mart has been criticized with regard to many of its policies and/or business practices, primarily by community groups, grassroots organizations, labor unions,[53] religious organizations,[54][55] and environmental groups. In particular, several labor unions have specific concerns regarding the company's anti-union stance, as well as several employee relations issues. Other areas of concern include the corporation's extensive foreign product sourcing, treatment of employees and product suppliers, environmental practices, the use of public subsidies, and the impact of stores on the local economies of towns in which they operate.[56][57][58]
In 2005, labor unions created several organizations to confront these issues, including Wake Up Wal-Mart (United Food and Commercial Workers) and Wal-Mart Watch (Service Employees International Union). By the end of 2005, Wal-Mart launched Working Families for Wal-Mart, an astroturf operation, to counter the criticisms of the other two groups. Additional efforts to counter criticism include launching a public relations campaign in 2005 through their public relations website,[59] as well as several television commercials. The company retained the public relations firm Edelman to respond to negative media attention,[60] and has started interacting directly with bloggers by sending them news, suggesting topics for postings, and even inviting them to visit their corporate headquarters.[61]
Wal-Mart also faces several significant issues with regards to its employee and workforce relations. These issues involve low wages, poor working conditions, inadequate health care, as well as issues involving the company's strong anti-union policies. One of Wal-Mart's biggest issues is their high turnover rate – approximately 70% of its employees leave within the first year, primarily due to lack of recognition and inadequate pay. However, Managers and executives of Wal-Mart are paid very well and are part of a generous bonus program..
A jury in Massachusetts Superior Court awarded nearly 2 millions dollars to a ex Wal-Mart employee due to the store underpaying her and then firing her for discrimination. In the suit, she claimed that she demanded from Wal-Mart that she be paid wage differential and bonuses and also was reprimanded for reporting missing drugs to law enforcement.
Diversity
With regard to equal opportunities for women, in 1999, Wal-Mart ranked well below its retailing peers, which had an average of 56% female managers (only 11% difference from the ratio of women in the workforce, which is 45%), according to data from the Equal Employment Opportunity Commission.[65][66]In 2001, Wal-Mart's EEOC filings showed that female employees made up 72% of Wal-Mart's workforce, but only 30% of its management (a 15% difference from the population ratio, 4% higher than the rest of the industry). This ratio was typical in 1975. On April 3, 2007, Wal-Mart reported that female employees were now 61% of its workforce and 40% of its management.
Wal-Mart has received improving scores on the Corporate Equality Index, a measure of how companies treat homosexual employees and consumers, published by the Human Rights Campaign. The rating was 65% in the 2006 edition, 57% in 2005, 43% in 2003 and 2004, and 14% in 2002.[69][70] Wal-Mart's 2003 score accompanied an expanded antidiscrimination policy to protect gay and lesbian employees, The 2005 score accompanied a new definition of family that included same-sex partners.
In January 2006, Wal-Mart announced that, "diversity efforts include new groups of minority, female and gay employees that have started meeting at Wal-Mart headquarters in Bentonville to advise the company on marketing and internal promotion. There are seven so-called Business Resource Groups: women, African-Americans, Hispanics, Asians, Native Americans, Gays and Lesbians, and a disabled group."
Wal-Mart is currently facing a gender discrimination lawsuit, Dukes v. Wal-Mart Stores, Inc., alleging female employees were discriminated against in pay and promotions. In February 2007, the United States Court of Appeals for the Ninth Circuit issued a 2-1 ruling that affirmed a lower court ruling to certify the case as a class-action lawsuit that plaintiffs estimate could include approximately 1.6 million women. A similar lawsuit, EEOC (Janice Smith) v. Wal-Mart Stores, Inc., was filed on August 24, 2001, accuses the retailer of discriminating hiring practices at their London, Kentucky Distribution Center dating back to 1995. Mauldin v. Wal-Mart Stores, Inc., charges that the company's denial of health insurance coverage for birth control is unfair to female employees. In 2002, the lawsuit was granted class action status, allowing all female employees after March, 2001, to file claims if they were using contraceptives.
Wal-Mart operates in Mexico as Walmex, in the United Kingdom as ASDA, and in Japan as The Seiyu Co., Ltd. Wholly owned operations are located in Argentina, Brazil, Canada, Puerto Rico, and the UK. Wal-Mart's investments outside North America have produced mixed results. In 2006, Wal-Mart sold its retail operations in South Korea and Germany due to sustained losses and a highly competitive market.
Wal-Mart has been the target of criticism from some community groups, women's rights groups, grassroots organizations, and labor unions. Specific criticisms include the company's extensive foreign product sourcing, low rates of employee health insurance, resistance to union representation, and alleged sexism, among other things.
The retailer's mascot is The Rollback Man, a smiley face character who appears in its ads.
History
Sam Walton's original Walton's Five and Dime, now the Wal-Mart Visitor's Center, Bentonville, Arkansas.
Sam Walton's original Walton's Five and Dime, now the Wal-Mart Visitor's Center, Bentonville, Arkansas.
Main article: History of Wal-Mart
Sam Walton's retailing career began when he accepted a job offer at a JCPenney store in Des Moines, Iowa on June 3, 1940 where he remained for 18 months. In 1945, he met with Butler Brothers, a regional retailer that owned a chain of variety stores called Ben Franklin. Butler Brothers offered him a Ben Franklin store in Newport, Arkansas.
Walton could not come to agreement on his lease renewal and could not find a new location in Newport; so he located a new variety store in Bentonville, Arkansas which he would open as another Ben Franklin franchise, but called "Walton's Five and Dime." Walton achieved higher sales volume by selling products with slightly smaller markups than most competitors.[2]
In 1962, Walton opened the first Wal-Mart store, Wal-Mart Discount City and within five years the company expanded to 24 stores across the state of Arkansas and reached $12.6 million in sales. In 1968, it opened its first stores outside Arkansas, in Sikeston, Missouri and Claremore, Oklahoma.[3]
The company was incorporated as Wal-Mart Stores, Inc. on October 31, 1969, and in 1970 opened its home office in Bentonville, Arkansas, and its first distribution center. There were now 38 stores operating with 1,500 employees and sales of $44.2 million. The company began trading stock at this time as a publicly held company on October 1, 1972, and was listed on the New York Stock Exchange shortly thereafter. The first stock split occurred in May 1971 at a market price of $47. By this time, Wal-Mart was operating in five states: Arkansas, Kansas, Louisiana, Missouri and Oklahoma, and entered Tennessee in 1973, and Kentucky and Mississippi in 1974. As it moved into Texas in 1975, there were 125 stores with 7,500 employees, and total sales of $340.3 million.[3]
Wal-Mart continued to grow rapidly during the 1980s, and by its twenty-fifth anniversary in 1987, there were 1,198 stores with sales of $15.9 billion and 200,000 associates.[3] This year also marked the completion of the company's satellite network, a $24 million investment, linking all operating units of the company with their Bentonville Office via two-way voice, data, and one-way video communication. At the time, this was the largest private satellite network, and allowed the corporate office to track inventory, sales, and send instant communication to their stores.[4] Company founder Sam Walton stepped down as CEO the following year, and was replaced by David Glass. [5] Walton remained on as Chairman of the Corporate Board of Directors, and the company also restructured their senior management positions, elevating a cadre of executives to positions of greater responsibility.
Also in 1988, the first Wal-Mart Supercenter opened in Washington, Missouri.[6] Wal-Mart expanded their superstore concept during the 1990s, and shortly thereafter surpassed Toys "R" Us in toy sales.[7] The company also opened overseas stores during this period, entering the South American market in 1995 with stores in Argentina and Brazil, and purchasing ASDA in the United Kingdom for $10 billion in 1999.[8] In 1998, Wal-Mart entered the grocery business, introducing their Neighborhood Market concept with three stores in Arkansas.[9] By 2005, estimates indicate that the company controlled approximately 20% of the retail grocery and consumables business.[10]
By 2000, as H. Lee Scott was named President and CEO of the company, Wal-Mart's sales increased to $165 billion.[11] In 2002, Wal-Mart was listed for the first time on the Fortune 500 list of the world's largest corporations, with revenues of $219.8 billion and profits of $6.7 billion. The company was subsequently listed at #1 for every year after 2002 except for 2006.[12]
In 2005, Wal-Mart had $312.4 billion in sales, more than 6,200 facilities around the world, including 3,800 stores in the United States and 3,800 international units, and employing more than 1.6 million associates worldwide. In fact, their U.S. presence had grown so rapidly that there were only small pockets of the country that remained further than 60 miles away from the nearest Wal-Mart.[13] Also in 2005, focusing on becoming more ecologically-friendly, the company designed two new experimental stores, one in McKinney, Texas and the other in Aurora, Colorado, featuring wind turbines, photovoltaic solar panels, biofuel-capable boilers, water-cooled refrigerators, and xeriscape gardens.[14]
In March 2006, Wal-Mart sought to attempt to appeal to a more affluent demographic, with the opening of a new supercenter in Plano, Texas, and is intended to compete against stores that some view as more upscale and appealing, such as Target.[15] The new store features wooden floors, wider aisles, a sushi bar, a coffee/sandwich shop (with free Wi-Fi Internet access), and higher-end items such as microbrew beer, expensive wines, and high-end electronics. The exterior sports the less-common hunter green background behind the Wal-Mart letters instead of the trademark blue.
Subsidiaries
See also: List of assets owned by Wal-Mart Stores, Inc.
Wal-Mart's operations are comprised primarily in three retailing subsidiaries! Wal-Mart Stores Division U.S., Sam's Club (second biggest to Costco), and Wal-Mart International.[16] Wal-Mart does business under nine different retail formats: supercenters, food and drugs, general merchandise stores, bodegas (small markets), cash and carry stores, membership warehouse clubs, apparel stores, soft discount stores and restaurants.
Sam's Club
Main article: Sam's Club
Wal-Mart operates Sam's Club, a chain of warehouse clubs that sells groceries and general merchandise, often in large quantities or volume. Sam's Club stores are only open to customers who subscribe to a paid, annual membership. Some locations also sell gasoline. The first Sam's Club opened in 1983 in Midwest City, Oklahoma.
According to Wal-Mart's 2006 Annual Report, Sam's Club accounted for approximately 12.7% of fiscal 2006 sales. Competitors of Wal-Mart's Sam's Club division are Costco, and the smaller BJ's Wholesale Club chain operating mainly in the eastern US.
As of May 31, 2007, there were 584 Sam's Clubs in the United States.
Wal-Mart International
Wal-Mart's international operations comprise 2,701 stores in 14 countries outside the United States.[20] According to Wal-Mart's 2006 Annual Report, International accounted for approximately 20.1% of fiscal 2006 sales.[16] Wholly owned operations are located in Argentina, Brazil, Canada, Puerto Rico and the United Kingdom (UK). With 1.8 million employees worldwide, the company is the largest private employer in the US and Mexico, and one of the largest private employers in Canada.[21]
Wal Mart store in Mexico City
Wal Mart store in Mexico City
Wal-Mart has operated in Canada since their acquisition of the Woolco division of Woolworth Canada, Inc.[22] Today, they operate 278 locations employing 70,000 Canadians, with a local home office in Mississauga, Ontario. On November 8, 2006, Wal-Mart Canada's first three Supercentres opened in Ancaster, London, and Stouffville, Ontario. As of January 31, 2007, there were six Wal-Mart Supercenters in Canada.[19] As of November 30, 2006, there were six Sam's Clubs Canada (all in Ontario: London, Richmond Hill, Vaughan, Cambridge, Pickering, and Toronto).[19] In December 2006, conversion of a Wal-Mart Discount Store into a Wal-Mart Supercentre has begun in Lethbridge, Alberta, making it the 7th in Canada and the first in Western Canada.
Sales in the fiscal year 2006 for Wal-Mart's UK subsidiary, ASDA (an abbreviation of ASquith and DAiries), were 42.7% of the International segment sales. In contrast to Wal-Mart's US operations, ASDA was originally and remains primarily a grocery chain, but it has a stronger focus on non-foods than most UK supermarket chains (a notable exception is Tesco, UK's largest grocery & Non-food retailer). At the end of fiscal year 2006, there were 236 ASDA stores, 10 George stores, 5 ASDA Living and 43 ASDA small stores.
In addition to its wholly owned international operations, Wal-Mart has joint ventures in China and several majority owned subsidiaries. Wal-Mart's majority owned subsidiary in Mexico is Walmex. In Japan, Wal-Mart owns approximately 53% of The Seiyu Co., Ltd.[23] Additionally, Wal-Mart owns 51% of the Central American Retail Holding Company (CARHCO) formed from more than 360 supermarkets and other store formats, operating in 5 Central American countries: Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica.[24]
In 2004, Wal-Mart bought the Bompreço supermarket chain, composed of 116 stores. Bompreço is the major supermarket chain in Northeastern Brazil. In late 2005, Wal-Mart took control of the Brazilian operations of Sonae Distribution Group through its new subsidiary, WMS Supermercados do Brasil, thus acquiring control of the Nacional and Mercadorama supermarket chains, the leaders in Rio Grande do Sul and Paraná states. None of those operations were rebranded. As of August 2006, Wal-Mart operates 71 Bompreço stores, 27 Hiper-Bompreço stores, 15 Balaio stores and 3 Hiper-Magazines (all originally part of Bompreço). It also runs 19 Wal-Mart Supercenters, 13 Sam's Club stores and 2 Todo Dia stores. With the acquisition of Bompreço and Sonae, Wal-Mart is currently the third largest supermarket chain in Brazil, behind Carrefour and Pão de Açúcar.
In July 2006, Wal-Mart announced its withdrawal of operations from Germany because of sustained losses in the highly-competitive German market. The stores were sold to the German company METRO AG.[25] The sale was completed in Wal-Mart's fiscal third quarter.
In November 2006, Wal-Mart announced a joint venture with Bharti Enterprises to open "hundreds" of retail stores in India. Since foreign corporations are not allowed to enter the retail sector in India directly, Wal-Mart is expected to operate through franchises and handle the wholesale end of the venture.[26] The partnership will involve two joint ventures. While Bharti would be managing the front-end that involves opening retail outlets, Wal-Mart would take care of the back-end such as cold chains and logistics.
Private label brands
Main article: List of Wal-Mart brands
Today, approximately 40% of products sold in Wal-Mart are private label store brands, or products offered by Wal-Mart and produced through subsidized contracts awarded to the lowest bidder.[27] Wal-Mart began offering private label brands in 1991 with the launch of Sam's Choice, a brand of drinks produced by Cott Beverages exclusively for Wal-Mart. Sam's Choice quickly became popular, and by 1993, was cited as #3 on the list of top beverage brands in the United States.[28] Other Wal-Mart brands include Great Value and Equate in the US and Smart Price in the United Kingdom. A 2006 study recently found that, "While clearly other results in this study point to the success of other retailers, we are struck by the magnitude of mind-share Wal-Mart appears to hold in shoppers' minds when it comes to awareness of private label brands and retailers.
Competition
In North America, Wal-Mart's primary competition includes department stores like Kmart, Target, ShopKo, Meijer, or Canada's Zellers, Winners, or Giant Tiger. Wal-Mart's move into the grocery business in the late 1990s has also positioned it against major supermarket chains in both the United States and Canada. Several smaller retailers, primarily dollar stores, such as Family Dollar and Dollar General, have been able to find a small niche market and compete successfully against Wal-Mart for home consumer sales.[39] In 2004, Wal-Mart responded by testing their own dollar store concept, a subsection of some stores known as "Pennies-n-Cents."[40]
Wal-Mart has struggled in other foreign markets. For example, in Germany, it had captured just 2% of German food sales following its entry into the market in 1997 and had remained "a secondary player" compared to competitor Aldi which boasts 19% share of the German market.[41] In July 2006, Wal-Mart announced its withdrawal of operations from Germany because of sustained losses. Its stores are to be sold to German company METRO AG[25] In China, Wal-Mart is "a small fish" as its strategy of "everyday low prices" has not been successful against "Chinese mom-and-pop shops that are used to cutthroat pricing."[42] In May 2006, Wal-Mart withdrew from the South Korean market when it agreed to sell all 16 of its South Korean outlets to Shinsegae, a local retailer, for $882 million who are as of late 2006 re-branding the country's Wal-Marts as E-mart. Wal-Mart had originally entered the South Korea market in 1998.[43] In the UK, Wal-Mart's ASDA subsidiary is the second largest chain after Tesco.[44] Specifically, ASDA is a distant second to Tesco in the UK grocery market, and as of 2006 the gap is widening, based on market share figures published by TNS Worldpanel.
Customer base
Each week, approximately 100 million customers, or one-third of the US population, visits Wal-Mart's US stores.[45] Wal-Mart customers place low prices as the most important reason for shopping at Wal-Mart, reflecting a, "Low prices, always," message that Wal-Mart had had from 1962 until 2006.[46] Wal-Mart's average US customer's income is below the national average, and analysts have recently estimated that more than one-fifth do not have a bank account, twice the national rate.[47] A Wal-Mart financial report in 2006 also indicated that Wal-Mart customers are sensitive to higher utility costs and gas prices.[48] A poll prior to the 2004 US Presidential Election indicated that 76% of voters who shopped at Wal-Mart once per week planned to vote for George W. Bush, while only 23% planned to vote for John Kerry.[49] When measured against other similar retailers in the US, frequent Wal-Mart shoppers were rated the most politically conservative.[50]
In 2006, Wal-Mart made steps to expand its US customer base, announcing a modification in its US stores from a, "one-size-fits-all," merchandising strategy to a custom-fitting merchandise assortment designed to, "reflect each of six demographic groups – African-Americans, the affluent, empty-nesters, Hispanics, suburbanites and rural residents."[51] About six months later, the company went public with a variation on their customer profile: "Saving people money so they can live better lives."[46] This reflects what Wal-Mart identifies as the three main groups that its 200 million customers are organized into: "brand aspirationals" (people with low incomes who are obsessed with names like KitchenAid), "price-sensitive affluents" (wealthier shoppers who love deals), and "value-price shoppers" (who like low prices and cannot afford much more).[46] Wal-Mart has also made steps to appeal to more liberal customers, for example, by rejecting the American Family Association's recommendations and carrying the DVD Brokeback Mountain, a love story about two gay cowboys in Wyoming.
