Foreign buyers findinga 2nd home in the U.S.
Prices attractive as the dollar declines, real estate slumps
By Leslie Wines
Associated Press, December 25, 2007
Panden Rota, a Nepalese producer of fine rugs, is about to become a Manhattanite, the owner of a sumptuous apartment in the luxurious downtown neighborhood of Battery Park City.
His primary residence will remain in Katmandu, but his new home will allow him to spend more time at U.S. showrooms that display his rugs and with a brother and sister in New York.
"I looked at many places, and I decided that a Manhattan apartment will always hold its value," he said.
Rota is part of a growing wave of foreigners who buy second homes in the U.S. for work and play and as an investment.
Cosmopolitan cities like New York and Miami have long served as second homes for affluent and accomplished foreigners. But the trend is growing. One in five American Realtors has sold a home to a foreign investor in the past year, according to the National Association of Realtors.
Severe dollar declines against the euro and pound have made U.S. homes much cheaper for Europeans. But even foreign buyers without that sort of currency advantage are benefiting from sharp drops in housing prices at a time when problems in mortgage lending are keeping many Americans out of the market.
At the same time, many foreign real estate markets, especially in Europe, have experienced sharp increases in home prices.
"There are markets like Paris and London and the south of France where some home values have gone up 100 percent," said Christian Voelkers of the Hamburg Realtor Engel & Volkers Group. "At the same time, U.S. prices have either stayed put or come down."
Engel & Volkers, which caters to wealthy clients, plans to open 300 residential sales offices across the U.S. in the next few years. The currency advantage is greatest for British citizens, given that each pound is worth well over $2. By contrast, the euro is worth about $1.45, while the Canadian dollar in recent weeks is hovering near parity with its U.S. counterpart.
"At this point, the English are more actively looking in Manhattan than American buyers," said Ivan Hakimian of New York's Itzhaki Properties.
Mia Wilkinson, a transplanted Englishwoman who works for Rubloff Residential Properties in Chicago, deals often with British and other foreign executives transferred to the U.S.
"Before, people would stay in corporate rentals," she said. "But now these same people are turning around and buying properties."
Wilkinson, who has been in the U.S. six years, has bought property in Chicago.
The expansion of foreign real-estate investment in the U.S. also means that areas that once were not popular with international buyers are receiving interest. Doug Aitkin, who works for North Carolina's World Trade Center, said the Research Triangle area, comprising the cities of Durham, Raleigh and Chapel Hill, is getting inquiries from French and Scandinavian home buyers, a new phenomenon.
In Los Angeles, demand from wealthy South Koreans for attractive condo towers and mid-level-rise buildings has helped revitalize the once-forlorn downtown neighborhood, said Johanna Gunther, a senior vice president with the Ryness Co.
And Canadian buyers eager to enjoy Arizona's dry, warm climate reportedly are giving Scottsdale's phlegmatic residential real estate market a boost.
The National Association of Realtors found that 7.3 percent of the houses sold last year in Florida went to foreign buyers. Miami, in particular, is a magnet for buyers from throughout Latin America and Europe, helping to mitigate the fallout from the area's housing slump.
Despite the news waves of foreign buyers in many U.S. markets, few suggest international investors by themselves can entirely offset the nation's housing crisis, brought on by the failure of many subprime mortgage loans made to home buyers with weak credit histories.
The fact that international investors are helping to prop up some troubled housing markets only emphasizes the level of stress in residential real estate, said Constantine Valhouli, a principal with Boston's Hammersmith Group.
"Relying on foreign real estate investors is fundamentally as risky as relying on subprime mortgages," Valhouli said, noting that both distort demand and can conceal the depths of the problem U.S. home buyers and sellers face.
"Foreign buyers aren't going to save the U.S. housing market. They're just a temporary fix like a finger in the dike. Fundamentals matter."
Wednesday, December 26, 2007
Indians' Road to Success
Indians' Road to Success
By CRAIG KARMIN and JACKIE RANGE
Wall Street Journal, December 8, 2007
Hopefuls Go to Far-Flung Test Sites Due to Chartered Analysts' Dispute
Vikash Kumar, a business student in India, took a trip to Nepal last week with four friends. To get there and back, they traveled for hours by airplane, taxi and rickshaw. They passed through border areas menaced by bandits.
They aren't adventure-seekers, or even tourists. Mr. Kumar and his friends are simply trying to take the Chartered Financial Analyst exam.
Passing the CFA -- a series of three grueling, six-hour tests covering economics, accounting and markets -- opens the door to high-paying financial jobs. India's booming economy is triggering a concurrent boom in CFAs: This year, India had been expected to produce more than 10,000 candidates, according to the U.S.-based CFA Institute, more than anywhere except North America. Just seven years ago, India produced less than 250.
But a long-simmering trademark spat over who has the right to use the letters "CFA" in India has thrown this year's process into disarray.
So, CFA hopefuls like Mr. Kumar are traveling the globe for alternative sites. Test-takers have ended up as far away as Sri Lanka, Oman and Nebraska.
That is, if they can get a flight. The exodus is so great that flights to Nepal in early June (an exam date there) were booked up, even though it was monsoon season, one of the worst possible times to travel in South Asia. Some CFA hopefuls trying to go to Singapore at the last minute got tripped up by the three-day waiting period for a visa, missing tests there.
Internet chat rooms are packed with frustrated CFA candidates. "Let's start off the day on a positive note and start praying to GOD" that the exams will take place, wrote someone signed "Jigz" this year in a CFA community on the social-networking Web site Orkut.
That elicited a string of sarcastic responses. Usually, people pray to pass an exam, someone retorted, but "we pray in order to sit for the exam!"
Other posts seek help finding the best test sites abroad. "ok, so who is travelling to colombo/bangkok?" asks one poster. "i am for sure....cant risk katmandu with the maoist c- happening there" -- a reference to political violence stirred up by Nepal's Mao-inspired rebels.
The notion of Maoists attacking business-school types in the Himalayas might sound far-fetched. But it is a deadly serious concern. Just ask Abhishek Verma, 26 years old, who traveled to Katmandu this year for the CFA exam only to find the city shut down by the Maoist insurgency, which is protesting government corruption and opposes the Nepalese monarchy.
Because the city was shut down, Mr. Verma had trouble finding a taxi to take him from the airport to the hotel. And once he did, he was promptly stopped by a Maoist who threatened to set the car on fire.
The taxi driver, he says, pleaded that his passengers were foreigners, not Nepalese, and was finally allowed to proceed unharmed.