Employee and labor relations
See also: Criticism of Wal-Mart
Wal-Mart has been criticized with regard to many of its policies and/or business practices, primarily by community groups, grassroots organizations, labor unions,[53] religious organizations,[54][55] and environmental groups. In particular, several labor unions have specific concerns regarding the company's anti-union stance, as well as several employee relations issues. Other areas of concern include the corporation's extensive foreign product sourcing, treatment of employees and product suppliers, environmental practices, the use of public subsidies, and the impact of stores on the local economies of towns in which they operate.[56][57][58]
In 2005, labor unions created several organizations to confront these issues, including Wake Up Wal-Mart (United Food and Commercial Workers) and Wal-Mart Watch (Service Employees International Union). By the end of 2005, Wal-Mart launched Working Families for Wal-Mart, an astroturf operation, to counter the criticisms of the other two groups. Additional efforts to counter criticism include launching a public relations campaign in 2005 through their public relations website,[59] as well as several television commercials. The company retained the public relations firm Edelman to respond to negative media attention,[60] and has started interacting directly with bloggers by sending them news, suggesting topics for postings, and even inviting them to visit their corporate headquarters.[61]
Wal-Mart also faces several significant issues with regards to its employee and workforce relations. These issues involve low wages, poor working conditions, inadequate health care, as well as issues involving the company's strong anti-union policies. One of Wal-Mart's biggest issues is their high turnover rate – approximately 70% of its employees leave within the first year, primarily due to lack of recognition and inadequate pay. However, Managers and executives of Wal-Mart are paid very well and are part of a generous bonus program..
A jury in Massachusetts Superior Court awarded nearly 2 millions dollars to a ex Wal-Mart employee due to the store underpaying her and then firing her for discrimination. In the suit, she claimed that she demanded from Wal-Mart that she be paid wage differential and bonuses and also was reprimanded for reporting missing drugs to law enforcement.
Diversity
With regard to equal opportunities for women, in 1999, Wal-Mart ranked well below its retailing peers, which had an average of 56% female managers (only 11% difference from the ratio of women in the workforce, which is 45%), according to data from the Equal Employment Opportunity Commission.[65][66]In 2001, Wal-Mart's EEOC filings showed that female employees made up 72% of Wal-Mart's workforce, but only 30% of its management (a 15% difference from the population ratio, 4% higher than the rest of the industry). This ratio was typical in 1975. On April 3, 2007, Wal-Mart reported that female employees were now 61% of its workforce and 40% of its management.
Wal-Mart has received improving scores on the Corporate Equality Index, a measure of how companies treat homosexual employees and consumers, published by the Human Rights Campaign. The rating was 65% in the 2006 edition, 57% in 2005, 43% in 2003 and 2004, and 14% in 2002.[69][70] Wal-Mart's 2003 score accompanied an expanded antidiscrimination policy to protect gay and lesbian employees, The 2005 score accompanied a new definition of family that included same-sex partners.
In January 2006, Wal-Mart announced that, "diversity efforts include new groups of minority, female and gay employees that have started meeting at Wal-Mart headquarters in Bentonville to advise the company on marketing and internal promotion. There are seven so-called Business Resource Groups: women, African-Americans, Hispanics, Asians, Native Americans, Gays and Lesbians, and a disabled group."
Wal-Mart is currently facing a gender discrimination lawsuit, Dukes v. Wal-Mart Stores, Inc., alleging female employees were discriminated against in pay and promotions. In February 2007, the United States Court of Appeals for the Ninth Circuit issued a 2-1 ruling that affirmed a lower court ruling to certify the case as a class-action lawsuit that plaintiffs estimate could include approximately 1.6 million women. A similar lawsuit, EEOC (Janice Smith) v. Wal-Mart Stores, Inc., was filed on August 24, 2001, accuses the retailer of discriminating hiring practices at their London, Kentucky Distribution Center dating back to 1995. Mauldin v. Wal-Mart Stores, Inc., charges that the company's denial of health insurance coverage for birth control is unfair to female employees. In 2002, the lawsuit was granted class action status, allowing all female employees after March, 2001, to file claims if they were using contraceptives.
Monday, July 2, 2007
Technorati and Pings
Technorati and Pings
Technorati is an Internet search engine for searching blogs, competing with Google, Yahoo and IceRocket. As of April 2007, Technorati indexes over 75 million weblogs. The name Technorati is a portmanteau, pointing to the technological version of literati or intellectuals.
Technorati was founded by Dave Sifry and its headquarters are in San Francisco, California, USA. Tantek Çelik is the site's Chief Technologist.
Technorati uses and contributes to open source software. Technorati has an active software developer community, many of them from open-source culture. Sifry is a major open-source advocate, and was a founder of LinuxCare and later of Wi-Fi access point software developer Sputnik. Technorati includes a public developer's wiki, where developers and contributors collaborate, as well as various open APIs.
The site won the SXSW 2006 awards for Best Technical Achievement and also Best of Show.[1] It was also nominated for a 2006 Webby award for Best Practices, but lost to Flickr and Google Maps.[2]
Criticism
In February 2006, Debi Jones pointed out that Technorati's "State of the Blogosphere" postings, which claimed that they track 27.7 million blogs, failed to take into account MySpace blogs, of which she says there are 56 million. As a result, she says the utility of Technorati as a gauge for blog popularity is questionable.[3] However by March 2006, Aaron Brazell pointed out that Technorati had started tracking MySpace "blogs".[4]
In May 2007, Andrew Orlowski writing for the tech tabloid TheRegister criticized Technorati's May 2007 redesign. He suggests that Technorati has decided to focus more on returning image thumbnails instead of blog results. He also claims that Technorati never worked in the past and the alleged refocus is "a tacit admission that it's given up on its original mission".
Ping
Ping is a computer network tool used to test whether a particular host is reachable across an IP network. Ping works by sending ICMP “echo request” packets ("Ping?") to the target host and listening for ICMP “echo response” replies (sometimes dubbed "Pong!" as a metaphor from the Ping Pong table tennis sport.) Using interval timing and response rate, ping estimates the round-trip time (generally in milliseconds although the unit is often omitted) and rate of packet loss between hosts (can differ).
The word ping is also frequently used as a verb or noun, where it can refer directly to the round-trip time, the act of running a ping program or measuring the round-trip time. See also: Ping (video games).
History
Mike Muuss wrote the program in December, 1983, as a tool to troubleshoot odd behavior on an IP network. He named it after the pulses of sound made by a sonar, since its operation is analogous to active sonar in submarines, in which an operator issues a pulse of energy (a network packet) at the target, which then bounces from the target and is received by the operator. Later David L. Mills provided a backronym, "Packet InterNet Grouper (Groper)" (sometimes also defined as "Packet Inter-Network Groper).
The usefulness of ping in assisting the "diagnosis" of Internet connectivity issues was impaired from late in 2003, when a number of Internet Service Providers filtered out ICMP Type 8 (echo request) messages at their network boundaries. This was partly due to the increasing use of ping for target reconnaissance, for example by Internet worms such as Welchia that flood the Internet with ping requests in order to locate new hosts to infect. Not only did the availability of ping responses leak information to an attacker, it added to the overall load on networks, causing problems for routers across the Internet.
There are two schools of thought concerning ICMP on the public Internet: those who say it should be largely disabled to enable network 'stealth', and those who say it should be enabled to allow proper Internet diagnostics.
These two schools of thought merge when considering intranet/extranet networks within the same organization. An example would be an organization which maintains 'buffer' network(s) to shield said net from the raw internet, such a network is usually described as a DMZ (after the military designation 'demilitarized zone'). In such a scenario an organization would maintain both a network(s) that would allow ICMP packets to radiate within the internal (trusted network[s]), and disallow ICMP (ping) packets in a separated network that would more often than not include raw internet facing systems.
Technorati is an Internet search engine for searching blogs, competing with Google, Yahoo and IceRocket. As of April 2007, Technorati indexes over 75 million weblogs. The name Technorati is a portmanteau, pointing to the technological version of literati or intellectuals.
Technorati was founded by Dave Sifry and its headquarters are in San Francisco, California, USA. Tantek Çelik is the site's Chief Technologist.
Technorati uses and contributes to open source software. Technorati has an active software developer community, many of them from open-source culture. Sifry is a major open-source advocate, and was a founder of LinuxCare and later of Wi-Fi access point software developer Sputnik. Technorati includes a public developer's wiki, where developers and contributors collaborate, as well as various open APIs.
The site won the SXSW 2006 awards for Best Technical Achievement and also Best of Show.[1] It was also nominated for a 2006 Webby award for Best Practices, but lost to Flickr and Google Maps.[2]
Criticism
In February 2006, Debi Jones pointed out that Technorati's "State of the Blogosphere" postings, which claimed that they track 27.7 million blogs, failed to take into account MySpace blogs, of which she says there are 56 million. As a result, she says the utility of Technorati as a gauge for blog popularity is questionable.[3] However by March 2006, Aaron Brazell pointed out that Technorati had started tracking MySpace "blogs".[4]
In May 2007, Andrew Orlowski writing for the tech tabloid TheRegister criticized Technorati's May 2007 redesign. He suggests that Technorati has decided to focus more on returning image thumbnails instead of blog results. He also claims that Technorati never worked in the past and the alleged refocus is "a tacit admission that it's given up on its original mission".
Ping
Ping is a computer network tool used to test whether a particular host is reachable across an IP network. Ping works by sending ICMP “echo request” packets ("Ping?") to the target host and listening for ICMP “echo response” replies (sometimes dubbed "Pong!" as a metaphor from the Ping Pong table tennis sport.) Using interval timing and response rate, ping estimates the round-trip time (generally in milliseconds although the unit is often omitted) and rate of packet loss between hosts (can differ).
The word ping is also frequently used as a verb or noun, where it can refer directly to the round-trip time, the act of running a ping program or measuring the round-trip time. See also: Ping (video games).
History
Mike Muuss wrote the program in December, 1983, as a tool to troubleshoot odd behavior on an IP network. He named it after the pulses of sound made by a sonar, since its operation is analogous to active sonar in submarines, in which an operator issues a pulse of energy (a network packet) at the target, which then bounces from the target and is received by the operator. Later David L. Mills provided a backronym, "Packet InterNet Grouper (Groper)" (sometimes also defined as "Packet Inter-Network Groper).
The usefulness of ping in assisting the "diagnosis" of Internet connectivity issues was impaired from late in 2003, when a number of Internet Service Providers filtered out ICMP Type 8 (echo request) messages at their network boundaries. This was partly due to the increasing use of ping for target reconnaissance, for example by Internet worms such as Welchia that flood the Internet with ping requests in order to locate new hosts to infect. Not only did the availability of ping responses leak information to an attacker, it added to the overall load on networks, causing problems for routers across the Internet.
There are two schools of thought concerning ICMP on the public Internet: those who say it should be largely disabled to enable network 'stealth', and those who say it should be enabled to allow proper Internet diagnostics.
These two schools of thought merge when considering intranet/extranet networks within the same organization. An example would be an organization which maintains 'buffer' network(s) to shield said net from the raw internet, such a network is usually described as a DMZ (after the military designation 'demilitarized zone'). In such a scenario an organization would maintain both a network(s) that would allow ICMP packets to radiate within the internal (trusted network[s]), and disallow ICMP (ping) packets in a separated network that would more often than not include raw internet facing systems.
Saturday, June 30, 2007
SEO - Do it the right way by Guido Nussbaum
SEO - Do it the right way by Guido Nussbaum
There is a lot of information about search engine optimization (seo) going around online and not everything what people tell you is true. There are e-book authors out there who tell their readers not to include any meta tags in their websites. They say that search engines don't read the meta tags these days. Do not believe these things read this article to get a real picture about seo.
The right keywords
Before you can start with search engine optimization, you need to know for what keyword you are going to optimize your website. Finding the right keywords is the first step to take and also the most important one. If you choose the wrong keywords, then you will have a hard time getting into the top 10 search results. You need to find keywords with very low competition so that you can reach a top 10 position even with little back-links.
When you are searching for the right keywords make sure they have less than 100.000 competing websites on google. You can get this number by doing a simple search on google. With the results they also show the number of results. The lower the number, the better for you to get a top 10 ranking. The figure you need to care about is the number of monthly searches for your keywords. Make sure you use keywords that people are actually searching for. You can use several tools to get the number of monthly searches, for example the overture tool or the wordtracker tool.
Onpage Optimization
Nobody knows the algorithm of the google search engine, so nobody can tell you for sure how exactly your website has to look like. Only through a lot of testing and tracking you can get a hint on what you need to change on your website to get a better ranking. There are still some basic things that you want to look at:
- The Website Title (in the header section of your html source code) should have your keyword included. It should not be longer than 10 words. - The Meta Description is used to display the search results, even at google. That's why a good meta description is very important! - The Meta Keywords are not that important but you should make sure that your keywords are included. Don't include keywords that can not be found in your body text and do not practice any keyword stuffing methods. - The Body Text. Google doesn't look much at your keyword density but they look if your keyword is included. That means use your keywords throughout the text where it makes sense but don't worry about having a 1% or 3% keyword density. - The H1,H2,H3 tags. Search engines love structured documents, so they also love the headline tags. Use your keywords in the h1,h2 and h3 tags but don't do any keyword stuffing. - Image alt tags are very important if you do not have much text on your website but can also help to increase your ranking if you have much text. Use keywords in the alt tags but again do not use them too often.
These are the most important on-page factors to look at. Of course you need to have a valid html code and a good link-structure but the above points are major important and can boost your ranking when done right. Always remember that you can only get a top 10 ranking by also doing off-page optimization.
Off-Page Optimization
A lot can be done wrong when doing offpage optimization. Google had a major update on his algorithm at the beginning of 2007. Did you remember the google bombs that used to make pages rank for not relevant search terms? Doesn't work anymore since that update! They have also updated their spam detector, a lot of peoples websites dropped in the search results because they used paid advertisements at certain traffic portals and other grey-hat methods. The way to go nowadays is called "natural link building". This means you create links over a very long time period using different methods. If you submit to directories, then submit to 10 directories every day over a period of 100 days. This way it seems as if your links were build naturally by other people.
There are many ways you can get back-links to your website in a natural way. You can:
- provide good content and people will link to you without any effort on your part. This is the most natural and most effective way of link building! - write articles and distribute them to many different article directories. Your articles get picked up by other people who publish your article at their website with a back-link to your website. This way of building back-links is still very natural and can't be detected by search engines. In the worst case they would not count the links in the article directories or only count them once because of duplicate content. - do 3-way link exchanges. This means you have 2 different websites on 2 different servers with 2 different ip's. You exchange links with other websites by placing their link on your first website and then place the link of your second website on their website. This way you get 1-way links to your second website.
Avoid things like guest-book spamming, ffa sites, link-farms and websites with more than 100 links on the page where your link will be. Finally work on building links every day over a period of at least 100 days. This way you ensure a continues growth of your link-popularity.
There is a lot of information about search engine optimization (seo) going around online and not everything what people tell you is true. There are e-book authors out there who tell their readers not to include any meta tags in their websites. They say that search engines don't read the meta tags these days. Do not believe these things read this article to get a real picture about seo.
The right keywords
Before you can start with search engine optimization, you need to know for what keyword you are going to optimize your website. Finding the right keywords is the first step to take and also the most important one. If you choose the wrong keywords, then you will have a hard time getting into the top 10 search results. You need to find keywords with very low competition so that you can reach a top 10 position even with little back-links.
When you are searching for the right keywords make sure they have less than 100.000 competing websites on google. You can get this number by doing a simple search on google. With the results they also show the number of results. The lower the number, the better for you to get a top 10 ranking. The figure you need to care about is the number of monthly searches for your keywords. Make sure you use keywords that people are actually searching for. You can use several tools to get the number of monthly searches, for example the overture tool or the wordtracker tool.
Onpage Optimization
Nobody knows the algorithm of the google search engine, so nobody can tell you for sure how exactly your website has to look like. Only through a lot of testing and tracking you can get a hint on what you need to change on your website to get a better ranking. There are still some basic things that you want to look at:
- The Website Title (in the header section of your html source code) should have your keyword included. It should not be longer than 10 words. - The Meta Description is used to display the search results, even at google. That's why a good meta description is very important! - The Meta Keywords are not that important but you should make sure that your keywords are included. Don't include keywords that can not be found in your body text and do not practice any keyword stuffing methods. - The Body Text. Google doesn't look much at your keyword density but they look if your keyword is included. That means use your keywords throughout the text where it makes sense but don't worry about having a 1% or 3% keyword density. - The H1,H2,H3 tags. Search engines love structured documents, so they also love the headline tags. Use your keywords in the h1,h2 and h3 tags but don't do any keyword stuffing. - Image alt tags are very important if you do not have much text on your website but can also help to increase your ranking if you have much text. Use keywords in the alt tags but again do not use them too often.
These are the most important on-page factors to look at. Of course you need to have a valid html code and a good link-structure but the above points are major important and can boost your ranking when done right. Always remember that you can only get a top 10 ranking by also doing off-page optimization.
Off-Page Optimization
A lot can be done wrong when doing offpage optimization. Google had a major update on his algorithm at the beginning of 2007. Did you remember the google bombs that used to make pages rank for not relevant search terms? Doesn't work anymore since that update! They have also updated their spam detector, a lot of peoples websites dropped in the search results because they used paid advertisements at certain traffic portals and other grey-hat methods. The way to go nowadays is called "natural link building". This means you create links over a very long time period using different methods. If you submit to directories, then submit to 10 directories every day over a period of 100 days. This way it seems as if your links were build naturally by other people.
There are many ways you can get back-links to your website in a natural way. You can:
- provide good content and people will link to you without any effort on your part. This is the most natural and most effective way of link building! - write articles and distribute them to many different article directories. Your articles get picked up by other people who publish your article at their website with a back-link to your website. This way of building back-links is still very natural and can't be detected by search engines. In the worst case they would not count the links in the article directories or only count them once because of duplicate content. - do 3-way link exchanges. This means you have 2 different websites on 2 different servers with 2 different ip's. You exchange links with other websites by placing their link on your first website and then place the link of your second website on their website. This way you get 1-way links to your second website.
Avoid things like guest-book spamming, ffa sites, link-farms and websites with more than 100 links on the page where your link will be. Finally work on building links every day over a period of at least 100 days. This way you ensure a continues growth of your link-popularity.
part 2....
3) Use Credit Wisely
The proper use of credit has significantly facilitated the flow of goods and services. Long-term, low-interest loans have made it possible to purchase items such as homes or automobiles that otherwise would have required the accumulation of many years' savings.
Another credit mechanism, the credit card, has been a tremendous boon to the consumer who is temporarily low on cash. It has eliminated the danger of carrying large amounts of cash, especially during long periods of travel. And credit cards may even be required for some purchases. But buying on credit can be a financial curse as well as a convenience, particularly when a person falls behind in making payments.
Credit buying often creates the illusion of prosperity. The small size of the monthly installment, its delayed arrival at the end of the month and the lack of cash at the time of the purchase make luxuries seem suddenly within reach. These features persuade millions of families, with otherwise adequate incomes, to spend their paychecks before they even receive them.
Once you get trapped in installment payments, the money you could have in your savings account goes to a credit institution. In effect, you are paying a premium in order to own something now instead of later.
If you habitually use credit in this manner, it can often turn out to be an expensive proposition. Many credit cards, revolving charge accounts and automatic overdraft facilities require a minimum monthly interest charge on the outstanding balance. It sometimes adds up to a staggering 18 percent a year.
Shopping with cash, on the other hand, can often save the consumer more than just monthly interest charges. The person who pays cash can sometimes buy at a discount. Cash-conscious consumers can also take advantage of seasonal sales. They are able to shop around more freely and buy where their money has the most purchasing power. Individuals operating on credit are sometimes forced to purchase where they have their charge accounts, even though a sale may be going on next door.
Solomon wisely perceived that "the rich rule over the poor, and the borrower is servant to the lender" (Proverbs 22:7). A cash basis of financial management is a good way to avoid this type of financial bondage. Therefore, the question logically arises: Where do I start?
The average money manager first should realize that there are two types of family and personal expenses: needs and wants. It is important to know the difference. In today's society, credit buying for items such as a car or a home can be looked on as a necessity. Even these purchases, however, can sometimes be delayed until more cash is available to lessen the finance charges.
On the other hand, credit should rarely be used for wants. Families in trouble have often used too much credit on wants rather than on what they really needed. Until they can accumulate savings, they should adopt a policy of buying wants, such as television sets, sporting goods or excess furniture, strictly on a cash basis. Here's why: Saving cash for luxuries or desires puts a remarkably stabilizing influence on a family's monetary policy. By the time you have saved the cash, there will be little doubt in your mind whether you can afford the item or if, in fact, you really want it.
To use this approach, you must resolve not to purchase anything on credit until your accounts are all paid in full. At least limit the credit purchases during your transition period to an absolute minimum so you can get your credit accounts paid off as early as possible. Then, instead of immediately obligating yourself to more payments by purchasing additional items, let your savings accumulate until you can begin to buy these items for cash.
Remember: The wise family can learn to live with credit, but it should never live by it!
4) Trim Expenses
We live in an "Era of Aspirations," as one money management authority has called it. That is, we order our lives on the belief in and need for a constant upgrading of personal demands. We take this increase in our standard of living for granted. We spend our money on that assumption.
It may seem strange, then, to say that we should take a hard look at what we buy or use — and cut down expenses. Yet that is exactly what we should be doing if we want to increase the value of our money.
A few examples. Do you need that magazine subscription? Do you need the services of a gardener? Is it really necessary to have a new car? Why not purchase a good used one? New-car payments, plus the required total insurance coverage, have been the ruination of many personal budgets.
One important reason our money doesn't buy what it should is that we are using far more services than ever before. Most services depend heavily on labor costs. If we carefully budget our money, we can identify those services that lead to excess expenses. Then we can take appropriate action to change our spending habits.
One example of an area where you may be able to cut costs is by eating out less often. You might be astonished at what some people spend over a year's time eating in restaurants. Figure out the cost of a single meal at a restaurant. Then estimate how many times you do this weekly, and multiply the amount spent by 52. You will find the yearly sum spent on eating out can be astonishingly high.
5) Invest for the Future
In terms of financial goals, we must first plan for today. But we must also carefully consider the future. If we include a regular savings plan in our budget, we can build up a sizable nest egg over the years.
It's important to think through your goals in life as early as possible. However, it's never too late to do so. Consider your long-term financial goals. Make these a part of your spending and saving plan. What about a possible home purchase, the cost of educating children, and money for retirement?
Perhaps our income is not that large. Can we save at least a small portion each year? If we do this over a 30-year period, placing the money in a wise investment, we'd be surprised at how much we would have for the later years of our lives. From this nest egg, we could draw an income, upon retirement, from the interest we receive on our investment.
So far, we've considered several points on increasing income and spending it wisely. Now, let's turn to the most important consideration in managing your personal finances.
6) Make God Your Partner
Strange as it may seem, what we are able to earn depends little on us. Any income we produce depends on assets we did not create. And they don't really belong to any human being, corporation or government.
The fact is that a personal Creator God made and sustains all that exists. Would not this God, by virtue of having created everything, have good reason to claim that everything — including ourselves — belongs to him? God does make such a claim. "The earth is the Lord's, and everything in it, the world, and all who live in it" (Psalm 24:1). He says the wild animals and cattle are his (Psalm 50:10-12), and so is all the silver and gold (Haggai 2:8).
Everything that's produced depends on some element originating in the earth. Our product may be a tomato, a steel girder or even a piece of plastic. But the primary elements have already existed in some form. We may have used our energy to create a song or write a book, but where did that energy come from? Who made your hands, your eyes, your body — your ability to sell, manage, invent or create? God did.
Of course, we apply a certain thinking process to whatever we do. But God still has a prior claim. God created the human brain and mind that we use. Thus, we finally stand naked before God. We have brought nothing into the world. Everything we have has come as a gift from the Creator.
Out of this truth comes another basic and far-reaching income-generating and -spending principle: Since God ultimately gives us everything we need, we depend on him for our economic survival and prosperity.
God warned the Israelites before they entered the Promised Land: "When you have eaten and are satisfied, praise the Lord your God for the good land he has given you. Be careful that you do not forget the Lord your God, failing to observe his commands, his laws and his decrees that I am giving you this day" (Deuteronomy 8:10-11).
God warned them not to say, "My power and the strength of my hands have produced this wealth for me." He told them, "Remember the Lord your God, for it is he who gives you the ability to produce wealth" (verses 17-18).
We should think of God as our senior partner in any economic endeavor and prosperity we might achieve. Certainly, we should do our part in working harder and smarter both at earning and spending our income. But we must go on to acknowledge the important part God plays in our financial lives, and trust him to supply our needs.
Many people recognize the biblical practice of tithing as an act of honor and worship toward the Creator God who gives us all things. Tithing is the scriptural practice of giving a tenth of one's income to God. Tithes and offerings were commanded in the Old Testament. The New Testament, while not requiring an exact percentage, does command generosity — and it is appropriate for a new covenant Christian, with better blessings and promises from God, to be at least as generous as the old covenant Israelite was.
The Worldwide Church of God uses tithes and offerings to fulfill its God-given mission to preach the gospel. Tithes and offerings reflects the believer's worship, faith and love for God, who is the Source of salvation and Giver of all good things.
credits to....
The proper use of credit has significantly facilitated the flow of goods and services. Long-term, low-interest loans have made it possible to purchase items such as homes or automobiles that otherwise would have required the accumulation of many years' savings.
Another credit mechanism, the credit card, has been a tremendous boon to the consumer who is temporarily low on cash. It has eliminated the danger of carrying large amounts of cash, especially during long periods of travel. And credit cards may even be required for some purchases. But buying on credit can be a financial curse as well as a convenience, particularly when a person falls behind in making payments.
Credit buying often creates the illusion of prosperity. The small size of the monthly installment, its delayed arrival at the end of the month and the lack of cash at the time of the purchase make luxuries seem suddenly within reach. These features persuade millions of families, with otherwise adequate incomes, to spend their paychecks before they even receive them.
Once you get trapped in installment payments, the money you could have in your savings account goes to a credit institution. In effect, you are paying a premium in order to own something now instead of later.
If you habitually use credit in this manner, it can often turn out to be an expensive proposition. Many credit cards, revolving charge accounts and automatic overdraft facilities require a minimum monthly interest charge on the outstanding balance. It sometimes adds up to a staggering 18 percent a year.
Shopping with cash, on the other hand, can often save the consumer more than just monthly interest charges. The person who pays cash can sometimes buy at a discount. Cash-conscious consumers can also take advantage of seasonal sales. They are able to shop around more freely and buy where their money has the most purchasing power. Individuals operating on credit are sometimes forced to purchase where they have their charge accounts, even though a sale may be going on next door.
Solomon wisely perceived that "the rich rule over the poor, and the borrower is servant to the lender" (Proverbs 22:7). A cash basis of financial management is a good way to avoid this type of financial bondage. Therefore, the question logically arises: Where do I start?
The average money manager first should realize that there are two types of family and personal expenses: needs and wants. It is important to know the difference. In today's society, credit buying for items such as a car or a home can be looked on as a necessity. Even these purchases, however, can sometimes be delayed until more cash is available to lessen the finance charges.
On the other hand, credit should rarely be used for wants. Families in trouble have often used too much credit on wants rather than on what they really needed. Until they can accumulate savings, they should adopt a policy of buying wants, such as television sets, sporting goods or excess furniture, strictly on a cash basis. Here's why: Saving cash for luxuries or desires puts a remarkably stabilizing influence on a family's monetary policy. By the time you have saved the cash, there will be little doubt in your mind whether you can afford the item or if, in fact, you really want it.
To use this approach, you must resolve not to purchase anything on credit until your accounts are all paid in full. At least limit the credit purchases during your transition period to an absolute minimum so you can get your credit accounts paid off as early as possible. Then, instead of immediately obligating yourself to more payments by purchasing additional items, let your savings accumulate until you can begin to buy these items for cash.
Remember: The wise family can learn to live with credit, but it should never live by it!
4) Trim Expenses
We live in an "Era of Aspirations," as one money management authority has called it. That is, we order our lives on the belief in and need for a constant upgrading of personal demands. We take this increase in our standard of living for granted. We spend our money on that assumption.
It may seem strange, then, to say that we should take a hard look at what we buy or use — and cut down expenses. Yet that is exactly what we should be doing if we want to increase the value of our money.
A few examples. Do you need that magazine subscription? Do you need the services of a gardener? Is it really necessary to have a new car? Why not purchase a good used one? New-car payments, plus the required total insurance coverage, have been the ruination of many personal budgets.
One important reason our money doesn't buy what it should is that we are using far more services than ever before. Most services depend heavily on labor costs. If we carefully budget our money, we can identify those services that lead to excess expenses. Then we can take appropriate action to change our spending habits.
One example of an area where you may be able to cut costs is by eating out less often. You might be astonished at what some people spend over a year's time eating in restaurants. Figure out the cost of a single meal at a restaurant. Then estimate how many times you do this weekly, and multiply the amount spent by 52. You will find the yearly sum spent on eating out can be astonishingly high.
5) Invest for the Future
In terms of financial goals, we must first plan for today. But we must also carefully consider the future. If we include a regular savings plan in our budget, we can build up a sizable nest egg over the years.
It's important to think through your goals in life as early as possible. However, it's never too late to do so. Consider your long-term financial goals. Make these a part of your spending and saving plan. What about a possible home purchase, the cost of educating children, and money for retirement?
Perhaps our income is not that large. Can we save at least a small portion each year? If we do this over a 30-year period, placing the money in a wise investment, we'd be surprised at how much we would have for the later years of our lives. From this nest egg, we could draw an income, upon retirement, from the interest we receive on our investment.
So far, we've considered several points on increasing income and spending it wisely. Now, let's turn to the most important consideration in managing your personal finances.
6) Make God Your Partner
Strange as it may seem, what we are able to earn depends little on us. Any income we produce depends on assets we did not create. And they don't really belong to any human being, corporation or government.
The fact is that a personal Creator God made and sustains all that exists. Would not this God, by virtue of having created everything, have good reason to claim that everything — including ourselves — belongs to him? God does make such a claim. "The earth is the Lord's, and everything in it, the world, and all who live in it" (Psalm 24:1). He says the wild animals and cattle are his (Psalm 50:10-12), and so is all the silver and gold (Haggai 2:8).
Everything that's produced depends on some element originating in the earth. Our product may be a tomato, a steel girder or even a piece of plastic. But the primary elements have already existed in some form. We may have used our energy to create a song or write a book, but where did that energy come from? Who made your hands, your eyes, your body — your ability to sell, manage, invent or create? God did.
Of course, we apply a certain thinking process to whatever we do. But God still has a prior claim. God created the human brain and mind that we use. Thus, we finally stand naked before God. We have brought nothing into the world. Everything we have has come as a gift from the Creator.
Out of this truth comes another basic and far-reaching income-generating and -spending principle: Since God ultimately gives us everything we need, we depend on him for our economic survival and prosperity.
God warned the Israelites before they entered the Promised Land: "When you have eaten and are satisfied, praise the Lord your God for the good land he has given you. Be careful that you do not forget the Lord your God, failing to observe his commands, his laws and his decrees that I am giving you this day" (Deuteronomy 8:10-11).
God warned them not to say, "My power and the strength of my hands have produced this wealth for me." He told them, "Remember the Lord your God, for it is he who gives you the ability to produce wealth" (verses 17-18).
We should think of God as our senior partner in any economic endeavor and prosperity we might achieve. Certainly, we should do our part in working harder and smarter both at earning and spending our income. But we must go on to acknowledge the important part God plays in our financial lives, and trust him to supply our needs.
Many people recognize the biblical practice of tithing as an act of honor and worship toward the Creator God who gives us all things. Tithing is the scriptural practice of giving a tenth of one's income to God. Tithes and offerings were commanded in the Old Testament. The New Testament, while not requiring an exact percentage, does command generosity — and it is appropriate for a new covenant Christian, with better blessings and promises from God, to be at least as generous as the old covenant Israelite was.
The Worldwide Church of God uses tithes and offerings to fulfill its God-given mission to preach the gospel. Tithes and offerings reflects the believer's worship, faith and love for God, who is the Source of salvation and Giver of all good things.
credits to....
Six Steps to Financial Security part 1
Six Steps to Financial Security
If you're like most people, having enough money for a decent and secure life is one of your major concerns. Those on fixed incomes may be especially worried about creeping inflation, the rising costs of goods and services. The threat of unemployment or job loss (or business failure) also causes the jitters.
Perhaps you're a single mother with several children and in great danger of falling under the poverty line. What will you do about improving your financial situation? Or you're deeply in debt. How will you make your payments and become debt-free?
Reasonable prosperity is something all of us would like to achieve and hold on to. But, in many nations, people face nearly insurmountable financial problems. The things that most people in the developed nations take for granted — automobiles, electronic gadgets, savings accounts, adequate clothing and furniture — are out of reach for vast numbers of the human race.
Many developing nations face staggering poverty, near runaway inflation, unpayable national debts, vast unemployment and underemployment. People in such nations must think in terms of basic survival rather than financial prosperity.
To some degree, as they read this booklet, they will have to look over the shoulders of those who live in the well-off nations and who have an opportunity to improve their financial situation.
Let's, then, look at six financial principles that can help a person become more financially secure.
1) Budget Money Wisely
A most important point to remember: Make the most from the money you already earn. To spend one's money more effectively is the same as increasing one's salary. How's your "money management quotient"? One well-known family financial counselor wrote, "Managing your money may well be the single most important thing you can do today."
We may learn to be money earners, but can still end up as paupers. We have to become wise money spenders as well. Studies show that even those individuals who earn large salaries still feel financially strapped. It seems that many people's outgo for needs and wants exceeds their income.
Sound money management teaches us a basic financial maxim: There is never enough money for everything we might want or need. So we need a sensible spending plan.
A spending plan is like a road map. A budget helps us arrive at our financial destination, safe and sound. Every business and government must have a spending plan and must strive to follow it. Such a plan guides the effective use of money in many ways. It helps us:
*
Live within our means. A plan gives us greater control over our financial resources. We can immediately know whether something we desire to purchase is affordable.
*
Realize personal goals. With a spending budget, we can plan purchases properly, service debt payments, accumulate savings, save for the future.
*
Spend money effectively. Merchandisers know that shoppers make spur-of-the-moment purchases. Items on the supermarket counters are often positioned in such a way as to encourage purchases. A spending plan helps us to circumvent impulse buying. We buy only what we planned to buy and only those things our plan tells us we can afford.
A spending plan helps us to ask the right questions about our money. Is this the time to buy this product? Is this the most economical way to buy it? Would we rather have this product than something else? Do we have the money to buy it? Does it fit in with our goals in life?
A spending plan helps us to balance the desire for present enjoyment with long- and short-term financial needs. Instead of buying now and paying later, we begin to think of saving first and then buying when we can afford it.
If you don't know where the money goes, you can't get it to go where it should. A budget or spending plan should include three important areas:
*
Emergencies. We should put money away each month for unforeseen circumstances such as car and house repairs.