"We were so afraid," Mr. Verma recalls.
The dispute over India's CFA exams boils down to this: For more than a decade, the Virginia-based CFA Institute -- which administers exams world-wide -- worked with a local licensee in India. In recent years, the local licensee broke off, launched its own certification program dubbed the Institute of Chartered Financial Analysts of India, and launched a campaign to prohibit the American firm from operating in India. The ICFAI also has opened business schools in India.
Both sides blame each other. "The fault rests with CFA alone," says S.R. Mallela, a member of the board of governors of ICFAI in Hyderabad.
The CFA says it has every legal right to operate in India, and blames the ICFAI for causing headaches for Indian students. "The burden is placed most heavily on those who don't have the means," says Jeffrey J. Diermeier, president and chief executive of the CFA Institute.
While test-takers could take the ICFA test in India, many prefer to obtain the CFA's certificate. "The ICFA doesn't even carry much weight in India," says Jasmit Singh Chandhok, a CFA candidate from New Delhi.
Which is why he flew to Bangkok a few months ago to take the CFA exam. At the test site in Thailand, he says, he was surprised to see that about a third of the 300 people in the test room there were also Indian.
"In one corner, there were four guys I knew from home," he says.
According to the CFA, Indian candidates this year have traveled to at least 16 countries to take the exam. The CFA Institute has tried to ease the financial cost by cutting a $300 check for any Indian who tested abroad. CFA registration and materials can cost more than $2,500 for all three exams needed to receive the designation, an immense sum in India, where a fairly typical urban office job might pay only $3,500 a year.
Earlier this year, Karan Mehta, a securities analyst in New Delhi, decided to take the test in Omaha, Neb., because he was going to be there anyway for a wedding. He landed a few hours before the test, bleary-eyed from the 18½-hour flight, took a quick nap, then went straight to the exam room.
Afterward, he says, he strolled around Omaha, hoping that he might bump into famed investor Warren Buffett, who lives there. "But he was too hard to find," Mr. Mehta says.
The vast majority of traveling test-takers so far have headed for Nepal, India's neighbor to the north. Nepal is close enough to India that people can get there overland, avoiding costly plane tickets and visa hassles.
Among them was Mr. Kumar, 26, the business student who went to Katmandu with his friends. While he was able to get a flight into Nepal, he wasn't able to get a round-trip ticket to fly back out.
So, after taking the test on Dec. 2, they flew to the Nepalese town of Simara, went from there to Birganj by taxi, and then by auto-rickshaw across the border. Then, it was just a seven-hour taxi ride for the five of them to Patna.
It was worth the hassle, Mr. Kumar says. "For getting into a good career, into investment banks and all, CFA's quite mandatory these days."
He had better hope the trip winds up better than it did for Nikita Sharma, 25, who traveled a similar route earlier this year. She flew to Katmandu in June to take the CFA. But traveling overland on the way back, she got stranded on her bus for 15 hours after an accident in Nepal blocked traffic.
Ms. Sharma says that she and her two friends thought about abandoning the bus and trying to hike out. But "we also got scared, if we started walking, if we would be able to save ourselves from the animals."
Instead, they stuck it out and subsisted on mango juice. At least a dozen people on the bus, including them, were also CFA candidates, she estimates.
Despite all the hassles, Ms. Sharma had no regrets -- until, that is, she learned a few weeks later that she hadn't passed the exam.
"If one had passed," Ms. Sharma says ruefully, "then one would have cherished the moment."
By CRAIG KARMIN and JACKIE RANGE
Wall Street Journal, December 8, 2007
Hopefuls Go to Far-Flung Test Sites Due to Chartered Analysts' Dispute
Vikash Kumar, a business student in India, took a trip to Nepal last week with four friends. To get there and back, they traveled for hours by airplane, taxi and rickshaw. They passed through border areas menaced by bandits.
They aren't adventure-seekers, or even tourists. Mr. Kumar and his friends are simply trying to take the Chartered Financial Analyst exam.
Passing the CFA -- a series of three grueling, six-hour tests covering economics, accounting and markets -- opens the door to high-paying financial jobs. India's booming economy is triggering a concurrent boom in CFAs: This year, India had been expected to produce more than 10,000 candidates, according to the U.S.-based CFA Institute, more than anywhere except North America. Just seven years ago, India produced less than 250.
But a long-simmering trademark spat over who has the right to use the letters "CFA" in India has thrown this year's process into disarray.
So, CFA hopefuls like Mr. Kumar are traveling the globe for alternative sites. Test-takers have ended up as far away as Sri Lanka, Oman and Nebraska.
That is, if they can get a flight. The exodus is so great that flights to Nepal in early June (an exam date there) were booked up, even though it was monsoon season, one of the worst possible times to travel in South Asia. Some CFA hopefuls trying to go to Singapore at the last minute got tripped up by the three-day waiting period for a visa, missing tests there.
Internet chat rooms are packed with frustrated CFA candidates. "Let's start off the day on a positive note and start praying to GOD" that the exams will take place, wrote someone signed "Jigz" this year in a CFA community on the social-networking Web site Orkut.
That elicited a string of sarcastic responses. Usually, people pray to pass an exam, someone retorted, but "we pray in order to sit for the exam!"
Other posts seek help finding the best test sites abroad. "ok, so who is travelling to colombo/bangkok?" asks one poster. "i am for sure....cant risk katmandu with the maoist c- happening there" -- a reference to political violence stirred up by Nepal's Mao-inspired rebels.
The notion of Maoists attacking business-school types in the Himalayas might sound far-fetched. But it is a deadly serious concern. Just ask Abhishek Verma, 26 years old, who traveled to Katmandu this year for the CFA exam only to find the city shut down by the Maoist insurgency, which is protesting government corruption and opposes the Nepalese monarchy.
Because the city was shut down, Mr. Verma had trouble finding a taxi to take him from the airport to the hotel. And once he did, he was promptly stopped by a Maoist who threatened to set the car on fire.
The taxi driver, he says, pleaded that his passengers were foreigners, not Nepalese, and was finally allowed to proceed unharmed.
"We were so afraid," Mr. Verma recalls.
The dispute over India's CFA exams boils down to this: For more than a decade, the Virginia-based CFA Institute -- which administers exams world-wide -- worked with a local licensee in India. In recent years, the local licensee broke off, launched its own certification program dubbed the Institute of Chartered Financial Analysts of India, and launched a campaign to prohibit the American firm from operating in India. The ICFAI also has opened business schools in India.