*
High-cost items. Don't buy that new television today. Each month put money into a savings account. Buy the television for cash — on your terms, without interest and at the most financially appropriate time, such as during a timely sale. Don't buy that new television today. Each month put money into a savings account. Buy the television for cash — on your terms, without interest and at the most financially appropriate time, such as during a timely sale.
*
Annual or periodic bills. Put away money each week, month or pay period for a future bill such as insurance or taxes. For example, if you pay an insurance bill once each year, put away one twelfth of the total in your savings each month.
2) Increase Income
Another step toward financial security has to do with maximizing our income. We need to have enough money and resources to make life what it should be without jeopardizing our mental, social and spiritual needs.
Most people are paid an hourly wage or work on salary for someone else. If you're in this situation, your chances for suddenly increasing your income by a large amount may not be particularly promising. You may receive automatic but small raises based on a company formula or union-management agreement. In some cases, your company may grant built-in cost-of-living increases.
If there is a possibility of "moving up" financially, you will have to demonstrate your usefulness. Make yourself more valuable to your boss or company. Put the emphasis on helping your organization earn more money, save money or improve its product or performance. Earn a raise.
What if you cannot do better financially even though you work harder and smarter? You have two options. Stay put or move to another job or company. Do not consider quitting your present job, however, until you know a better and more secure position awaits you.
Perhaps your type of employment has only limited monetary value. And you've achieved the highest pay possible. Can you educate yourself and improve your value in the job marketplace?
Perhaps you have the ability to create your own job by starting a small business. To succeed, you will have to make your product or service valuable and desirable to the consumer. Beware, however, of the immense amount of paperwork involved in being self-employed.
Simply put, being able to earn more depends on your attitude of service to others. It also means making the most of your abilities and situation.
If you're like most people, having enough money for a decent and secure life is one of your major concerns. Those on fixed incomes may be especially worried about creeping inflation, the rising costs of goods and services. The threat of unemployment or job loss (or business failure) also causes the jitters.
Perhaps you're a single mother with several children and in great danger of falling under the poverty line. What will you do about improving your financial situation? Or you're deeply in debt. How will you make your payments and become debt-free?
Reasonable prosperity is something all of us would like to achieve and hold on to. But, in many nations, people face nearly insurmountable financial problems. The things that most people in the developed nations take for granted — automobiles, electronic gadgets, savings accounts, adequate clothing and furniture — are out of reach for vast numbers of the human race.
Many developing nations face staggering poverty, near runaway inflation, unpayable national debts, vast unemployment and underemployment. People in such nations must think in terms of basic survival rather than financial prosperity.
To some degree, as they read this booklet, they will have to look over the shoulders of those who live in the well-off nations and who have an opportunity to improve their financial situation.
Let's, then, look at six financial principles that can help a person become more financially secure.
1) Budget Money Wisely
A most important point to remember: Make the most from the money you already earn. To spend one's money more effectively is the same as increasing one's salary. How's your "money management quotient"? One well-known family financial counselor wrote, "Managing your money may well be the single most important thing you can do today."
We may learn to be money earners, but can still end up as paupers. We have to become wise money spenders as well. Studies show that even those individuals who earn large salaries still feel financially strapped. It seems that many people's outgo for needs and wants exceeds their income.
Sound money management teaches us a basic financial maxim: There is never enough money for everything we might want or need. So we need a sensible spending plan.
A spending plan is like a road map. A budget helps us arrive at our financial destination, safe and sound. Every business and government must have a spending plan and must strive to follow it. Such a plan guides the effective use of money in many ways. It helps us:
*
Live within our means. A plan gives us greater control over our financial resources. We can immediately know whether something we desire to purchase is affordable.
*
Realize personal goals. With a spending budget, we can plan purchases properly, service debt payments, accumulate savings, save for the future.
*
Spend money effectively. Merchandisers know that shoppers make spur-of-the-moment purchases. Items on the supermarket counters are often positioned in such a way as to encourage purchases. A spending plan helps us to circumvent impulse buying. We buy only what we planned to buy and only those things our plan tells us we can afford.
A spending plan helps us to ask the right questions about our money. Is this the time to buy this product? Is this the most economical way to buy it? Would we rather have this product than something else? Do we have the money to buy it? Does it fit in with our goals in life?
A spending plan helps us to balance the desire for present enjoyment with long- and short-term financial needs. Instead of buying now and paying later, we begin to think of saving first and then buying when we can afford it.
If you don't know where the money goes, you can't get it to go where it should. A budget or spending plan should include three important areas:
*
Emergencies. We should put money away each month for unforeseen circumstances such as car and house repairs.
*
High-cost items. Don't buy that new television today. Each month put money into a savings account. Buy the television for cash — on your terms, without interest and at the most financially appropriate time, such as during a timely sale. Don't buy that new television today. Each month put money into a savings account. Buy the television for cash — on your terms, without interest and at the most financially appropriate time, such as during a timely sale.
*
Annual or periodic bills. Put away money each week, month or pay period for a future bill such as insurance or taxes. For example, if you pay an insurance bill once each year, put away one twelfth of the total in your savings each month.
2) Increase Income
Another step toward financial security has to do with maximizing our income. We need to have enough money and resources to make life what it should be without jeopardizing our mental, social and spiritual needs.
Most people are paid an hourly wage or work on salary for someone else. If you're in this situation, your chances for suddenly increasing your income by a large amount may not be particularly promising. You may receive automatic but small raises based on a company formula or union-management agreement. In some cases, your company may grant built-in cost-of-living increases.
If there is a possibility of "moving up" financially, you will have to demonstrate your usefulness. Make yourself more valuable to your boss or company. Put the emphasis on helping your organization earn more money, save money or improve its product or performance. Earn a raise.
What if you cannot do better financially even though you work harder and smarter? You have two options. Stay put or move to another job or company. Do not consider quitting your present job, however, until you know a better and more secure position awaits you.
Perhaps your type of employment has only limited monetary value. And you've achieved the highest pay possible. Can you educate yourself and improve your value in the job marketplace?
Perhaps you have the ability to create your own job by starting a small business. To succeed, you will have to make your product or service valuable and desirable to the consumer. Beware, however, of the immense amount of paperwork involved in being self-employed.
Simply put, being able to earn more depends on your attitude of service to others. It also means making the most of your abilities and situation.
Friday, June 29, 2007
What is a "Get-Rich-Quick" scheme?
1. What is a "Get-Rich-Quick" scheme?
A plan which offers high or unrealistic rates of return for a small investment while at the same time promising that such investment is easy and risk -free.
The following "Get-Rich-Quick" schemes are prohibited under the legislation administered by Bank Negara Malaysia :
Illegal Deposit Taking Activities
Illegal deposit taking is an act of receiving, taking or accepting of deposits (moneys, precious metal, precious stone, any other article etc.) from members of the public that promises a repayment with interest or returns in money or money's worth without a valid licence under the Banking and Financial Institutions Act 1989 (BAFIA).
Illegal Foreign Currency Dealings
The following acts tantamount to illegal foreign currency dealings:
o Buying or selling of foreign currency by a person who is not an authorized dealer unless such person has obtained the permission of the Controller of Foreign Exchange under the Exchange Control Act 1953 (ECA).
o Buying or selling of foreign currency by a resident who is not an authorised dealer, with a person outside Malaysia except if the resident has obtained the permission of the Controller of Foreign Exchange under the ECA.
CAUTION: Internet Investment Schemes
Members of the public are cautioned to be on guard against some investment schemes promoted on the internet as these schemes are not licensed or authorized by Bank Negara Malaysia to accept deposits or deal in foreign currency. Such schemes often come in the guise of attractive investment returns or opportunities involving unrealistic rates of returns with zero to low risk.
Investors are reminded that they should only place deposits with institutions licensed or deal in foreign currency with institutions authorised by the Bank. Unlicensed operators may cease operating their business resulting in the investors with no means to recover their investments or seek redress against the persons connected with the scheme.
2. How To Spot The Scams?
Illegal deposit taking scam
o The person (an individual, a company or an organisation) receives, takes or accepts deposits from members of the public and is not licensed under section 6(4) of the BAFIA;
o The person promises to repay the deposit, with or without interest or returns, over a period of time in the form of money or money's worth, etc.; and
o The person promises to repay the initial deposit upon demand or at a time or in circumstances agreed by or on behalf of the person making the payment and the person receiving it, with any consideration in money or money's worth (the repayment of initial deposit is sometimes included in the fixed interest or returns promised).
Warning Signs for Investors
• Illegal deposit taking activities have been disguised and camouflaged in various forms to deceive the public to fall victim to the investment scams, by giving valuable goods as part of the promised returns and camouflaging the deposits as loans to the company;
• Illegal deposit taking activities appear to be able to provide high or unrealistic rates of interest or return over a short period of time as compared to licensed institutions. However, these schemes will not last long;
• The survival of this scheme is dependent upon the recruitment of new depositors, i.e., new funds obtained will be used in paying dividends to the existing depositors. Therefore , the scheme will fail when there is no contribution of funds from new depositors; and
• Initially the depositors may be paid their promised returns. However, the operator would eventually abscond with the moneys collected when he feels that the scheme is about to fail, thus leaving the depositors at the losing end.
Illegal foreign currency scam
Foreign currency dealings with a person, other than an authorized dealer, who has not obtained the permission of the Controller of Foreign Exchange under the ECA, often:
o Offer investors or members of the public the opportunity to deal in foreign currencies with a principal company (purported to have a valid licence to trade foreign currencies overseas);
o Facilitate the trading of foreign currencies by providing access to the principal company's website and trading facilities via internet;
o Recruit fresh graduates as marketing executives and allure them to get their family members to invest;
o Instruct the investors to deposit the investment moneys into either the principal company's bank account or a third party bank account; and
o Induce the investors to top up their investment ("margin call") or otherwise risk losing their investment.
Warning Signs For Investors
Illegal operators of foreign currency scams will try to entice potential investors with a marketing strategy which promises quick and high returns -
• By projecting a professional and reputable image with smart-looking employees, a high-tech office layout and advanced IT facilities where investors are induced to operate their accounts via the internet;
• With tools of the trade, e.g., a news screen showing movements in exchange rates, to give the impression that a professional and legitimate business is being conducted; and
• A business contract is usually entered into between the investors and the company. Such contracts are usually left unsigned by the company. This means no action can be taken by the investors against the company as there is no binding written contract.
3. How To Protect Yourself From The Scams?
+ Remember the golden rule - if it sounds too good to be true, it's probably a lie;
+ Deal only with licensed financial institutions and authorized dealers;
+ Check with the relevant authority before investing;
+ Don't be pressured or rushed to invest;
+ Be extra careful with investments over the internet;
+ Be skeptical of any investment opportunity that is not in writing; and
+ In case an investment has been made, keep copies of all the investment and communications.
4. What Should You Do If You Are a Victim of such Scams?
If you have any information pertaining to illegal deposit taking activities or illegal foreign currency dealings or are a victim of such activities or scams you can send details of such information or complaint together with the documents to Bank Negara Malaysia as follows:
Address:
Unit Penyiasatan Khas
Bank Negara Malaysia
Jalan Dato' Onn
50480 Kuala Lumpur
Fax: 03-26987467
E-mail: upkinfo@bnm.gov.my
We can also be contacted at the following telephone numbers:
Tel.: 03-2691 5090 / 2698 4163 / 2691 0824 / 2692 6482 / 2694 2143
sumber : BNM
A plan which offers high or unrealistic rates of return for a small investment while at the same time promising that such investment is easy and risk -free.
The following "Get-Rich-Quick" schemes are prohibited under the legislation administered by Bank Negara Malaysia :
Illegal Deposit Taking Activities
Illegal deposit taking is an act of receiving, taking or accepting of deposits (moneys, precious metal, precious stone, any other article etc.) from members of the public that promises a repayment with interest or returns in money or money's worth without a valid licence under the Banking and Financial Institutions Act 1989 (BAFIA).
Illegal Foreign Currency Dealings
The following acts tantamount to illegal foreign currency dealings:
o Buying or selling of foreign currency by a person who is not an authorized dealer unless such person has obtained the permission of the Controller of Foreign Exchange under the Exchange Control Act 1953 (ECA).
o Buying or selling of foreign currency by a resident who is not an authorised dealer, with a person outside Malaysia except if the resident has obtained the permission of the Controller of Foreign Exchange under the ECA.
CAUTION: Internet Investment Schemes
Members of the public are cautioned to be on guard against some investment schemes promoted on the internet as these schemes are not licensed or authorized by Bank Negara Malaysia to accept deposits or deal in foreign currency. Such schemes often come in the guise of attractive investment returns or opportunities involving unrealistic rates of returns with zero to low risk.
Investors are reminded that they should only place deposits with institutions licensed or deal in foreign currency with institutions authorised by the Bank. Unlicensed operators may cease operating their business resulting in the investors with no means to recover their investments or seek redress against the persons connected with the scheme.
2. How To Spot The Scams?
Illegal deposit taking scam
o The person (an individual, a company or an organisation) receives, takes or accepts deposits from members of the public and is not licensed under section 6(4) of the BAFIA;
o The person promises to repay the deposit, with or without interest or returns, over a period of time in the form of money or money's worth, etc.; and
o The person promises to repay the initial deposit upon demand or at a time or in circumstances agreed by or on behalf of the person making the payment and the person receiving it, with any consideration in money or money's worth (the repayment of initial deposit is sometimes included in the fixed interest or returns promised).
Warning Signs for Investors
• Illegal deposit taking activities have been disguised and camouflaged in various forms to deceive the public to fall victim to the investment scams, by giving valuable goods as part of the promised returns and camouflaging the deposits as loans to the company;
• Illegal deposit taking activities appear to be able to provide high or unrealistic rates of interest or return over a short period of time as compared to licensed institutions. However, these schemes will not last long;
• The survival of this scheme is dependent upon the recruitment of new depositors, i.e., new funds obtained will be used in paying dividends to the existing depositors. Therefore , the scheme will fail when there is no contribution of funds from new depositors; and
• Initially the depositors may be paid their promised returns. However, the operator would eventually abscond with the moneys collected when he feels that the scheme is about to fail, thus leaving the depositors at the losing end.
Illegal foreign currency scam
Foreign currency dealings with a person, other than an authorized dealer, who has not obtained the permission of the Controller of Foreign Exchange under the ECA, often:
o Offer investors or members of the public the opportunity to deal in foreign currencies with a principal company (purported to have a valid licence to trade foreign currencies overseas);
o Facilitate the trading of foreign currencies by providing access to the principal company's website and trading facilities via internet;
o Recruit fresh graduates as marketing executives and allure them to get their family members to invest;
o Instruct the investors to deposit the investment moneys into either the principal company's bank account or a third party bank account; and
o Induce the investors to top up their investment ("margin call") or otherwise risk losing their investment.
Warning Signs For Investors
Illegal operators of foreign currency scams will try to entice potential investors with a marketing strategy which promises quick and high returns -
• By projecting a professional and reputable image with smart-looking employees, a high-tech office layout and advanced IT facilities where investors are induced to operate their accounts via the internet;
• With tools of the trade, e.g., a news screen showing movements in exchange rates, to give the impression that a professional and legitimate business is being conducted; and
• A business contract is usually entered into between the investors and the company. Such contracts are usually left unsigned by the company. This means no action can be taken by the investors against the company as there is no binding written contract.
3. How To Protect Yourself From The Scams?
+ Remember the golden rule - if it sounds too good to be true, it's probably a lie;
+ Deal only with licensed financial institutions and authorized dealers;
+ Check with the relevant authority before investing;
+ Don't be pressured or rushed to invest;
+ Be extra careful with investments over the internet;
+ Be skeptical of any investment opportunity that is not in writing; and
+ In case an investment has been made, keep copies of all the investment and communications.
4. What Should You Do If You Are a Victim of such Scams?
If you have any information pertaining to illegal deposit taking activities or illegal foreign currency dealings or are a victim of such activities or scams you can send details of such information or complaint together with the documents to Bank Negara Malaysia as follows:
Address:
Unit Penyiasatan Khas
Bank Negara Malaysia
Jalan Dato' Onn
50480 Kuala Lumpur
Fax: 03-26987467
E-mail: upkinfo@bnm.gov.my
We can also be contacted at the following telephone numbers:
Tel.: 03-2691 5090 / 2698 4163 / 2691 0824 / 2692 6482 / 2694 2143
sumber : BNM
Thursday, June 28, 2007
Forex Scam &&& Fraud
A forex scam is any trading scheme used to defraud individual traders by convincing them that they can expect to unreasonably profit by trading in the foreign exchange market, which would be a zero-sum game were it not for the fact that there are brokerage commissions, which technically make forex a "negative-sum" game.
These scams might include churning of customer accounts for the purpose of generating commissions, selling software that is supposed to guide the customer to large profits,[1] improperly managed "managed accounts",[2] false advertising,[3] Ponzi schemes and outright fraud.[4] It also refers to any retail forex broker who indicates that trading foreign exchange is a low risk, high profit investment.[5]
The U.S. Commodity Futures Trading Commission (CFTC), which loosely regulates the foreign exchange market in the United States, has noted an increase in the amount of unscrupulous activity in the non-bank foreign exchange industry.[6]
An official of the National Futures Association was quoted[7] as saying, "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically..." Between 2001 and 2006 the U.S. Commodity Futures Trading Commission has prosecuted more than 80 cases involving the defrauding of more than 23,000 customers who lost $300 million, mostly in managed accounts. CNN also quoted Godfried De Vidts, President of the Financial Markets Association, a European body, as saying, "Banks have a duty to protect their customers and they should make sure customers understand what they are doing. Now if people go online, on non-bank portals, how is this control being done?"
The highly technical nature of retail forex industry, the OTC nature of the market, and the loose regulation of the market, leaves retail speculators vulnerable. Defrauded traders and regulatory authorities, can find it very difficult to prove that market manipulation has occurred since there is no central currency market, but rather a number of more or less interconnected marketplaces provided by interbank market makers.