Both sides blame each other. "The fault rests with CFA alone," says S.R. Mallela, a member of the board of governors of ICFAI in Hyderabad.
The CFA says it has every legal right to operate in India, and blames the ICFAI for causing headaches for Indian students. "The burden is placed most heavily on those who don't have the means," says Jeffrey J. Diermeier, president and chief executive of the CFA Institute.
While test-takers could take the ICFA test in India, many prefer to obtain the CFA's certificate. "The ICFA doesn't even carry much weight in India," says Jasmit Singh Chandhok, a CFA candidate from New Delhi.
Which is why he flew to Bangkok a few months ago to take the CFA exam. At the test site in Thailand, he says, he was surprised to see that about a third of the 300 people in the test room there were also Indian.
"In one corner, there were four guys I knew from home," he says.
According to the CFA, Indian candidates this year have traveled to at least 16 countries to take the exam. The CFA Institute has tried to ease the financial cost by cutting a $300 check for any Indian who tested abroad. CFA registration and materials can cost more than $2,500 for all three exams needed to receive the designation, an immense sum in India, where a fairly typical urban office job might pay only $3,500 a year.
Earlier this year, Karan Mehta, a securities analyst in New Delhi, decided to take the test in Omaha, Neb., because he was going to be there anyway for a wedding. He landed a few hours before the test, bleary-eyed from the 18½-hour flight, took a quick nap, then went straight to the exam room.
Afterward, he says, he strolled around Omaha, hoping that he might bump into famed investor Warren Buffett, who lives there. "But he was too hard to find," Mr. Mehta says.
The vast majority of traveling test-takers so far have headed for Nepal, India's neighbor to the north. Nepal is close enough to India that people can get there overland, avoiding costly plane tickets and visa hassles.
Among them was Mr. Kumar, 26, the business student who went to Katmandu with his friends. While he was able to get a flight into Nepal, he wasn't able to get a round-trip ticket to fly back out.
So, after taking the test on Dec. 2, they flew to the Nepalese town of Simara, went from there to Birganj by taxi, and then by auto-rickshaw across the border. Then, it was just a seven-hour taxi ride for the five of them to Patna.
It was worth the hassle, Mr. Kumar says. "For getting into a good career, into investment banks and all, CFA's quite mandatory these days."
He had better hope the trip winds up better than it did for Nikita Sharma, 25, who traveled a similar route earlier this year. She flew to Katmandu in June to take the CFA. But traveling overland on the way back, she got stranded on her bus for 15 hours after an accident in Nepal blocked traffic.
Ms. Sharma says that she and her two friends thought about abandoning the bus and trying to hike out. But "we also got scared, if we started walking, if we would be able to save ourselves from the animals."
Instead, they stuck it out and subsisted on mango juice. At least a dozen people on the bus, including them, were also CFA candidates, she estimates.
Despite all the hassles, Ms. Sharma had no regrets -- until, that is, she learned a few weeks later that she hadn't passed the exam.
"If one had passed," Ms. Sharma says ruefully, "then one would have cherished the moment."
Friday, November 23, 2007
Monday, October 22, 2007
Claremont, Williams Mega-Gifts Finance Fight Against Ivy League
Claremont, Williams Mega-Gifts Finance Fight Against Ivy League
Bloomberg, Oct-22-07
By Matthew Keenan
Liberal arts colleges in the U.S. are attracting alumni gifts of $10 million or more at a record pace to finance their competition with Ivy League universities for the nation's premier students.
Williams College in Williamstown, Massachusetts surpassed its $400 million capital campaign goal in June. Vermont's Middlebury College is almost halfway to its $500 million target, the most ambitious yet for any liberal arts institution. Claremont McKenna College in California received a record $200 million last month from investor Robert Day.
Schools have grown savvy in reaching out to alumni for ``mega-gifts,'' Michael Schoenfeld, Middlebury's vice president for college advancement, said in an interview. ``There is a need, there is the competition and there is the capacity of donors who are able to make a gift like that.''
For colleges with less than 3,000 students to compete with larger Ivy League universities for talented high-schoolers, alumni must help fund scholarships, attract professors and improve campuses, officials at the schools said. Universities are also seeking record sums, with Stanford, near Palo Alto, California, aiming to raise $4.3 billion. Cornell University, in Ithaca, New York; and Columbia University, in New York City, each set $4 billion goals.
Middlebury has drawn $50 million from an anonymous donor and $23.5 million from Shelby M.C. Davis, founder of New York money manager Davis Advisors. The school, in the midst of a five-year campaign, assigns eight of 65 development employees to donors capable of giving $100,000 to $5 million each.
Just three officials, including President Ronald Liebowitz, solicit gifts above that amount. Volunteers such as Richard Fuld, chief executive officer of Lehman Brothers Holdings Inc. in New York, also help the school tap affluent donors. Founded in 1800, Middlebury has about 2,350 undergraduates, compared with 6,700 at Harvard University in Cambridge, Massachusetts.
Wellesley's Example
Wellesley College, the Massachusetts women's college founded in 1870 whose alumnae include U.S. Senator Hillary Clinton, set a standard for liberal arts fundraising by gathering $472.3 million in a campaign that ended in 2005.
U.S. colleges and universities gathered an all-time high of $28 billion in contributions in 2006.
When Williams President Morton Schapiro took office in 2000, he drew up a strategic plan that resulted in a 15 percent increase in faculty, a new student center and greater financial aid, said Steve Birrell, vice president for alumni relations and development.
``We had needs coming out of the strategic plan that were of a different magnitude than we could support with so-called normal fundraising,'' which doesn't involve specially solicited mega-gifts, Birrell, 65, said in an interview from the school's campus in Williamstown.
Signature Gift
Williams, founded in 1793 with funds bequeathed by Colonel Ephraim Williams, publicly opened its campaign in the fall of 2003, after two years of preparation. The 2,000-student school's drive reached $413.3 million last week, and will continue through next year.
The signature gift was $20 million for a theater and dance center by Herbert Allen Jr., chairman of investment firm Allen & Co. in New York. The 1962 Williams graduate has a fortune valued at $2 billion by Forbes magazine.
Unlike universities more than twice their size, liberal arts colleges don't have medical schools or other research facilities that draw corporate and foundation grants, said John Lippincott, 58, president of the Council for the Advancement and Support of Education. Smaller schools rely instead on a cadre of deep-pocketed alumni.
Williams Donors
``You certainly are not going to achieve that goal in a period of five, six or seven years by accumulating small gifts,'' said Lippincott, whose Washington-based group represents marketing, communications and fundraising officials from 3,300 schools.