CFTC warnings
The CFTC lists 9 warning signs for foreign exchange trading fraud:[5]
1. Stay away from opportunities that seem too good to be true
Always remember that there is no such thing as a "free lunch." Be especially cautious if you have acquired a large sum of cash recently and are looking for a safe investment vehicle. In particular, retirees with access to their retirement funds may be attractive targets for fraudulent operators. Getting your money back once it is gone can be difficult or impossible.
2. Avoid any company that predicts or guarantees large profits
Be extremely wary of companies that guarantee profits, or that tout extremely high performance. In many cases, those claims are false.
The following are examples of statements that either are or most likely are fraudulent:
"Whether the market moves up or down, in the currency market you will make a profit."
"Make $1000 per week, every week"
"We are out-performing 90% of domestic investments."
"The main advantage of the forex markets is that there is no bear market."
"We guarantee you will make at least a 30-40% rate of return within two months."
3. Stay Away From Companies That Promise Little or No Financial Risk
Be suspicious of companies that downplay risks or state that written risk disclosure statements are routine formalities imposed by the government.
The currency futures and options markets are volatile and contain substantial risks for unsophisticated customers. The currency futures and options markets are not the place to put any funds that you cannot afford to lose. For example, retirement funds should not be used for currency trading. You can lose most or all of those funds very quickly trading foreign currency futures or options contracts. Therefore, beware of companies that make the following types of statements:
"With a $10,000 deposit, the maximum you can lose is $200 to $250 per day."
"We promise to recover any losses you have."
"Your investment is secure."
4. Don't Trade on Margin Unless You Understand What It Means
Margin trading can make you responsible for losses that greatly exceed the dollar amount you deposited.
Many currency traders ask customers to give them money, which they sometimes refer to as "margin," often sums in the range of $1,000 to $5,000. However, those amounts, which are relatively small in the currency markets, actually control far larger dollar amounts of trading, a fact that often is poorly explained to customers.
Don't trade on margin unless you fully understand what you are doing and are prepared to accept losses that exceed the margin amounts you paid.
5. Question Firms That Claim To Trade in the "Interbank Market"
Be wary of firms that claim that you can or should trade in the "interbank market," or that they will do so on your behalf.
Unregulated, fraudulent currency trading firms often tell retail customers that their funds are traded in the "interbank market," where good prices can be obtained. Firms that trade currencies in the interbank market, however, are most likely to be banks, investment banks and large corporations, since the term "interbank market" refers simply to a loose network of currency transactions negotiated between financial institutions and other large companies.
6. Be Wary of Sending or Transferring Cash on the Internet, By Mail or Otherwise
Be especially alert to the dangers of trading on-line; it is very easy to transfer funds on-line, but often can be impossible to get a refund.
It costs an Internet advertiser just pennies per day to reach a potential audience of millions of persons, and phony currency trading firms have seized upon the Internet as an inexpensive and effective way of reaching a large pool of potential customers.
Many companies offering currency trading on-line are not located within the United States and may not display an address or any other information identifying their nationality on their Web site. Be aware that if you transfer funds to those foreign firms, it may be very difficult or impossible to recover your funds.
7. Currency Scams Often Target Members of Ethnic Minorities
Some currency trading scams target potential customers in ethnic communities, particularly persons in the Russian, Chinese and Indian immigrant communities, through advertisements in ethnic newspapers and television "infomercials."
Sometimes those advertisements offer so-called "job opportunities" for "account executives" to trade foreign currencies. Be aware that "account executives" that are hired might be expected to use their own money for currency trading, as well as to recruit their family and friends to do likewise. What appears to be a promising job opportunity often is another way many of these companies lure customers into parting with their cash.
8. Be Sure You Get the Company's Performance Track Record
Get as much information as possible about the firm's or individual's performance record on behalf of other clients. You should be aware, however, that It may be difficult or impossible to do so, or to verify the information you receive. While firms and individuals are not required to provide this information, you should be wary of any person who is not willing to do so or who provides you with incomplete information. However, keep in mind, even if you do receive a glossy brochure or sophisticated-looking charts, that the information they contain might be false.
9. Don't Deal With Anyone Who Won't Give You Their Background
Plan to do a lot of checking of any information you receive to be sure that the company is and does exactly what it says.
Get the background of the persons running or promoting the company, if possible. Do not rely solely on oral statements or promises from the firm's employees. Ask for all information in written form.
If you cannot satisfy yourself that the persons with whom you are dealing are completely legitimate and above-board, the wisest course of action is to avoid trading foreign currencies through those companies.
The use of high leverage
By offering high leverage, the market maker encourages traders to trade extremely large positions. This increases the trading volume cleared by the market maker and increases his profits, but increases the risk that the trader will receive a margin call. While professional currency dealers (banks, hedge funds) never use more than 10:1 leverage, retail clients are generally offered leverage between 50:1 and 200:1, and even up to 400:1.
Fraud
In the broadest sense, a fraud is a deception made for personal gain. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and is also a civil law violation. Many hoaxes are fraudulent, although those not made for personal gain are not technically frauds. Defrauding people of money is presumably the most common type of fraud, but there have also been many fraudulent "discoveries" in art, archaeology, and science.
Definition
In criminal law, fraud is the crime or offense of deliberately deceiving another in order to damage them – usually, to obtain property or services unjustly. [1] Fraud can be accomplished through the aid of forged objects. In the criminal law of common law jurisdictions it may be called "theft by deception," "larceny by trick," "larceny by fraud and deception" or something similar.
In academia and science, fraud can refer to academic fraud – the falsifying of research findings which is a form of scientific misconduct – and in common use intellectual fraud signifies falsification of a position taken or implied by an author or speaker, within a book, controversy or debate, or an idea deceptively presented to hide known logical weaknesses. Journalistic fraud implies a similar notion, the falsification of journalistic findings.
Fraud can be committed through many methods, including mail, wire, phone, and the internet (computer crime and internet fraud).
Acts which may constitute criminal fraud include:
* bait and switch
* confidence tricks such as the 419 fraud, Spanish Prisoner, and the shell game
* false advertising
* identity theft
* false billing
* forgery of documents or signatures
* taking money which is under your control, but not yours (embezzlement)
* health fraud, selling of products of spurious use, such as quack medicines
* creation of false companies or "long firms"
* false insurance claims
* bankruptcy fraud, is a US federal crime that can lead to criminal prosecution under the charge of theft of the goods or services
* investment frauds, such as Ponzi schemes
* securities frauds such as pump and dump
Fraud, in addition to being a criminal act, is also a type of civil law violation known as a tort. A tort is a civil wrong for which the law provides a remedy. A civil fraud typically involves the act of intentionally making a false representation of a material fact, with the intent to deceive, which is reasonably relied upon by another person to that person's detriment. A "false representation" can take many forms, such as:
* A false statement of fact, known to be false at the time it was made;
* A statement of fact with no reasonable basis to make that statement;
* A promise of future performance made with an intent, at the time the promise was made, not to perform as promised;
* A statement of opinion based on a false statement of fact;
* A statement of opinion that the maker knows to be false; or
* An expression of opinion that is false, made by one claiming or implying to have special knowledge of the subject matter of the opinion. "Special knowledge" in this case means knowledge or information superior to that possessed by the other party, and to which the other party did not have equal access.
In the UK a report concluded that the total costs of fraud and dealing with fraud in the year 2005-2006 was at least 13.9 Billion GBP.
Notable fraudsters
* Frank Abagnale Jr., US impostor who wrote bad checks and falsely represented himself as a qualified member of professions such as airline pilot, doctor, and attorney. The film Catch Me If You Can is based on his life.
* Cassie Chadwick, who pretended to be Andrew Carnegie's daughter to get loans.
* Richard Eaton, an English businessman who was business partners with mobster Paul Vario and Jimmy Burke and was involved in the Lufthansa heist.
* Shinichi Fujimura, Japanese archaeologist who announced on October 23, 2000 that he had discovered eight stoneware pieces, from a layer of earth, more than 600,000 years old in the Kamitakamori ruins in Tsukidate, Miyagi Prefecture, believed to be the nation's oldest. However, Fujimura confessed that he had buried the stones at the ruins in advance of the excavation.
* Benny Hinn, televangelist
* Konrad Kujau, German fraudster and forger responsible for the "Hitler Diaries".
* Kenneth Lay, the American businessman who built energy company Enron. He was one of the highest paid CEOs in America until he was ousted as Chairman and was convicted of fraud and conspiracy, but his conviction was reversed by the US Appeals Court.
* Nick Leeson, English trader whose unsupervised speculative trading caused the collapse of Barings Bank.
* Colleen McCabe, British headmistress who stole £½ million from her school.
* Gregor MacGregor, Scottish conman who tried to attract investment and settlers for the non-existent country of Poyais.
* Gaston Means, a professional conman during U.S. President Warren G. Harding's administration.
* Michael Milken, "The Junk Bond King".
* Barry Minkow and the ZZZZ Best scam.
* Frederick Emerson Peters, US impersonator who wrote bad checks.
* Charles Ponzi and the Ponzi scheme.
* Peter Popoff, televangelist
* Alves Reis, who forged documents to print 100,000,000 PTE in official escudo banknotes (adjusted for inflation, it would be worth about US$150 million today).
* Christopher Rocancourt, a Rockefeller impersonator who defrauded Hollywood celebrities.
* John Spano, a struggling businessman who faked massive success in an attempt to buy out the New York Islanders of the NHL.
* John Stonehouse, the last Postmaster-General of the UK and MP who faked his death.
* Richard Whitney, who stole from the New York Stock Exchange Gratuity Fund in the 1930s.
* James Paul Lewis, Jr., ran one of the biggest ($311 million) and longest running Ponzi Schemes (20 years) in US history.
These scams might include churning of customer accounts for the purpose of generating commissions, selling software that is supposed to guide the customer to large profits,[1] improperly managed "managed accounts",[2] false advertising,[3] Ponzi schemes and outright fraud.[4] It also refers to any retail forex broker who indicates that trading foreign exchange is a low risk, high profit investment.[5]
The U.S. Commodity Futures Trading Commission (CFTC), which loosely regulates the foreign exchange market in the United States, has noted an increase in the amount of unscrupulous activity in the non-bank foreign exchange industry.[6]
An official of the National Futures Association was quoted[7] as saying, "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically..." Between 2001 and 2006 the U.S. Commodity Futures Trading Commission has prosecuted more than 80 cases involving the defrauding of more than 23,000 customers who lost $300 million, mostly in managed accounts. CNN also quoted Godfried De Vidts, President of the Financial Markets Association, a European body, as saying, "Banks have a duty to protect their customers and they should make sure customers understand what they are doing. Now if people go online, on non-bank portals, how is this control being done?"
The highly technical nature of retail forex industry, the OTC nature of the market, and the loose regulation of the market, leaves retail speculators vulnerable. Defrauded traders and regulatory authorities, can find it very difficult to prove that market manipulation has occurred since there is no central currency market, but rather a number of more or less interconnected marketplaces provided by interbank market makers.
CFTC warnings
The CFTC lists 9 warning signs for foreign exchange trading fraud:[5]
1. Stay away from opportunities that seem too good to be true
Always remember that there is no such thing as a "free lunch." Be especially cautious if you have acquired a large sum of cash recently and are looking for a safe investment vehicle. In particular, retirees with access to their retirement funds may be attractive targets for fraudulent operators. Getting your money back once it is gone can be difficult or impossible.
2. Avoid any company that predicts or guarantees large profits
Be extremely wary of companies that guarantee profits, or that tout extremely high performance. In many cases, those claims are false.
The following are examples of statements that either are or most likely are fraudulent:
"Whether the market moves up or down, in the currency market you will make a profit."
"Make $1000 per week, every week"
"We are out-performing 90% of domestic investments."
"The main advantage of the forex markets is that there is no bear market."
"We guarantee you will make at least a 30-40% rate of return within two months."
3. Stay Away From Companies That Promise Little or No Financial Risk
Be suspicious of companies that downplay risks or state that written risk disclosure statements are routine formalities imposed by the government.
The currency futures and options markets are volatile and contain substantial risks for unsophisticated customers. The currency futures and options markets are not the place to put any funds that you cannot afford to lose. For example, retirement funds should not be used for currency trading. You can lose most or all of those funds very quickly trading foreign currency futures or options contracts. Therefore, beware of companies that make the following types of statements:
"With a $10,000 deposit, the maximum you can lose is $200 to $250 per day."
"We promise to recover any losses you have."
"Your investment is secure."
4. Don't Trade on Margin Unless You Understand What It Means
Margin trading can make you responsible for losses that greatly exceed the dollar amount you deposited.
Many currency traders ask customers to give them money, which they sometimes refer to as "margin," often sums in the range of $1,000 to $5,000. However, those amounts, which are relatively small in the currency markets, actually control far larger dollar amounts of trading, a fact that often is poorly explained to customers.
Don't trade on margin unless you fully understand what you are doing and are prepared to accept losses that exceed the margin amounts you paid.
5. Question Firms That Claim To Trade in the "Interbank Market"
Be wary of firms that claim that you can or should trade in the "interbank market," or that they will do so on your behalf.
Unregulated, fraudulent currency trading firms often tell retail customers that their funds are traded in the "interbank market," where good prices can be obtained. Firms that trade currencies in the interbank market, however, are most likely to be banks, investment banks and large corporations, since the term "interbank market" refers simply to a loose network of currency transactions negotiated between financial institutions and other large companies.
6. Be Wary of Sending or Transferring Cash on the Internet, By Mail or Otherwise
Be especially alert to the dangers of trading on-line; it is very easy to transfer funds on-line, but often can be impossible to get a refund.
It costs an Internet advertiser just pennies per day to reach a potential audience of millions of persons, and phony currency trading firms have seized upon the Internet as an inexpensive and effective way of reaching a large pool of potential customers.
Many companies offering currency trading on-line are not located within the United States and may not display an address or any other information identifying their nationality on their Web site. Be aware that if you transfer funds to those foreign firms, it may be very difficult or impossible to recover your funds.
7. Currency Scams Often Target Members of Ethnic Minorities
Some currency trading scams target potential customers in ethnic communities, particularly persons in the Russian, Chinese and Indian immigrant communities, through advertisements in ethnic newspapers and television "infomercials."
Sometimes those advertisements offer so-called "job opportunities" for "account executives" to trade foreign currencies. Be aware that "account executives" that are hired might be expected to use their own money for currency trading, as well as to recruit their family and friends to do likewise. What appears to be a promising job opportunity often is another way many of these companies lure customers into parting with their cash.
8. Be Sure You Get the Company's Performance Track Record
Get as much information as possible about the firm's or individual's performance record on behalf of other clients. You should be aware, however, that It may be difficult or impossible to do so, or to verify the information you receive. While firms and individuals are not required to provide this information, you should be wary of any person who is not willing to do so or who provides you with incomplete information. However, keep in mind, even if you do receive a glossy brochure or sophisticated-looking charts, that the information they contain might be false.
9. Don't Deal With Anyone Who Won't Give You Their Background
Plan to do a lot of checking of any information you receive to be sure that the company is and does exactly what it says.
Get the background of the persons running or promoting the company, if possible. Do not rely solely on oral statements or promises from the firm's employees. Ask for all information in written form.
If you cannot satisfy yourself that the persons with whom you are dealing are completely legitimate and above-board, the wisest course of action is to avoid trading foreign currencies through those companies.
The use of high leverage
By offering high leverage, the market maker encourages traders to trade extremely large positions. This increases the trading volume cleared by the market maker and increases his profits, but increases the risk that the trader will receive a margin call. While professional currency dealers (banks, hedge funds) never use more than 10:1 leverage, retail clients are generally offered leverage between 50:1 and 200:1, and even up to 400:1.
Fraud
In the broadest sense, a fraud is a deception made for personal gain. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and is also a civil law violation. Many hoaxes are fraudulent, although those not made for personal gain are not technically frauds. Defrauding people of money is presumably the most common type of fraud, but there have also been many fraudulent "discoveries" in art, archaeology, and science.
Definition
In criminal law, fraud is the crime or offense of deliberately deceiving another in order to damage them – usually, to obtain property or services unjustly. [1] Fraud can be accomplished through the aid of forged objects. In the criminal law of common law jurisdictions it may be called "theft by deception," "larceny by trick," "larceny by fraud and deception" or something similar.
In academia and science, fraud can refer to academic fraud – the falsifying of research findings which is a form of scientific misconduct – and in common use intellectual fraud signifies falsification of a position taken or implied by an author or speaker, within a book, controversy or debate, or an idea deceptively presented to hide known logical weaknesses. Journalistic fraud implies a similar notion, the falsification of journalistic findings.
Fraud can be committed through many methods, including mail, wire, phone, and the internet (computer crime and internet fraud).
Acts which may constitute criminal fraud include:
* bait and switch
* confidence tricks such as the 419 fraud, Spanish Prisoner, and the shell game
* false advertising
* identity theft
* false billing
* forgery of documents or signatures
* taking money which is under your control, but not yours (embezzlement)
* health fraud, selling of products of spurious use, such as quack medicines
* creation of false companies or "long firms"
* false insurance claims
* bankruptcy fraud, is a US federal crime that can lead to criminal prosecution under the charge of theft of the goods or services
* investment frauds, such as Ponzi schemes
* securities frauds such as pump and dump
Fraud, in addition to being a criminal act, is also a type of civil law violation known as a tort. A tort is a civil wrong for which the law provides a remedy. A civil fraud typically involves the act of intentionally making a false representation of a material fact, with the intent to deceive, which is reasonably relied upon by another person to that person's detriment. A "false representation" can take many forms, such as:
* A false statement of fact, known to be false at the time it was made;
* A statement of fact with no reasonable basis to make that statement;
* A promise of future performance made with an intent, at the time the promise was made, not to perform as promised;
* A statement of opinion based on a false statement of fact;
* A statement of opinion that the maker knows to be false; or
* An expression of opinion that is false, made by one claiming or implying to have special knowledge of the subject matter of the opinion. "Special knowledge" in this case means knowledge or information superior to that possessed by the other party, and to which the other party did not have equal access.