About 85 percent of the Williams money came from 2 percent of donors, including seven contributions of $10 million to $20 million each, Birrell said. At Middlebury, officials say a ``rule of 76'' calls for 76 gifts that together cover 76 percent of funds raised.
Claremont McKenna, with about 1,150 students, started soliciting gifts in March 2006 and plans to go public with the campaign next year.
Day's Donation
The school, founded in 1946, received $200 million in September from Day, an economics major who started TCW Group Inc., a Los Angeles-based investment firm that manages $70 billion. The gift will support students specializing in finance, accounting and leadership psychology.
His donation followed a $20 million gift by the Seattle- based Bill and Melinda Gates Foundation to fund science scholarships.
George Roberts, co-CEO of Kohlberg Kravis Roberts & Co., gave $20 million in October 2006. Roberts, a 1966 graduate, is seeking $40 million in matching gifts from other donors to create endowed faculty chairs. His initiative is more than halfway to its goal, showing that a culture of philanthropy has taken hold among alumni, said Claremont McKenna President Pamela Gann.
`Big Partner'
``People feel that they can have a high impact at a liberal arts college,'' the 58-year-old Gann said. ``A $20 million gift goes a lot further here than at a research university today. I think that matters. People feel like, `Oh, I'm a big partner.' And you are.''
Colgate University, in Hamilton, New York, launched a $400 million drive in March, and plans to reach that goal in three years, after taking in $234.4 million already.
``Our alumni are prepared to make those kinds of commitments,'' said Murray Decock, 48, vice president for institutional advancement.
Colgate got $27 million from Robert Hung Ngai Ho, a 1956 graduate, and dedicated its 121,000-square-foot science center to him last month. The school, founded in 1819, now has about 2,700 students.
Daniel Benton, the chief executive officer of hedge fund firm Andor Capital Management, in New York, gave $25 million. The 1980 graduate issued Colgate a challenge, making his gift contingent on the school's finding contributors for at least $25 million more in chunks of $1 million or greater. In March, 19 donors stepped forward with $27.9 million.
Bloomberg, Oct-22-07
By Matthew Keenan
Liberal arts colleges in the U.S. are attracting alumni gifts of $10 million or more at a record pace to finance their competition with Ivy League universities for the nation's premier students.
Williams College in Williamstown, Massachusetts surpassed its $400 million capital campaign goal in June. Vermont's Middlebury College is almost halfway to its $500 million target, the most ambitious yet for any liberal arts institution. Claremont McKenna College in California received a record $200 million last month from investor Robert Day.
Schools have grown savvy in reaching out to alumni for ``mega-gifts,'' Michael Schoenfeld, Middlebury's vice president for college advancement, said in an interview. ``There is a need, there is the competition and there is the capacity of donors who are able to make a gift like that.''
For colleges with less than 3,000 students to compete with larger Ivy League universities for talented high-schoolers, alumni must help fund scholarships, attract professors and improve campuses, officials at the schools said. Universities are also seeking record sums, with Stanford, near Palo Alto, California, aiming to raise $4.3 billion. Cornell University, in Ithaca, New York; and Columbia University, in New York City, each set $4 billion goals.
Middlebury has drawn $50 million from an anonymous donor and $23.5 million from Shelby M.C. Davis, founder of New York money manager Davis Advisors. The school, in the midst of a five-year campaign, assigns eight of 65 development employees to donors capable of giving $100,000 to $5 million each.
Just three officials, including President Ronald Liebowitz, solicit gifts above that amount. Volunteers such as Richard Fuld, chief executive officer of Lehman Brothers Holdings Inc. in New York, also help the school tap affluent donors. Founded in 1800, Middlebury has about 2,350 undergraduates, compared with 6,700 at Harvard University in Cambridge, Massachusetts.
Wellesley's Example
Wellesley College, the Massachusetts women's college founded in 1870 whose alumnae include U.S. Senator Hillary Clinton, set a standard for liberal arts fundraising by gathering $472.3 million in a campaign that ended in 2005.
U.S. colleges and universities gathered an all-time high of $28 billion in contributions in 2006.
When Williams President Morton Schapiro took office in 2000, he drew up a strategic plan that resulted in a 15 percent increase in faculty, a new student center and greater financial aid, said Steve Birrell, vice president for alumni relations and development.
``We had needs coming out of the strategic plan that were of a different magnitude than we could support with so-called normal fundraising,'' which doesn't involve specially solicited mega-gifts, Birrell, 65, said in an interview from the school's campus in Williamstown.
Signature Gift
Williams, founded in 1793 with funds bequeathed by Colonel Ephraim Williams, publicly opened its campaign in the fall of 2003, after two years of preparation. The 2,000-student school's drive reached $413.3 million last week, and will continue through next year.
The signature gift was $20 million for a theater and dance center by Herbert Allen Jr., chairman of investment firm Allen & Co. in New York. The 1962 Williams graduate has a fortune valued at $2 billion by Forbes magazine.
Unlike universities more than twice their size, liberal arts colleges don't have medical schools or other research facilities that draw corporate and foundation grants, said John Lippincott, 58, president of the Council for the Advancement and Support of Education. Smaller schools rely instead on a cadre of deep-pocketed alumni.
Williams Donors
``You certainly are not going to achieve that goal in a period of five, six or seven years by accumulating small gifts,'' said Lippincott, whose Washington-based group represents marketing, communications and fundraising officials from 3,300 schools.
About 85 percent of the Williams money came from 2 percent of donors, including seven contributions of $10 million to $20 million each, Birrell said. At Middlebury, officials say a ``rule of 76'' calls for 76 gifts that together cover 76 percent of funds raised.
Claremont McKenna, with about 1,150 students, started soliciting gifts in March 2006 and plans to go public with the campaign next year.
Day's Donation
The school, founded in 1946, received $200 million in September from Day, an economics major who started TCW Group Inc., a Los Angeles-based investment firm that manages $70 billion. The gift will support students specializing in finance, accounting and leadership psychology.
His donation followed a $20 million gift by the Seattle- based Bill and Melinda Gates Foundation to fund science scholarships.
George Roberts, co-CEO of Kohlberg Kravis Roberts & Co., gave $20 million in October 2006. Roberts, a 1966 graduate, is seeking $40 million in matching gifts from other donors to create endowed faculty chairs. His initiative is more than halfway to its goal, showing that a culture of philanthropy has taken hold among alumni, said Claremont McKenna President Pamela Gann.