In the UK a report concluded that the total costs of fraud and dealing with fraud in the year 2005-2006 was at least 13.9 Billion GBP.
Notable fraudsters
* Frank Abagnale Jr., US impostor who wrote bad checks and falsely represented himself as a qualified member of professions such as airline pilot, doctor, and attorney. The film Catch Me If You Can is based on his life.
* Cassie Chadwick, who pretended to be Andrew Carnegie's daughter to get loans.
* Richard Eaton, an English businessman who was business partners with mobster Paul Vario and Jimmy Burke and was involved in the Lufthansa heist.
* Shinichi Fujimura, Japanese archaeologist who announced on October 23, 2000 that he had discovered eight stoneware pieces, from a layer of earth, more than 600,000 years old in the Kamitakamori ruins in Tsukidate, Miyagi Prefecture, believed to be the nation's oldest. However, Fujimura confessed that he had buried the stones at the ruins in advance of the excavation.
* Benny Hinn, televangelist
* Konrad Kujau, German fraudster and forger responsible for the "Hitler Diaries".
* Kenneth Lay, the American businessman who built energy company Enron. He was one of the highest paid CEOs in America until he was ousted as Chairman and was convicted of fraud and conspiracy, but his conviction was reversed by the US Appeals Court.
* Nick Leeson, English trader whose unsupervised speculative trading caused the collapse of Barings Bank.
* Colleen McCabe, British headmistress who stole £½ million from her school.
* Gregor MacGregor, Scottish conman who tried to attract investment and settlers for the non-existent country of Poyais.
* Gaston Means, a professional conman during U.S. President Warren G. Harding's administration.
* Michael Milken, "The Junk Bond King".
* Barry Minkow and the ZZZZ Best scam.
* Frederick Emerson Peters, US impersonator who wrote bad checks.
* Charles Ponzi and the Ponzi scheme.
* Peter Popoff, televangelist
* Alves Reis, who forged documents to print 100,000,000 PTE in official escudo banknotes (adjusted for inflation, it would be worth about US$150 million today).
* Christopher Rocancourt, a Rockefeller impersonator who defrauded Hollywood celebrities.
* John Spano, a struggling businessman who faked massive success in an attempt to buy out the New York Islanders of the NHL.
* John Stonehouse, the last Postmaster-General of the UK and MP who faked his death.
* Richard Whitney, who stole from the New York Stock Exchange Gratuity Fund in the 1930s.
* James Paul Lewis, Jr., ran one of the biggest ($311 million) and longest running Ponzi Schemes (20 years) in US history.
Wednesday, June 27, 2007
Electronic Commerce (e-commerce)
Electronic Commerce is exactly analogous to a marketplace on the Internet. Electronic Commerce (also referred to as EC, e-commerce eCommerce or ecommerce) consists primarily of the distributing, buying, selling, marketing and servicing of products or services over electronic systems such as the Internet and other computer networks. The information technology industry might see it as an electronic business application aimed at commercial transactions; in this context, it can involve electronic funds transfer, supply chain management, e-marketing, online marketing, online transaction processing, electronic data interchange (EDI), automated inventory management systems, and automated data collection systems. Electronic commerce typically uses electronic communications technology of the World Wide Web, at some point in the transaction's lifecycle, although of course electronic commerce frequently depends on computer technologies other than the World Wide Web, such as databases, and e-mail, and on other non-computer technologies, such as transportation for physical goods sold via e-commerce.
E-Commerce according to Person Halls book E-Commerce started in 1994 with the first banner ad being placed on a website.
According to the October 2006 Forrester Research report entitled, "US eCommerce: Five-Year Forecast And Data Overview, "Nontravel online retail revenues will top the quarter-trillion-dollar mark by 2011. The driver of this growth? A segment of the most active Web shopping households that is approximately 8 million strong. This group of consumers is extremely comfortable with technology and values convenience above all else in the online retail experience. As retailers begin to wade through their copious data warehouses and understand the who, what, when, where, why, and how of this segment, they will benefit from targeting these customers.
Historical development
The meaning of the term "electronic commerce" has changed over the last 30 years. Originally, "electronic commerce" meant the facilitation of commercial transactions electronically, usually using technology like Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT), where both were introduced in the late 1970s, for example, to send commercial documents like purchase orders or invoices electronically.
The 'electronic' or 'e' in e-commerce refers to the technology/systems; the 'commerce' refers to be traditional business models. E-commerce is the complete set of processes that support commercial business activities on a network. In the 1970s and 1980s, this would also have involved information analysis. The growth and acceptance of credit cards, automated teller machines (ATM) and telephone banking in the 1980s were also forms of e-commerce. However, from the 1990s onwards, this would include enterprise resource planning systems (ERP), data mining and data warehousing.
In the dot com era, it came to include activities more precisely termed "Web commerce" -- the purchase of goods and services over the World Wide Web, usually with secure connections (HTTPS, a special server protocol that encrypts confidential ordering data for customer protection) with e-shopping carts and with electronic payment services, like credit card payment authorizations.
Today, it encompasses a very wide range of business activities and processes, from e-banking to offshore manufacturing to e-logistics. The ever growing dependence of modern industries on electronically enabled business processes gave impetus to the growth and development of supporting systems, including backend systems, applications and middleware. Examples are broadband and fibre-optic networks, supply-chain management software, customer relationship management software, inventory control systems and financial accounting software.
When the Web first became well-known among the general public in 1994, many journalists and pundits forecast that e-commerce would soon become a major economic sector. However, it took about four years for security protocols (like HTTPS) to become sufficiently developed and widely deployed. Subsequently, between 1998 and 2000, a substantial number of businesses in the United States and Western Europe developed rudimentary web sites.
Although a large number of "pure e-commerce" companies disappeared during the dot-com collapse in 2000 and 2001, many "brick-and-mortar" retailers recognized that such companies had identified valuable niche markets and began to add e-commerce capabilities to their Web sites. For example, after the collapse of online grocer Webvan, two traditional supermarket chains, Albertsons and Safeway, both started e-commerce subsidiaries through which consumers could order groceries online.
The emergence of e-commerce also significantly lowered barriers to entry in the selling of many types of goods; accordingly many small home-based proprietors are able to use the internet to sell goods. Often, small sellers use online auction sites such as EBay, or sell via large corporate websites like Amazon.com, in order to take advantage of the exposure and setup convenience of such sites.
Success factors in e-commerce
In many cases, an e-commerce company will survive not only based on its product, but by having a competent management team, good post-sales services, well-organized business structure, network infrastructure and a secured, well-designed website. A company that wants to succeed will have to perform 2 things: Technical and organizational aspects and customer-oriented. Following factors will make business of companies succeed in e-commerce:
Technical and organizational aspects
1. Sufficient work done in market research and analysis. E-commerce is not exempt from good business planning and the fundamental laws of supply and demand. Business failure is as much a reality in e-commerce as in any other form of business.
2. A good management team armed with information technology strategy. A company's IT strategy should be a part of the business re-design process.
3. Providing an easy and secured way for customers to effect transactions. Credit cards are the most popular means of sending payments on the internet, accounting for 90% of online purchases. In the past, card numbers were transferred securely between the customer and merchant through independent payment gateways. Such independent payment gateways are still used by most small and home businesses. Most merchants today process credit card transactions on site through arrangements made with commercial banks or credit cards companies.
4. Providing reliability and security. Parallel servers, hardware redundancy, fail-safe technology, information encryption, and firewalls can enhance this requirement.
5. Providing a 360-degree view of the customer relationship, defined as ensuring that all employees, suppliers, and partners have a complete view, and the same view, of the customer. However, customers may not appreciate the big brother experience.
6. Constructing a commercially sound business model.
7. Engineering an electronic value chain in which one focuses on a "limited" number of core competencies -- the opposite of a one-stop shop. (Electronic stores can appear either specialist or generalist if properly programmed.)
8. Operating on or near the cutting edge of technology and staying there as technology changes (but remembering that the fundamentals of commerce remain indifferent to technology).
9. Setting up an organization of sufficient alertness and agility to respond quickly to any changes in the economic, social and physical environment.
10. Providing an attractive website. The tasteful use of colour, graphics, animation, photographs, fonts, and white-space percentage may aid success in this respect.
11. Streamlining business processes, possibly through re-engineering and information technologies.
12. Providing complete understanding of the products or services offered, which not only includes complete product information, but also sound advisors and selectors.
Naturally, the e-commerce vendor must also perform such mundane tasks as being truthful about its product and its availability, shipping reliably, and handling complaints promptly and effectively. A unique property of the Internet environment is that individual customers have access to far more information about the seller than they would find in a brick-and-mortar situation. (Of course, customers can, and occasionally do, research a brick-and-mortar store online before visiting it, so this distinction does not hold water in every case.)
Customer-Oriented
A successful e-commerce organization must also provide an enjoyable and rewarding experience to its customers. Many factors go into making this possible. Such factors include:
1. Providing value to customers. Vendors can achieve this by offering a product or product-line that attracts potential customers at a competitive price, as in non-electronic commerce.
2. Providing service and performance. Offering a responsive, user-friendly purchasing experience, just like a flesh-and-blood retailer, may go some way to achieving these goals.
3. Providing an incentive for customers to buy and to return. Sales promotions to this end can involve coupons, special offers, and discounts. Cross-linked websites and advertising affiliate programs can also help.
4. Providing personal attention. Personalized web sites, purchase suggestions, and personalized special offers may go some of the way to substituting for the face-to-face human interaction found at a traditional point of sale.
5. Providing a sense of community. Chat rooms, discussion boards, soliciting customer input and loyalty programs (sometimes called affinity programs) can help in this respect.
6. Owning the customer's total experience. E-tailers foster this by treating any contacts with a customer as part of a total experience, an experience that becomes synonymous with the brand.
7. Letting customers help themselves. Provision of a self-serve site, easy to use without assistance, can help in this respect. This implies that all product information is available, cross-sell information, advise for product alternatives, and supplies & accessory selectors.
8. Helping customers do their job of consuming. E-tailers and online shopping directories can provide such help through ample comparative information and good search facilities. Provision of component information and safety-and-health comments may assist e-tailers to define the customers' job.
Problems
Even if a provider of E-commerce goods and services rigorously follows these "key factors" to devise an exemplary e-commerce strategy, problems can still arise. Sources of such problems include:
1. Failure to understand customers, why they buy and how they buy. Even a product with a sound value proposition can fail if producers and retailers do not understand customer habits, expectations, and motivations. E-commerce could potentially mitigate this potential problem with proactive and focused marketing research, just as traditional retailers may do.
2. Failure to consider the competitive situation. One may have the will to construct a viable book e-tailing business model, but lack the capability to compete with Amazon.com.
3. Inability to predict environmental reaction. What will competitors do? Will they introduce competitive brands or competitive web sites? Will they supplement their service offerings? Will they try to sabotage a competitor's site? Will price wars break out? What will the government do? Research into competitors, industries and markets may mitigate some consequences here, just as in non-electronic commerce.
4. Over-estimation of resource competence. Can staff, hardware, software, and processes handle the proposed strategy? Have e-tailers failed to develop employee and management skills? These issues may call for thorough resource planning and employee training.
5. Failure to coordinate. If existing reporting and control relationships do not suffice, one can move towards a flat, accountable, and flexible organizational structure, which may or may not aid coordination.
6. Failure to obtain senior management commitment. This often results in a failure to gain sufficient corporate resources to accomplish a task. It may help to get top management involved right from the start.
7. Failure to obtain employee commitment. If planners do not explain their strategy well to employees, or fail to give employees the whole picture, then training and setting up incentives for workers to embrace the strategy may assist.
8. Under-estimation of time requirements. Setting up an e-commerce venture can take considerable time and money, and failure to understand the timing and sequencing of tasks can lead to significant cost overruns. Basic project planning, critical path, critical chain, or PERT analysis may mitigate such failings. Profitability may have to wait for the achievement of market share.
9. Failure to follow a plan. Poor follow-through after the initial planning, and insufficient tracking of progress against a plan can result in problems. One may mitigate such problems with standard tools: benchmarking, milestones, variance tracking, and penalties and rewards for variances.
10. Becoming the victim of organized crime. Many syndicates have caught on to the potential of the Internet as a new revenue stream. Two main methods are as follows: (1) Using identity theft techniques like phishing to order expensive goods and bill them to some innocent person, then liquidating the goods for quick cash; (2) Extortion by using a network of compromised "zombie" computers to engage in distributed denial of service attacks against the target Web site until it starts paying protection money.
11. Failure to expect the unexpected. Too often new businesses do not take into account the amount of time, money or resources needed to complete a project and often find themselves without the necessary components to become successful.
Product suitability
Certain products or services appear more suitable for online sales; others remain more suitable for offline sales. While credit cards are currently the most popular means of paying for online goods and services, alternative online payments will account for 26% of e-commerce volume by 2009 according to Celent.[2]
Many successful purely virtual companies deal with digital products, (including information storage, retrieval, and modification), music, movies, office supplies, education, communication, software, photography, and financial transactions. Examples of this type of company include: Google, eBay and Paypal. Other successful marketers such as use Drop shipping or Affiliate marketing techniques to facilitate transactions of tangible goods without maintaining real inventory. Examples include numerous sellers on eBay.
Virtual marketers can sell some non-digital products and services successfully. Such products generally have a high value-to-weight ratio, they may involve embarrassing purchases, they may typically go to people in remote locations, and they may have shut-ins as their typical purchasers. Items which can fit through a standard letterbox — such as music CDs, DVDs and books — are particularly suitable for a virtual marketer, and indeed Amazon.com, one of the few enduring dot-com companies, has historically concentrated on this field.
Products such as spare parts, both for consumer items like washing machines and for industrial equipment like centrifugal pumps, also seem good candidates for selling online. Retailers often need to order spare parts specially, since they typically do not stock them at consumer outlets -- in such cases, e-commerce solutions in spares do not compete with retail stores, only with other ordering systems. A factor for success in this niche can consist of providing customers with exact, reliable information about which part number their particular version of a product needs, for example by providing parts lists keyed by serial number.
Purchases of pornography and of other sex-related products and services fulfill the requirements of both virtuality (or if non-virtual, generally high-value) and potential embarrassment; unsurprisingly, provision of such services has become the most profitable segment of e-commerce.[citation needed]
There are also many disadvantages of e-commerce, one of the main ones is fraud. This is where your details (name, bank card number, age, national insurance number) are entered into what look to be a safe site but really it is not. These details can then be used to steal money from you and can be used to buy things on line that you are completely unaware of until it is too late. If this information is leaked into the wrong hands. People are able to steal your identity, and commit more fraud crimes under your name. Finally there are many problems with e commerce some of which are:
Failure to understand customers, why they buy and how they buy. Even a product with a sound value proposition can fail if producers and retailers do not understand customer habits, expectations, and motivations. E-commerce could potentially mitigate this potential problem with proactive and focused marketing research, just as traditional retailers may do. Failure to consider the competitive situation. One may have the will to construct a viable book e-tailing business model, but lack the capability to compete with Amazon. Inability to predict environmental reaction. What will competitors do? Will they introduce competitive brands or competitive web sites? Will they supplement their service offerings? Will they try to sabotage a competitor's site? Will price wars break out? What will the government do? Research into competitors, industries and markets may mitigate some consequences here, just as in non-electronic commerce. Over-estimation of resource competence. Can staff, hardware, software, and processes handle the proposed strategy? Have e-tailer's failed to develop employee and management skills? These issues may call for thorough resource planning and employee training.
Products less suitable for e-commerce include products that have a low value-to-weight ratio, products that have a smell, taste, or touch component, products that need trial fittings — most notably clothing — and products where colour integrity appears important. Nonetheless, Tesco.com has had success delivering groceries in the UK, albeit that many of its goods are of a generic quality, and clothing sold through the internet is big business in the U.S. Also, the recycling program Cheapcycle sells goods over the internet, but avoids the low value-to-weight ratio problem by creating different groups for various regions, so that shipping costs remain low.
Acceptance
Consumers have accepted the e-commerce business model less readily than its proponents originally expected. Even in product categories suitable for e-commerce, electronic shopping has developed only slowly. Several reasons might account for the slow uptake, including:
* Concerns about security. Many people will not use credit cards over the Internet due to concerns about theft and credit card fraud.
* Lack of instant gratification with most e-purchases (non-digital purchases). Much of a consumer's reward for purchasing a product lies in the instant gratification of using and displaying that product. This reward does not exist when one's purchase does not arrive for days or weeks.
* The problem of access to web commerce, mainly for poor households and for developing countries. Low penetration rates of Internet access in some sectors greatly reduces the potential for e-commerce.
* The social aspect of shopping. Some people enjoy talking to sales staff, to other shoppers, or to their cohorts: this social reward side of retail therapy does not exist to the same extent in online shopping.
* Poorly designed, bug-infested e-Commerce web sites that frustrate online shoppers and drive them away.
* Inconsistent return policies among e-tailers or difficulties in exchange/return.
E-Commerce according to Person Halls book E-Commerce started in 1994 with the first banner ad being placed on a website.
According to the October 2006 Forrester Research report entitled, "US eCommerce: Five-Year Forecast And Data Overview, "Nontravel online retail revenues will top the quarter-trillion-dollar mark by 2011. The driver of this growth? A segment of the most active Web shopping households that is approximately 8 million strong. This group of consumers is extremely comfortable with technology and values convenience above all else in the online retail experience. As retailers begin to wade through their copious data warehouses and understand the who, what, when, where, why, and how of this segment, they will benefit from targeting these customers.
Historical development
The meaning of the term "electronic commerce" has changed over the last 30 years. Originally, "electronic commerce" meant the facilitation of commercial transactions electronically, usually using technology like Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT), where both were introduced in the late 1970s, for example, to send commercial documents like purchase orders or invoices electronically.