`Big Partner'
``People feel that they can have a high impact at a liberal arts college,'' the 58-year-old Gann said. ``A $20 million gift goes a lot further here than at a research university today. I think that matters. People feel like, `Oh, I'm a big partner.' And you are.''
Colgate University, in Hamilton, New York, launched a $400 million drive in March, and plans to reach that goal in three years, after taking in $234.4 million already.
``Our alumni are prepared to make those kinds of commitments,'' said Murray Decock, 48, vice president for institutional advancement.
Colgate got $27 million from Robert Hung Ngai Ho, a 1956 graduate, and dedicated its 121,000-square-foot science center to him last month. The school, founded in 1819, now has about 2,700 students.
Daniel Benton, the chief executive officer of hedge fund firm Andor Capital Management, in New York, gave $25 million. The 1980 graduate issued Colgate a challenge, making his gift contingent on the school's finding contributors for at least $25 million more in chunks of $1 million or greater. In March, 19 donors stepped forward with $27.9 million.
Saturday, October 06, 2007
How 2 Guys' Iowa Connection Took Big Telecoms for a Ride Calls
How 2 Guys' Iowa Connection Took Big Telecoms for a Ride Calls
Sent to Their Area Piled Up Access Fees Until FCC Interceded
WSJ, 4-Oct-2007
By DIONNE SEARCEY
Two-and-a-half years ago Ron Laudner was the anxious owner of a rural phone company serving this tiny town, where Main Street was emptying out as restaurants and other businesses disconnected their phones and moved to busier commercial districts.
More than 1,800 miles away, David Erickson was running a Web-based conference-calling business in Long Beach, Calif., shopping around for phone companies to be his partners.
In mid-summer 2005 this unlikely duo struck a deal. They routed millions of minutes of Mr. Erickson's conference calls through the switches of Mr. Laudner's Farmers Telephone of Riceville. To do it, they used outdated federal regulations to charge telecom companies such as AT&T Inc. and Verizon Communications Inc. steep rates and collected huge profits at their expense. Together, the two made hundreds of thousands of dollars. Soon, Mr. Laudner cut other deals to generate even more traffic. At the peak, his little telephone company was facilitating conversations among everybody from Mary Kay Cosmetics employees to customers of Male Box, an "all male all gay" chat line.
"I'm not going to argue I didn't think it was amazing," Mr. Laudner says.
But the big phone companies had another term for it. "Verizon is not going to stand by while irresponsible companies use this traffic-pumping scheme to overcharge our company," says Tom Tauke, vice president of public affairs, policy and communications for Verizon.
The deal between Messrs. Laudner and Erickson illustrates how tumult in the telecom industry has given rise to opportunities -- and headaches -- as entrepreneurs exploit outdated regulation. Their arrangement, and deals like it, spawned lawsuits, blocked phone calls and triggered an investigation by the U.S. Federal Communications Commission into the high fees some rural carriers charged to the Bells. Late Tuesday, the FCC proposed rules that, if approved, are likely to prevent such deals in the future.
"We got smacked and smacked hard," Mr. Laudner says.
The partnerships benefited from the confluence of hot demand for conference calling and a proliferation of cheap long-distance plans. But the key was federal rules drafted during the 1983 break-up of Ma Bell, which required big telecom companies to pay hefty fees to small carriers to compensate for the high cost of providing service across miles of sparse farmland. Today, because of new technology, hundreds of callers can be linked at very little cost, no matter their location.
The Iowa plan worked like this: Mr. Erickson's freeconferencecall.com assigned a local Iowa telephone number to a group offering a conference call. When customers dialed the number, they went through their own carriers -- say, AT&T -- to be routed to Farmers Telephone in Iowa. Farmers Telephone then linked the callers to each other. Farmers charged the Bells steep rates to transmit their customers' calls and split the proceeds with freeconferencecall.com.
Mr. Erickson is a 42-year-old high-school graduate from Long Beach who gave up a childhood dream of becoming an architect to instead run construction companies that built machines for designing curbs and gutters. He dabbled in running insurance companies briefly before getting interested in telecom by going to a trade show with a friend and being wowed by a device that allows videoconferencing between PCs.
Mr. Erickson formed freeconferencecall.com in October 2001 working with a Boston phone company. He handled the marketing to attract customers to the service while the phone company provided the phone numbers and transmitted the calls. Mr. Erickson's business plan was to give away free conference calling and sell businesses other things, like a service that would allow users in multiple locations to work on spreadsheets simultaneously.
Other startups were doing the same thing, many of them depending on customers looking for sex chats. These customers have flocked to the free conference-call startups rather than pay costly fees associated with the 900-number sex industry, which has shrunk dramatically with the advent of inexpensive Internet-calling options and Internet-based pornography.
Mr. Erickson says he doesn't market to sex chat groups, but concedes he can't control who uses his free calling service.
Mr. Erickson realized early on there was money to be made from sharing the revenue that his phone-company partners were able to collect from the major carriers. Back in 2001, he started researching the fees and not long after recognized that rural phone companies, which could charge the Bells significantly higher fees than those in urban areas, presented an opportunity.
Mr. Laudner, a robust 49-year-old who has spiky gray hair, a goatee and an earring, was born in an apartment over a phone office his father managed in nearby Rudd, Iowa. One of his first jobs was driving through the cornfield-lined countryside in 1974 for a local phone company replacing customers' rotary-dial phones with more modern touch-tone phones. In 1995 he took over Farmers Telephone and two other rural phone companies all created in the early 1900s when isolated farmers strung wires along fences to get phone service.
In recent years, Mr. Laudner has been eager to find ways to compensate for his shrinking core business, land-line phones. He created a slogan, "Let's talk," and participated in a dozen parades through neighboring towns, decorating his company's float to resemble an iPod to reflect new consumer technologies. He dreamed of rallying his Iowa phone company friends to help build a wireless business in rural Iraq but decided the country became too violent to safely set up shop.
In the spring of 2005, Mr. Laudner bought gear to help him market new Internet-based phone services such as Internet calling, video services, conference calling and other services to businesses outside Riceville's shrinking Main Street. A consultant, Darin Rohead, who helped sell him the equipment, put Mr. Erickson and Mr. Laudner in touch. Over a phone call they soon struck a deal, with Mr. Erickson mailing him gear to install that would enable the calls.
"I'll make you as successful as you want to be," Mr. Laudner remembers Mr. Erickson telling him.
Mr. Laudner offered the firm phone numbers with the local 641 area code to use to market free conference calls and other services. Callers who dialed the 641 number would pay the long-distance charge, which is now close to free in many plans. They would then be linked to one another through telecom gear in Mr. Laudner's phone-switching center. Mr. Laudner agreed to give freeconferencecall.com a "marketing fee" based on phone traffic, which amounted to splitting the per-minute access fees roughly 50-50 for each call.
In the summer of 2005 Mr. Laudner filed standard paperwork with regulators to justify his 5.3-cents-a-minute rate by presenting evidence of his past history of handling very little phone traffic. At the time, it was unclear how dramatically the traffic would jump. The FCC as well as AT&T reviewed his filing and didn't protest.
"We were taking the rules the way the rules were intended," says Mr. Laudner. "I didn't know how much traffic I was going to get."
Several weeks later after a few technical hiccups Mr. Laudner got the system up and running at full speed. Calls to his exchanges were slowly escalating as word spread online about the services.
The big phone companies didn't initially notice the impact of Mr. Laudner and Mr. Erickson's deal.
Mr. Erickson traveled to a barbecue in Iowa to meet Mr. Laudner face to face and to try to pick up more recruits. The two men ate ribs and played a round of golf.
During this period, Mr. Laudner struck partnerships with three other conference-calling firms. Suddenly, Farmers Telephone of Riceville was processing millions of minutes of phone calls a month, earning Mr. Laudner -- and the free-calling-service companies -- hundreds of thousands of dollars in new revenue. In November 2006, Mr. Laudner's company handled 27.4 million minutes of calls, more than double the number he had processed in an entire year before he partnered with the Internet companies. AT&T traffic alone on Farmers' network spiked to 15 million minutes in December 2006 from 121,000 minutes in January of the previous year.
The same thing was happening at nearly a dozen other small Iowa phone companies that were partnering with freeconferencecall.com and other companies, processing calls for everything from an Amish conference-calling service to "Free Phone Chat," a place where callers could "meet new friends and lovers."
About the same time in Denver, at the corporate headquarters of Qwest Communications International Inc., the company's analysts began to notice a spike in the bills owed to Iowa companies. Qwest's Lisa Hensley Eckert, who reviews traffic between phone carriers, received call records from the Iowa phone companies so she could examine the jump in volume. She started plugging popular Iowa phone numbers into a search engine tracking several to Web sites such as hotlivesexchat.com, allfreecalls.net, freecalls2theworld.com.
"They all used the same three Iowa area codes," says Ms. Hensley Eckert. "To see millions of dollars going out the door -- it was much larger than anything we'd seen before."
AT&T, Verizon, Sprint Nextel Corp. and other phone companies were also taking note. In late 2006, Qwest and AT&T disputed their unusually high monthly bills and stopped paying Mr. Laudner. On Jan. 29, AT&T sued Farmers and three other Iowa companies in U.S. District Court there; Qwest and Sprint soon followed with similar lawsuits and filings to the FCC. In one filing, AT&T complained that the Iowa companies "make a mockery" of the system designed to compensate carriers for providing phone service in rural areas.
The charges to Iowa companies, including Farmers Telephone, affected Qwest's 2006 fourth-quarter earnings, and cost the company roughly $10 million to $15 million out of total profits for that quarter of $194 million.
According to phone-company records, Riceville handled nearly 2.1 million minutes in January alone of calls to Male Box as well as five million from the Chicago Blade and Chicago Alibi, which offer adult chat and a "live personals" service where callers record and select personal ads.
Mr. Laudner says sex calls made up a sliver of his business. Most of the traffic Farmers Telephone handled came from sports chat clubs, businesses and charities including a domestic-violence prevention group, he says.
Still, word got around about the sex-related traffic. It didn't go over well in Riceville, population 900, which touts its "safe environment for children" on its Web site. A resident stopped one of Mr. Laudner's workers early this year to ask whether his company was involved in the sex-call business.
In March, Mr. Laudner received a call from freeconferencecall.com saying customers' calls weren't going through.
Freeconferencecall.com initially blamed Mr. Laudner for the problems, and he checked his equipment, which he found to be working properly. Quickly Mr. Erickson learned the problem was more widespread than Farmers Telephone. Qwest had suddenly stopped routing some Iowa traffic through its network. And AT&T started blocking calls to numbers it tied to "unscrupulous carriers," the company says. The tactics in some cases affected regular phone traffic to Iowa, the Iowa carriers say.
Angry freeconferencecall.com customers who couldn't dial into their conference calls complained to Mr. Erickson, and some of them never returned to the site, he said.
"It was like stepping on somebody's oxygen hose," says Mr. Erickson who thinks the blocking was "criminal."
Mr. Laudner and other Iowa carriers were outraged. In April, he and Mr. Erickson and other Iowa phone executives, traveled to Washington, D.C., to complain about the blocking to officials at the FCC, which has in the past levied fines for similar acts.
The FCC didn't fine the phone companies but staffers phoned AT&T, Qwest, Sprint Nextel, Verizon and Embarq Corp., formerly the local phone division of Sprint Nextel, to warn them that blocking was unacceptable, according to FCC and phone company officials. In June, the agency formally barred the big phone companies from blocking the calls.
For now, despite the FCC's proposed rules, which say some of the carriers are "engaging in an unreasonable practice," the calls continue to flow to Iowa. But AT&T, Verizon and Sprint aren't paying the fees to Mr. Laudner for the disputed calls. Mr. Laudner says he is owed at least $20 million by various carriers.
Mr. Laudner couldn't pay the free-calling-service companies their share. Farmers Telephone and freeconferencecall.com ended their relationship in late June when the companies' two-year contract expired. "Ron had been a good guy," Mr. Erickson said. "He wasn't going to go further with it and I wasn't going to try." He says he's since found other companies in nearby states to handle the calls, noting: "I don't need Iowa to do this."
Write to Dionne Searcey at dionne.searcey@wsj.com1
Sent to Their Area Piled Up Access Fees Until FCC Interceded
WSJ, 4-Oct-2007
By DIONNE SEARCEY
Two-and-a-half years ago Ron Laudner was the anxious owner of a rural phone company serving this tiny town, where Main Street was emptying out as restaurants and other businesses disconnected their phones and moved to busier commercial districts.
More than 1,800 miles away, David Erickson was running a Web-based conference-calling business in Long Beach, Calif., shopping around for phone companies to be his partners.