The 'electronic' or 'e' in e-commerce refers to the technology/systems; the 'commerce' refers to be traditional business models. E-commerce is the complete set of processes that support commercial business activities on a network. In the 1970s and 1980s, this would also have involved information analysis. The growth and acceptance of credit cards, automated teller machines (ATM) and telephone banking in the 1980s were also forms of e-commerce. However, from the 1990s onwards, this would include enterprise resource planning systems (ERP), data mining and data warehousing.
In the dot com era, it came to include activities more precisely termed "Web commerce" -- the purchase of goods and services over the World Wide Web, usually with secure connections (HTTPS, a special server protocol that encrypts confidential ordering data for customer protection) with e-shopping carts and with electronic payment services, like credit card payment authorizations.
Today, it encompasses a very wide range of business activities and processes, from e-banking to offshore manufacturing to e-logistics. The ever growing dependence of modern industries on electronically enabled business processes gave impetus to the growth and development of supporting systems, including backend systems, applications and middleware. Examples are broadband and fibre-optic networks, supply-chain management software, customer relationship management software, inventory control systems and financial accounting software.
When the Web first became well-known among the general public in 1994, many journalists and pundits forecast that e-commerce would soon become a major economic sector. However, it took about four years for security protocols (like HTTPS) to become sufficiently developed and widely deployed. Subsequently, between 1998 and 2000, a substantial number of businesses in the United States and Western Europe developed rudimentary web sites.
Although a large number of "pure e-commerce" companies disappeared during the dot-com collapse in 2000 and 2001, many "brick-and-mortar" retailers recognized that such companies had identified valuable niche markets and began to add e-commerce capabilities to their Web sites. For example, after the collapse of online grocer Webvan, two traditional supermarket chains, Albertsons and Safeway, both started e-commerce subsidiaries through which consumers could order groceries online.
The emergence of e-commerce also significantly lowered barriers to entry in the selling of many types of goods; accordingly many small home-based proprietors are able to use the internet to sell goods. Often, small sellers use online auction sites such as EBay, or sell via large corporate websites like Amazon.com, in order to take advantage of the exposure and setup convenience of such sites.
Success factors in e-commerce
In many cases, an e-commerce company will survive not only based on its product, but by having a competent management team, good post-sales services, well-organized business structure, network infrastructure and a secured, well-designed website. A company that wants to succeed will have to perform 2 things: Technical and organizational aspects and customer-oriented. Following factors will make business of companies succeed in e-commerce:
Technical and organizational aspects
1. Sufficient work done in market research and analysis. E-commerce is not exempt from good business planning and the fundamental laws of supply and demand. Business failure is as much a reality in e-commerce as in any other form of business.
2. A good management team armed with information technology strategy. A company's IT strategy should be a part of the business re-design process.
3. Providing an easy and secured way for customers to effect transactions. Credit cards are the most popular means of sending payments on the internet, accounting for 90% of online purchases. In the past, card numbers were transferred securely between the customer and merchant through independent payment gateways. Such independent payment gateways are still used by most small and home businesses. Most merchants today process credit card transactions on site through arrangements made with commercial banks or credit cards companies.
4. Providing reliability and security. Parallel servers, hardware redundancy, fail-safe technology, information encryption, and firewalls can enhance this requirement.
5. Providing a 360-degree view of the customer relationship, defined as ensuring that all employees, suppliers, and partners have a complete view, and the same view, of the customer. However, customers may not appreciate the big brother experience.
6. Constructing a commercially sound business model.
7. Engineering an electronic value chain in which one focuses on a "limited" number of core competencies -- the opposite of a one-stop shop. (Electronic stores can appear either specialist or generalist if properly programmed.)
8. Operating on or near the cutting edge of technology and staying there as technology changes (but remembering that the fundamentals of commerce remain indifferent to technology).
9. Setting up an organization of sufficient alertness and agility to respond quickly to any changes in the economic, social and physical environment.
10. Providing an attractive website. The tasteful use of colour, graphics, animation, photographs, fonts, and white-space percentage may aid success in this respect.
11. Streamlining business processes, possibly through re-engineering and information technologies.
12. Providing complete understanding of the products or services offered, which not only includes complete product information, but also sound advisors and selectors.
Naturally, the e-commerce vendor must also perform such mundane tasks as being truthful about its product and its availability, shipping reliably, and handling complaints promptly and effectively. A unique property of the Internet environment is that individual customers have access to far more information about the seller than they would find in a brick-and-mortar situation. (Of course, customers can, and occasionally do, research a brick-and-mortar store online before visiting it, so this distinction does not hold water in every case.)
Customer-Oriented
A successful e-commerce organization must also provide an enjoyable and rewarding experience to its customers. Many factors go into making this possible. Such factors include:
1. Providing value to customers. Vendors can achieve this by offering a product or product-line that attracts potential customers at a competitive price, as in non-electronic commerce.
2. Providing service and performance. Offering a responsive, user-friendly purchasing experience, just like a flesh-and-blood retailer, may go some way to achieving these goals.
3. Providing an incentive for customers to buy and to return. Sales promotions to this end can involve coupons, special offers, and discounts. Cross-linked websites and advertising affiliate programs can also help.
4. Providing personal attention. Personalized web sites, purchase suggestions, and personalized special offers may go some of the way to substituting for the face-to-face human interaction found at a traditional point of sale.
5. Providing a sense of community. Chat rooms, discussion boards, soliciting customer input and loyalty programs (sometimes called affinity programs) can help in this respect.
6. Owning the customer's total experience. E-tailers foster this by treating any contacts with a customer as part of a total experience, an experience that becomes synonymous with the brand.
7. Letting customers help themselves. Provision of a self-serve site, easy to use without assistance, can help in this respect. This implies that all product information is available, cross-sell information, advise for product alternatives, and supplies & accessory selectors.
8. Helping customers do their job of consuming. E-tailers and online shopping directories can provide such help through ample comparative information and good search facilities. Provision of component information and safety-and-health comments may assist e-tailers to define the customers' job.
Problems
Even if a provider of E-commerce goods and services rigorously follows these "key factors" to devise an exemplary e-commerce strategy, problems can still arise. Sources of such problems include:
1. Failure to understand customers, why they buy and how they buy. Even a product with a sound value proposition can fail if producers and retailers do not understand customer habits, expectations, and motivations. E-commerce could potentially mitigate this potential problem with proactive and focused marketing research, just as traditional retailers may do.
2. Failure to consider the competitive situation. One may have the will to construct a viable book e-tailing business model, but lack the capability to compete with Amazon.com.
3. Inability to predict environmental reaction. What will competitors do? Will they introduce competitive brands or competitive web sites? Will they supplement their service offerings? Will they try to sabotage a competitor's site? Will price wars break out? What will the government do? Research into competitors, industries and markets may mitigate some consequences here, just as in non-electronic commerce.
4. Over-estimation of resource competence. Can staff, hardware, software, and processes handle the proposed strategy? Have e-tailers failed to develop employee and management skills? These issues may call for thorough resource planning and employee training.
5. Failure to coordinate. If existing reporting and control relationships do not suffice, one can move towards a flat, accountable, and flexible organizational structure, which may or may not aid coordination.
6. Failure to obtain senior management commitment. This often results in a failure to gain sufficient corporate resources to accomplish a task. It may help to get top management involved right from the start.
7. Failure to obtain employee commitment. If planners do not explain their strategy well to employees, or fail to give employees the whole picture, then training and setting up incentives for workers to embrace the strategy may assist.
8. Under-estimation of time requirements. Setting up an e-commerce venture can take considerable time and money, and failure to understand the timing and sequencing of tasks can lead to significant cost overruns. Basic project planning, critical path, critical chain, or PERT analysis may mitigate such failings. Profitability may have to wait for the achievement of market share.
9. Failure to follow a plan. Poor follow-through after the initial planning, and insufficient tracking of progress against a plan can result in problems. One may mitigate such problems with standard tools: benchmarking, milestones, variance tracking, and penalties and rewards for variances.
10. Becoming the victim of organized crime. Many syndicates have caught on to the potential of the Internet as a new revenue stream. Two main methods are as follows: (1) Using identity theft techniques like phishing to order expensive goods and bill them to some innocent person, then liquidating the goods for quick cash; (2) Extortion by using a network of compromised "zombie" computers to engage in distributed denial of service attacks against the target Web site until it starts paying protection money.
11. Failure to expect the unexpected. Too often new businesses do not take into account the amount of time, money or resources needed to complete a project and often find themselves without the necessary components to become successful.
Product suitability
Certain products or services appear more suitable for online sales; others remain more suitable for offline sales. While credit cards are currently the most popular means of paying for online goods and services, alternative online payments will account for 26% of e-commerce volume by 2009 according to Celent.[2]
Many successful purely virtual companies deal with digital products, (including information storage, retrieval, and modification), music, movies, office supplies, education, communication, software, photography, and financial transactions. Examples of this type of company include: Google, eBay and Paypal. Other successful marketers such as use Drop shipping or Affiliate marketing techniques to facilitate transactions of tangible goods without maintaining real inventory. Examples include numerous sellers on eBay.
Virtual marketers can sell some non-digital products and services successfully. Such products generally have a high value-to-weight ratio, they may involve embarrassing purchases, they may typically go to people in remote locations, and they may have shut-ins as their typical purchasers. Items which can fit through a standard letterbox — such as music CDs, DVDs and books — are particularly suitable for a virtual marketer, and indeed Amazon.com, one of the few enduring dot-com companies, has historically concentrated on this field.
Products such as spare parts, both for consumer items like washing machines and for industrial equipment like centrifugal pumps, also seem good candidates for selling online. Retailers often need to order spare parts specially, since they typically do not stock them at consumer outlets -- in such cases, e-commerce solutions in spares do not compete with retail stores, only with other ordering systems. A factor for success in this niche can consist of providing customers with exact, reliable information about which part number their particular version of a product needs, for example by providing parts lists keyed by serial number.
Purchases of pornography and of other sex-related products and services fulfill the requirements of both virtuality (or if non-virtual, generally high-value) and potential embarrassment; unsurprisingly, provision of such services has become the most profitable segment of e-commerce.[citation needed]
There are also many disadvantages of e-commerce, one of the main ones is fraud. This is where your details (name, bank card number, age, national insurance number) are entered into what look to be a safe site but really it is not. These details can then be used to steal money from you and can be used to buy things on line that you are completely unaware of until it is too late. If this information is leaked into the wrong hands. People are able to steal your identity, and commit more fraud crimes under your name. Finally there are many problems with e commerce some of which are:
Failure to understand customers, why they buy and how they buy. Even a product with a sound value proposition can fail if producers and retailers do not understand customer habits, expectations, and motivations. E-commerce could potentially mitigate this potential problem with proactive and focused marketing research, just as traditional retailers may do. Failure to consider the competitive situation. One may have the will to construct a viable book e-tailing business model, but lack the capability to compete with Amazon. Inability to predict environmental reaction. What will competitors do? Will they introduce competitive brands or competitive web sites? Will they supplement their service offerings? Will they try to sabotage a competitor's site? Will price wars break out? What will the government do? Research into competitors, industries and markets may mitigate some consequences here, just as in non-electronic commerce. Over-estimation of resource competence. Can staff, hardware, software, and processes handle the proposed strategy? Have e-tailer's failed to develop employee and management skills? These issues may call for thorough resource planning and employee training.
Products less suitable for e-commerce include products that have a low value-to-weight ratio, products that have a smell, taste, or touch component, products that need trial fittings — most notably clothing — and products where colour integrity appears important. Nonetheless, Tesco.com has had success delivering groceries in the UK, albeit that many of its goods are of a generic quality, and clothing sold through the internet is big business in the U.S. Also, the recycling program Cheapcycle sells goods over the internet, but avoids the low value-to-weight ratio problem by creating different groups for various regions, so that shipping costs remain low.
Acceptance
Consumers have accepted the e-commerce business model less readily than its proponents originally expected. Even in product categories suitable for e-commerce, electronic shopping has developed only slowly. Several reasons might account for the slow uptake, including:
* Concerns about security. Many people will not use credit cards over the Internet due to concerns about theft and credit card fraud.
* Lack of instant gratification with most e-purchases (non-digital purchases). Much of a consumer's reward for purchasing a product lies in the instant gratification of using and displaying that product. This reward does not exist when one's purchase does not arrive for days or weeks.
* The problem of access to web commerce, mainly for poor households and for developing countries. Low penetration rates of Internet access in some sectors greatly reduces the potential for e-commerce.
* The social aspect of shopping. Some people enjoy talking to sales staff, to other shoppers, or to their cohorts: this social reward side of retail therapy does not exist to the same extent in online shopping.
* Poorly designed, bug-infested e-Commerce web sites that frustrate online shoppers and drive them away.
* Inconsistent return policies among e-tailers or difficulties in exchange/return.
Dot-com bubble
Dot-com bubble
The "dot-com boom" was a speculative bubble covering roughly 1995–2001 during which stock markets in Western nations saw their value increase rapidly from growth in the new Internet sector and related fields. The period was marked by the founding (and in many cases, spectacular failure) of a group of new Internet-based companies commonly referred to as dot-coms. A combination of rapidly increasing stock prices, individual speculation in stocks, and widely available venture capital created an exuberant environment in which many of these businesses dismissed standard business models, focusing on increasing market share at the expense of the bottom line. The bursting of the dot-com bubble marked the beginning of a relatively mild yet rather lengthy early 2000s recession in the developed world.
The bubble builds
The venture capitalists saw record-setting rises in stock valuation of these and other similar companies, and therefore moved faster and with less caution than usual, choosing to hedge the risk by starting many contenders and letting the market decide which would succeed. The low interest rates in 1998–99 helped increase the start-up capital amounts. Although a number of these new entrepreneurs had realistic plans and administrative ability, most of them lacked these characteristics but were able to sell their ideas to investors because of the novelty of the dot-com concept.
A canonical "dot-com" company's business model relied on harnessing network effects by operating at a sustained net loss to build market share (or mind share). These companies expected that they could build enough brand awareness to charge profitable rates for their services later. The motto "get big fast" reflected this strategy.[1] During the loss period the companies relied on venture capital and especially initial public offerings of stock to pay their expenses. The novelty of these stocks, combined with the difficulty of valuing the companies, sent many stocks to dizzying heights and made the initial controllers of the company wildly rich on paper.
An annual event started in 1995, the Webby Awards, working to recognize the best websites on the Internet. The event was typically an extravaganza held annually in San Francisco, California, near the heart of Silicon Valley. The ceremonies mirrored the flashy dot-com lifestyle with costumed guests, modern dancers, and faux-paparazzi to make guests feel important. The event peaked in 2001 with thousands in attendance. In 2002 it was a more somber event with only several hundred guests and little of the excess of the late 1990s. In 2003 the awards were reduced to a virtual event because many of the nominees could not fly to San Francisco due primarily to corporate belt-tightening and fear of losing their jobs. The 2005 and 2006 editions were held in New York City.
Historically, the dot-com boom can be seen as similar to a number of other technology-inspired booms of the past including railroads in the 1840s, automobiles and radio in the 1920s, transistor electronics in the 1950s, computer time-sharing in the 1960s, and home computers and biotechnology in the early 1980s.
Soaring stocks
In financial markets a stock market bubble is a self-perpetuating rise or boom in the share prices of stocks of a particular industry. The term may be used with certainty only in retrospect when share prices have since crashed. A bubble occurs when speculators note the fast increase in value and decide to buy in anticipation of further rises, rather than because the shares are undervalued. Typically many companies thus become grossly overvalued. When the bubble "bursts", the share prices fall dramatically, and many companies go out of business.
The late 1990s boom in technology dot-com company stocks is a good example of a bubble, which burst in the Spring of 2000 and through 2001 .
The dot-com model was inherently flawed: a vast number of companies all had the same business plan of monopolizing their respective sectors through network effects, and it was clear that even if the plan was sound, there could only be at most one network-effects winner in each sector, and therefore that most companies with this business plan would fail. In fact, many sectors could not support even one company powered entirely by network effects.[citation needed]
In spite of this, a few company founders made vast fortunes when their companies were bought out at an early stage in the dot-com stock market bubble. These early successes made the bubble even more buoyant. An unprecedented amount of personal investing occurred during the boom. Stories of people quitting their jobs to become full-time day traders, while not representative, were common in the press.
Free spending
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According to dot-com theory, an internet company's survival depended on expanding its customer base as rapidly as possible, even if it produced large annual losses. The phrase "Get large or get lost" was the wisdom of the day. At the height of the boom, it was possible for a promising dot-com to make an initial public offering (IPO) of its stock and raise a substantial amount of money even though it had never made a profit - or, in some cases, even any revenues. In such a situation, a company's lifespan was measured by its burn rate; that is, the rate at which a non-profitable company lacking a viable business model runs through its capital served as the measuring stick.
Public awareness campaigns were one way that dot-coms sought to grow their customer base. These included television ads, print ads, and targeting of professional sporting events. Many dot-coms named themselves with onomatopoeic nonsense words that they hoped would be memorable and not easily confused with a competitor. Super Bowl XXXIV in January 2000 featured seventeen dot-com companies that each paid over $2 million for a 30-second spot. By contrast, in January 2001, just three dot-coms bought advertising spots during Super Bowl XXXV. In a similar vein, CBS-backed iWon.com gave away $10 million to a lucky contestant on an April 15, 2000, 30-minute primetime special that aired on CBS.
Not surprisingly, the "growth over profits" mentality and the aura of "new economy" invincibility led some companies to engage in lavish internal spending, such as elaborate business facilities and luxury vacations for employees. Executives and employees who were paid with stock options in lieu of cash became instant millionaires when the company made its initial public offering; many invested their new wealth into yet more dot-coms.
Cities all over the United States sought to become the "next Silicon Valley" by building network-enabled office space to attract internet entrepreneurs. Communication providers, convinced that the future economy would require ubiquitous broadband access, went deeply into debt to improve their networks with high-speed equipment and fiber optic cables. Companies that produced network equipment, such as Cisco Systems, profited greatly from these projects.
Similarly, in Europe the vast amounts of cash the mobile operators spent on 3G-licences in Germany, Italy, and the United Kingdom, for example, led them into deep debt. The investments were blown out of proportion regardless of whether seen in the context of their current or projected future cash flow, but this fact was not publicly acknowledged until as late as 2001 and 2002 . Due to the highly networked nature of the IT (information-technology) industry, this quickly led to problems for small companies dependent on contracts from operators.
Thinning the herd
The technology-heavy NASDAQ Composite index peaked in March 2000, reflecting the high point of the dot-com bubble.
The technology-heavy NASDAQ Composite index peaked in March 2000, reflecting the high point of the dot-com bubble.
Over 1999 and early 2000, the Federal Reserve had increased interest rates six times, and the runaway economy was beginning to lose speed. The dot-com bubble burst, numerically, on March 10, 2000, when the technology heavy NASDAQ Composite index [1] peaked at 5,048.62 (intra-day peak 5,132.52), more than double its value just a year before. The NASDAQ fell slightly after that, but this was attributed to correction by most market analysts; the actual reversal and subsequent bear market may have been triggered by the adverse findings of fact in the United States v. Microsoft case which was being heard in federal court. The findings, which declared Microsoft a monopoly, were widely expected in the weeks before their release on April 3.
One possible cause for the collapse of the NASDAQ (and all dotcoms) were massive, multi-billion dollar sell orders for major bellwether high tech stocks (Cisco, IBM, Dell, etc.) that happened by chance to be processed simultaneously on the Monday morning following the March 10th weekend. This selling resulted in the NASDAQ opening roughly four percentage points lower on Monday March 13 from 5038 to 4,879-the greatest percentage 'pre-market' selloff for the entire year.
The massive initial batch of sell orders processed on Monday, March 13 triggered a chain reaction of selling that fed on itself as investors, funds, and institutions liquidated positions. In just three days the NASDAQ had lost nearly nine percent, falling from roughly 5050 on March 10th to 4580 on March 15th.
Another reason may have been accelerated business spending in preparation for the Y2K switchover. Once New Year had passed without incident, businesses found themselves with all the equipment they needed for some time, and business spending quickly declined. This correlates quite closely to the peak of U.S. stock markets. The Dow Jones peaked on January 14, 2000 (closed at 11,722.98, with an intra-day peak of 11,750.28 and theoretical peak of 11,908.50)[2] and the broader S&P 500 on March 24, 2000 (closed at 1,527.46, with an intra-day peak of 1,553.11)[3]; while, even more dramatically the UK's FTSE 100 Index peaked at 6,950.60 on the last day of trading in 1999 (December 30). Hiring freezes, layoffs, and consolidations followed in several industries, especially in the dot-com sector.
The bursting of the bubble may also have been related to the poor results of internet retailers following the 1999 Christmas season. This was the first unequivocal and public evidence that the "Get Big Fast" internet strategy was flawed for most companies. These retailers' results were made public in March when annual and quarterly reports of public firms were released.
By 2001 the bubble's deflation was running full speed. A majority of the dot-coms ceased trading after burning through their venture capital, often without ever making a net profit. Investors often jokingly referred to these failed dot-coms as either "dot-bombs" or "dot-compost".
[edit] Aftermath
On January 11, 2000, America Online, a favorite of dot-com investors and pioneer of dial-up internet access, acquired Time Warner, the world's largest media company. Within two years, boardroom disagreements drove out both of the CEOs who made the deal, and in October 2003 AOL Time Warner dropped "AOL" from its name. The acquisition thus became a symbol of the dot-coms' challenge to "old economy" companies and the old economy's ultimate survival. The revolutionary optimism of the boom faded, and analysts once again recognized the relevance of traditional business thinking.
Several communication companies, burdened with unredeemable debts from their expansion projects, sold their assets for cash or filed for bankruptcy. WorldCom, the largest of these, was found to have used accounting tricks to overstate its profits by billions of dollars. The company's stock crashed when these irregularities were revealed, and within days it filed the largest corporate bankruptcy in U.S. history. Other examples include NorthPoint Communications, Global Crossing, JDS Uniphase, XO Communications, and Covad Communications. Demand for the new high-speed infrastructure never materialized, and it became dark fiber. Some analysts believe that there is so much dark fiber worldwide that only a small percentage of it will be "lit" in the decades to come.
Many dot-coms ran out of capital and were acquired or liquidated; the domain names were picked up by old-economy competitors or domain name investors. Several companies and their executives were accused or convicted of fraud for misusing shareholders' money, and the U.S. Securities and Exchange Commission fined top investment firms like Citigroup and Merrill Lynch millions of dollars for misleading investors. Various supporting industries, such as advertising and shipping, scaled back their operations as demand for their services fell. A few large dot-com companies, such as Amazon.com and eBay, survived the turmoil and appear to have a good chance of long-term survival.
Recent research suggests, however, that as much as 50% of dot-coms survived through 2004, reflecting two facts: the destruction of public market wealth did not necessarily correspond to firm closings, and second, that most of the dot-coms were small players who were able to weather the financial markets storm.
Nevertheless, laid-off technology experts, such as computer programmers, found a glutted job market. International outsourcing and the recently allowed increase of skilled visa "guest workers" (e.g., those participating in the U.S. H-1B visa program) exacerbated the situation. University degree programs for computer-related careers saw a noticeable drop in new students. Anecdotes of unemployed programmers going back to school to become accountants or lawyers were common.
Some believe the crash of the dot-com bubble contributed to the housing bubble in the U.S. Yale economist Robert Shiller said in 2005, "Once stocks fell, real estate became the primary outlet for the speculative frenzy that the stock market had unleashed. Where else could plungers apply their newly acquired trading talents? The materialistic display of the big house also has become a salve to bruised egos of disappointed stock investors. These days, the only thing that comes close to real estate as a national obsession is poker" (from Barron's Magazine's article "The Bubble's New Home", 20 June 2005).
In September 2005, The Economist referred to discussion of "Web 2.0", accompanied by rumors that Microsoft was considering buying America Online (AOL), as "Bubble 2.0".[4]
In 2006, some speculated that a new dot-com bubble might be at hand, citing the acquisition of Intermix Media (owner of MySpace) by News Corporation, Skype by eBay and YouTube by Google as well as the possible acquisition of Facebook by Yahoo.
The "dot-com boom" was a speculative bubble covering roughly 1995–2001 during which stock markets in Western nations saw their value increase rapidly from growth in the new Internet sector and related fields. The period was marked by the founding (and in many cases, spectacular failure) of a group of new Internet-based companies commonly referred to as dot-coms. A combination of rapidly increasing stock prices, individual speculation in stocks, and widely available venture capital created an exuberant environment in which many of these businesses dismissed standard business models, focusing on increasing market share at the expense of the bottom line. The bursting of the dot-com bubble marked the beginning of a relatively mild yet rather lengthy early 2000s recession in the developed world.
The bubble builds
The venture capitalists saw record-setting rises in stock valuation of these and other similar companies, and therefore moved faster and with less caution than usual, choosing to hedge the risk by starting many contenders and letting the market decide which would succeed. The low interest rates in 1998–99 helped increase the start-up capital amounts. Although a number of these new entrepreneurs had realistic plans and administrative ability, most of them lacked these characteristics but were able to sell their ideas to investors because of the novelty of the dot-com concept.
A canonical "dot-com" company's business model relied on harnessing network effects by operating at a sustained net loss to build market share (or mind share). These companies expected that they could build enough brand awareness to charge profitable rates for their services later. The motto "get big fast" reflected this strategy.[1] During the loss period the companies relied on venture capital and especially initial public offerings of stock to pay their expenses. The novelty of these stocks, combined with the difficulty of valuing the companies, sent many stocks to dizzying heights and made the initial controllers of the company wildly rich on paper.
An annual event started in 1995, the Webby Awards, working to recognize the best websites on the Internet. The event was typically an extravaganza held annually in San Francisco, California, near the heart of Silicon Valley. The ceremonies mirrored the flashy dot-com lifestyle with costumed guests, modern dancers, and faux-paparazzi to make guests feel important. The event peaked in 2001 with thousands in attendance. In 2002 it was a more somber event with only several hundred guests and little of the excess of the late 1990s. In 2003 the awards were reduced to a virtual event because many of the nominees could not fly to San Francisco due primarily to corporate belt-tightening and fear of losing their jobs. The 2005 and 2006 editions were held in New York City.
Historically, the dot-com boom can be seen as similar to a number of other technology-inspired booms of the past including railroads in the 1840s, automobiles and radio in the 1920s, transistor electronics in the 1950s, computer time-sharing in the 1960s, and home computers and biotechnology in the early 1980s.
Soaring stocks
In financial markets a stock market bubble is a self-perpetuating rise or boom in the share prices of stocks of a particular industry. The term may be used with certainty only in retrospect when share prices have since crashed. A bubble occurs when speculators note the fast increase in value and decide to buy in anticipation of further rises, rather than because the shares are undervalued. Typically many companies thus become grossly overvalued. When the bubble "bursts", the share prices fall dramatically, and many companies go out of business.
The late 1990s boom in technology dot-com company stocks is a good example of a bubble, which burst in the Spring of 2000 and through 2001 .
The dot-com model was inherently flawed: a vast number of companies all had the same business plan of monopolizing their respective sectors through network effects, and it was clear that even if the plan was sound, there could only be at most one network-effects winner in each sector, and therefore that most companies with this business plan would fail. In fact, many sectors could not support even one company powered entirely by network effects.[citation needed]
In spite of this, a few company founders made vast fortunes when their companies were bought out at an early stage in the dot-com stock market bubble. These early successes made the bubble even more buoyant. An unprecedented amount of personal investing occurred during the boom. Stories of people quitting their jobs to become full-time day traders, while not representative, were common in the press.
Free spending
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According to dot-com theory, an internet company's survival depended on expanding its customer base as rapidly as possible, even if it produced large annual losses. The phrase "Get large or get lost" was the wisdom of the day. At the height of the boom, it was possible for a promising dot-com to make an initial public offering (IPO) of its stock and raise a substantial amount of money even though it had never made a profit - or, in some cases, even any revenues. In such a situation, a company's lifespan was measured by its burn rate; that is, the rate at which a non-profitable company lacking a viable business model runs through its capital served as the measuring stick.
Public awareness campaigns were one way that dot-coms sought to grow their customer base. These included television ads, print ads, and targeting of professional sporting events. Many dot-coms named themselves with onomatopoeic nonsense words that they hoped would be memorable and not easily confused with a competitor. Super Bowl XXXIV in January 2000 featured seventeen dot-com companies that each paid over $2 million for a 30-second spot. By contrast, in January 2001, just three dot-coms bought advertising spots during Super Bowl XXXV. In a similar vein, CBS-backed iWon.com gave away $10 million to a lucky contestant on an April 15, 2000, 30-minute primetime special that aired on CBS.
Not surprisingly, the "growth over profits" mentality and the aura of "new economy" invincibility led some companies to engage in lavish internal spending, such as elaborate business facilities and luxury vacations for employees. Executives and employees who were paid with stock options in lieu of cash became instant millionaires when the company made its initial public offering; many invested their new wealth into yet more dot-coms.
Cities all over the United States sought to become the "next Silicon Valley" by building network-enabled office space to attract internet entrepreneurs. Communication providers, convinced that the future economy would require ubiquitous broadband access, went deeply into debt to improve their networks with high-speed equipment and fiber optic cables. Companies that produced network equipment, such as Cisco Systems, profited greatly from these projects.
Similarly, in Europe the vast amounts of cash the mobile operators spent on 3G-licences in Germany, Italy, and the United Kingdom, for example, led them into deep debt. The investments were blown out of proportion regardless of whether seen in the context of their current or projected future cash flow, but this fact was not publicly acknowledged until as late as 2001 and 2002 . Due to the highly networked nature of the IT (information-technology) industry, this quickly led to problems for small companies dependent on contracts from operators.
Thinning the herd
The technology-heavy NASDAQ Composite index peaked in March 2000, reflecting the high point of the dot-com bubble.
The technology-heavy NASDAQ Composite index peaked in March 2000, reflecting the high point of the dot-com bubble.
Over 1999 and early 2000, the Federal Reserve had increased interest rates six times, and the runaway economy was beginning to lose speed. The dot-com bubble burst, numerically, on March 10, 2000, when the technology heavy NASDAQ Composite index [1] peaked at 5,048.62 (intra-day peak 5,132.52), more than double its value just a year before. The NASDAQ fell slightly after that, but this was attributed to correction by most market analysts; the actual reversal and subsequent bear market may have been triggered by the adverse findings of fact in the United States v. Microsoft case which was being heard in federal court. The findings, which declared Microsoft a monopoly, were widely expected in the weeks before their release on April 3.
One possible cause for the collapse of the NASDAQ (and all dotcoms) were massive, multi-billion dollar sell orders for major bellwether high tech stocks (Cisco, IBM, Dell, etc.) that happened by chance to be processed simultaneously on the Monday morning following the March 10th weekend. This selling resulted in the NASDAQ opening roughly four percentage points lower on Monday March 13 from 5038 to 4,879-the greatest percentage 'pre-market' selloff for the entire year.
The massive initial batch of sell orders processed on Monday, March 13 triggered a chain reaction of selling that fed on itself as investors, funds, and institutions liquidated positions. In just three days the NASDAQ had lost nearly nine percent, falling from roughly 5050 on March 10th to 4580 on March 15th.
Another reason may have been accelerated business spending in preparation for the Y2K switchover. Once New Year had passed without incident, businesses found themselves with all the equipment they needed for some time, and business spending quickly declined. This correlates quite closely to the peak of U.S. stock markets. The Dow Jones peaked on January 14, 2000 (closed at 11,722.98, with an intra-day peak of 11,750.28 and theoretical peak of 11,908.50)[2] and the broader S&P 500 on March 24, 2000 (closed at 1,527.46, with an intra-day peak of 1,553.11)[3]; while, even more dramatically the UK's FTSE 100 Index peaked at 6,950.60 on the last day of trading in 1999 (December 30). Hiring freezes, layoffs, and consolidations followed in several industries, especially in the dot-com sector.
The bursting of the bubble may also have been related to the poor results of internet retailers following the 1999 Christmas season. This was the first unequivocal and public evidence that the "Get Big Fast" internet strategy was flawed for most companies. These retailers' results were made public in March when annual and quarterly reports of public firms were released.
By 2001 the bubble's deflation was running full speed. A majority of the dot-coms ceased trading after burning through their venture capital, often without ever making a net profit. Investors often jokingly referred to these failed dot-coms as either "dot-bombs" or "dot-compost".
[edit] Aftermath
On January 11, 2000, America Online, a favorite of dot-com investors and pioneer of dial-up internet access, acquired Time Warner, the world's largest media company. Within two years, boardroom disagreements drove out both of the CEOs who made the deal, and in October 2003 AOL Time Warner dropped "AOL" from its name. The acquisition thus became a symbol of the dot-coms' challenge to "old economy" companies and the old economy's ultimate survival. The revolutionary optimism of the boom faded, and analysts once again recognized the relevance of traditional business thinking.
Several communication companies, burdened with unredeemable debts from their expansion projects, sold their assets for cash or filed for bankruptcy. WorldCom, the largest of these, was found to have used accounting tricks to overstate its profits by billions of dollars. The company's stock crashed when these irregularities were revealed, and within days it filed the largest corporate bankruptcy in U.S. history. Other examples include NorthPoint Communications, Global Crossing, JDS Uniphase, XO Communications, and Covad Communications. Demand for the new high-speed infrastructure never materialized, and it became dark fiber. Some analysts believe that there is so much dark fiber worldwide that only a small percentage of it will be "lit" in the decades to come.
Many dot-coms ran out of capital and were acquired or liquidated; the domain names were picked up by old-economy competitors or domain name investors. Several companies and their executives were accused or convicted of fraud for misusing shareholders' money, and the U.S. Securities and Exchange Commission fined top investment firms like Citigroup and Merrill Lynch millions of dollars for misleading investors. Various supporting industries, such as advertising and shipping, scaled back their operations as demand for their services fell. A few large dot-com companies, such as Amazon.com and eBay, survived the turmoil and appear to have a good chance of long-term survival.
Recent research suggests, however, that as much as 50% of dot-coms survived through 2004, reflecting two facts: the destruction of public market wealth did not necessarily correspond to firm closings, and second, that most of the dot-coms were small players who were able to weather the financial markets storm.
Nevertheless, laid-off technology experts, such as computer programmers, found a glutted job market. International outsourcing and the recently allowed increase of skilled visa "guest workers" (e.g., those participating in the U.S. H-1B visa program) exacerbated the situation. University degree programs for computer-related careers saw a noticeable drop in new students. Anecdotes of unemployed programmers going back to school to become accountants or lawyers were common.
Some believe the crash of the dot-com bubble contributed to the housing bubble in the U.S. Yale economist Robert Shiller said in 2005, "Once stocks fell, real estate became the primary outlet for the speculative frenzy that the stock market had unleashed. Where else could plungers apply their newly acquired trading talents? The materialistic display of the big house also has become a salve to bruised egos of disappointed stock investors. These days, the only thing that comes close to real estate as a national obsession is poker" (from Barron's Magazine's article "The Bubble's New Home", 20 June 2005).
In September 2005, The Economist referred to discussion of "Web 2.0", accompanied by rumors that Microsoft was considering buying America Online (AOL), as "Bubble 2.0".[4]
In 2006, some speculated that a new dot-com bubble might be at hand, citing the acquisition of Intermix Media (owner of MySpace) by News Corporation, Skype by eBay and YouTube by Google as well as the possible acquisition of Facebook by Yahoo.
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