In mid-summer 2005 this unlikely duo struck a deal. They routed millions of minutes of Mr. Erickson's conference calls through the switches of Mr. Laudner's Farmers Telephone of Riceville. To do it, they used outdated federal regulations to charge telecom companies such as AT&T Inc. and Verizon Communications Inc. steep rates and collected huge profits at their expense. Together, the two made hundreds of thousands of dollars. Soon, Mr. Laudner cut other deals to generate even more traffic. At the peak, his little telephone company was facilitating conversations among everybody from Mary Kay Cosmetics employees to customers of Male Box, an "all male all gay" chat line.
"I'm not going to argue I didn't think it was amazing," Mr. Laudner says.
But the big phone companies had another term for it. "Verizon is not going to stand by while irresponsible companies use this traffic-pumping scheme to overcharge our company," says Tom Tauke, vice president of public affairs, policy and communications for Verizon.
The deal between Messrs. Laudner and Erickson illustrates how tumult in the telecom industry has given rise to opportunities -- and headaches -- as entrepreneurs exploit outdated regulation. Their arrangement, and deals like it, spawned lawsuits, blocked phone calls and triggered an investigation by the U.S. Federal Communications Commission into the high fees some rural carriers charged to the Bells. Late Tuesday, the FCC proposed rules that, if approved, are likely to prevent such deals in the future.
"We got smacked and smacked hard," Mr. Laudner says.
The partnerships benefited from the confluence of hot demand for conference calling and a proliferation of cheap long-distance plans. But the key was federal rules drafted during the 1983 break-up of Ma Bell, which required big telecom companies to pay hefty fees to small carriers to compensate for the high cost of providing service across miles of sparse farmland. Today, because of new technology, hundreds of callers can be linked at very little cost, no matter their location.
The Iowa plan worked like this: Mr. Erickson's freeconferencecall.com assigned a local Iowa telephone number to a group offering a conference call. When customers dialed the number, they went through their own carriers -- say, AT&T -- to be routed to Farmers Telephone in Iowa. Farmers Telephone then linked the callers to each other. Farmers charged the Bells steep rates to transmit their customers' calls and split the proceeds with freeconferencecall.com.
Mr. Erickson is a 42-year-old high-school graduate from Long Beach who gave up a childhood dream of becoming an architect to instead run construction companies that built machines for designing curbs and gutters. He dabbled in running insurance companies briefly before getting interested in telecom by going to a trade show with a friend and being wowed by a device that allows videoconferencing between PCs.
Mr. Erickson formed freeconferencecall.com in October 2001 working with a Boston phone company. He handled the marketing to attract customers to the service while the phone company provided the phone numbers and transmitted the calls. Mr. Erickson's business plan was to give away free conference calling and sell businesses other things, like a service that would allow users in multiple locations to work on spreadsheets simultaneously.
Other startups were doing the same thing, many of them depending on customers looking for sex chats. These customers have flocked to the free conference-call startups rather than pay costly fees associated with the 900-number sex industry, which has shrunk dramatically with the advent of inexpensive Internet-calling options and Internet-based pornography.
Mr. Erickson says he doesn't market to sex chat groups, but concedes he can't control who uses his free calling service.
Mr. Erickson realized early on there was money to be made from sharing the revenue that his phone-company partners were able to collect from the major carriers. Back in 2001, he started researching the fees and not long after recognized that rural phone companies, which could charge the Bells significantly higher fees than those in urban areas, presented an opportunity.
Mr. Laudner, a robust 49-year-old who has spiky gray hair, a goatee and an earring, was born in an apartment over a phone office his father managed in nearby Rudd, Iowa. One of his first jobs was driving through the cornfield-lined countryside in 1974 for a local phone company replacing customers' rotary-dial phones with more modern touch-tone phones. In 1995 he took over Farmers Telephone and two other rural phone companies all created in the early 1900s when isolated farmers strung wires along fences to get phone service.
In recent years, Mr. Laudner has been eager to find ways to compensate for his shrinking core business, land-line phones. He created a slogan, "Let's talk," and participated in a dozen parades through neighboring towns, decorating his company's float to resemble an iPod to reflect new consumer technologies. He dreamed of rallying his Iowa phone company friends to help build a wireless business in rural Iraq but decided the country became too violent to safely set up shop.
In the spring of 2005, Mr. Laudner bought gear to help him market new Internet-based phone services such as Internet calling, video services, conference calling and other services to businesses outside Riceville's shrinking Main Street. A consultant, Darin Rohead, who helped sell him the equipment, put Mr. Erickson and Mr. Laudner in touch. Over a phone call they soon struck a deal, with Mr. Erickson mailing him gear to install that would enable the calls.
"I'll make you as successful as you want to be," Mr. Laudner remembers Mr. Erickson telling him.
Mr. Laudner offered the firm phone numbers with the local 641 area code to use to market free conference calls and other services. Callers who dialed the 641 number would pay the long-distance charge, which is now close to free in many plans. They would then be linked to one another through telecom gear in Mr. Laudner's phone-switching center. Mr. Laudner agreed to give freeconferencecall.com a "marketing fee" based on phone traffic, which amounted to splitting the per-minute access fees roughly 50-50 for each call.
In the summer of 2005 Mr. Laudner filed standard paperwork with regulators to justify his 5.3-cents-a-minute rate by presenting evidence of his past history of handling very little phone traffic. At the time, it was unclear how dramatically the traffic would jump. The FCC as well as AT&T reviewed his filing and didn't protest.
"We were taking the rules the way the rules were intended," says Mr. Laudner. "I didn't know how much traffic I was going to get."
Several weeks later after a few technical hiccups Mr. Laudner got the system up and running at full speed. Calls to his exchanges were slowly escalating as word spread online about the services.
The big phone companies didn't initially notice the impact of Mr. Laudner and Mr. Erickson's deal.
Mr. Erickson traveled to a barbecue in Iowa to meet Mr. Laudner face to face and to try to pick up more recruits. The two men ate ribs and played a round of golf.
During this period, Mr. Laudner struck partnerships with three other conference-calling firms. Suddenly, Farmers Telephone of Riceville was processing millions of minutes of phone calls a month, earning Mr. Laudner -- and the free-calling-service companies -- hundreds of thousands of dollars in new revenue. In November 2006, Mr. Laudner's company handled 27.4 million minutes of calls, more than double the number he had processed in an entire year before he partnered with the Internet companies. AT&T traffic alone on Farmers' network spiked to 15 million minutes in December 2006 from 121,000 minutes in January of the previous year.
The same thing was happening at nearly a dozen other small Iowa phone companies that were partnering with freeconferencecall.com and other companies, processing calls for everything from an Amish conference-calling service to "Free Phone Chat," a place where callers could "meet new friends and lovers."
About the same time in Denver, at the corporate headquarters of Qwest Communications International Inc., the company's analysts began to notice a spike in the bills owed to Iowa companies. Qwest's Lisa Hensley Eckert, who reviews traffic between phone carriers, received call records from the Iowa phone companies so she could examine the jump in volume. She started plugging popular Iowa phone numbers into a search engine tracking several to Web sites such as hotlivesexchat.com, allfreecalls.net, freecalls2theworld.com.
"They all used the same three Iowa area codes," says Ms. Hensley Eckert. "To see millions of dollars going out the door -- it was much larger than anything we'd seen before."
AT&T, Verizon, Sprint Nextel Corp. and other phone companies were also taking note. In late 2006, Qwest and AT&T disputed their unusually high monthly bills and stopped paying Mr. Laudner. On Jan. 29, AT&T sued Farmers and three other Iowa companies in U.S. District Court there; Qwest and Sprint soon followed with similar lawsuits and filings to the FCC. In one filing, AT&T complained that the Iowa companies "make a mockery" of the system designed to compensate carriers for providing phone service in rural areas.
The charges to Iowa companies, including Farmers Telephone, affected Qwest's 2006 fourth-quarter earnings, and cost the company roughly $10 million to $15 million out of total profits for that quarter of $194 million.
According to phone-company records, Riceville handled nearly 2.1 million minutes in January alone of calls to Male Box as well as five million from the Chicago Blade and Chicago Alibi, which offer adult chat and a "live personals" service where callers record and select personal ads.
Mr. Laudner says sex calls made up a sliver of his business. Most of the traffic Farmers Telephone handled came from sports chat clubs, businesses and charities including a domestic-violence prevention group, he says.
Still, word got around about the sex-related traffic. It didn't go over well in Riceville, population 900, which touts its "safe environment for children" on its Web site. A resident stopped one of Mr. Laudner's workers early this year to ask whether his company was involved in the sex-call business.
In March, Mr. Laudner received a call from freeconferencecall.com saying customers' calls weren't going through.
Freeconferencecall.com initially blamed Mr. Laudner for the problems, and he checked his equipment, which he found to be working properly. Quickly Mr. Erickson learned the problem was more widespread than Farmers Telephone. Qwest had suddenly stopped routing some Iowa traffic through its network. And AT&T started blocking calls to numbers it tied to "unscrupulous carriers," the company says. The tactics in some cases affected regular phone traffic to Iowa, the Iowa carriers say.
Angry freeconferencecall.com customers who couldn't dial into their conference calls complained to Mr. Erickson, and some of them never returned to the site, he said.
"It was like stepping on somebody's oxygen hose," says Mr. Erickson who thinks the blocking was "criminal."
Mr. Laudner and other Iowa carriers were outraged. In April, he and Mr. Erickson and other Iowa phone executives, traveled to Washington, D.C., to complain about the blocking to officials at the FCC, which has in the past levied fines for similar acts.
The FCC didn't fine the phone companies but staffers phoned AT&T, Qwest, Sprint Nextel, Verizon and Embarq Corp., formerly the local phone division of Sprint Nextel, to warn them that blocking was unacceptable, according to FCC and phone company officials. In June, the agency formally barred the big phone companies from blocking the calls.
For now, despite the FCC's proposed rules, which say some of the carriers are "engaging in an unreasonable practice," the calls continue to flow to Iowa. But AT&T, Verizon and Sprint aren't paying the fees to Mr. Laudner for the disputed calls. Mr. Laudner says he is owed at least $20 million by various carriers.
Mr. Laudner couldn't pay the free-calling-service companies their share. Farmers Telephone and freeconferencecall.com ended their relationship in late June when the companies' two-year contract expired. "Ron had been a good guy," Mr. Erickson said. "He wasn't going to go further with it and I wasn't going to try." He says he's since found other companies in nearby states to handle the calls, noting: "I don't need Iowa to do this."
Write to Dionne Searcey at dionne.searcey@wsj.com1
Ruing CDOs Down Under Australian Beach Suburb Discovers Its Exposure To U.S. Subprime Woes
Ruing CDOs Down Under Australian Beach Suburb Discovers Its Exposure To U.S. Subprime Woes
WSJ, 4-Oct-2007
By JACKIE RANGE
At a recent meeting of the Manly Council, which governs a beachfront Sydney suburb, topics included Meals on Wheels, an antismoking policy for outdoor areas and U.S. subprime mortgages.
Earlier this year, the council handed 5.5 million Australian dollars (US$4.9 million) to Grange Securities, a small Australian investment bank. Council staffers were taken with the idea of slightly higher returns that Grange representatives proffered. They also were put at ease by Grange's client list, which includes dozens of Australian councils.
Grange was "quite firm and quite positive about the fact that they thought they could do a bit better than what we were doing ourselves," says Jenny Nascimento, manager of finance operations at Manly Council.
Now, Manly is ruing its investment decision, as are many councils across Australia. Manly officials say A$3 million of the money the council gave Grange was invested in collateralized debt obligations -- bonds underpinned by large pools of debt, including, in one case, U.S. subprime mortgages. As of Aug. 31, Manly was facing a paper loss of A$588,767 on the money it gave to Grange, funds that were collected from residential and business taxes, and charges for sporting facilities and parking, among other things.
"All of the client base are recognized as sophisticated investors who are responsible for their own due diligence relating to their investment decisions," a Grange spokesman said. "However, we do spend a great deal of time explaining the investments to our clients and ensuring all risks, etc., are clearly outlined in the documentation."
Initially, CDOs and other mortgage-backed securities were almost solely in the purview of investment banks and hedge funds. As these sophisticated buyers became saturated and the U.S. housing boom of the past several years kept delivering vast quantities of mortgages, the banks that created CDOs and other mortgage securities looked further afield for potential buyers to sop up the supply. Last year, banks issued $388 billion of all types of CDOs world-wide, up from $52 billion in 1999, according to Dealogic, a data-research firm.
They found a willing audience among town councils, small governments, charities, conservative state-run banks and risk-averse individual investors. Most of them were outside the U.S. and many had just a few million dollars, at most, to invest.
CDOs were appealing to many of these average investors because they promised to add a dash of juice to their investment portfolios. Although CDOs often are portrayed as complex and risky derivatives that offer huge returns, in many cases they offer an interest rate just a smidgen above government securities or a savings account, but supposedly with no more risk.
SachsenLB, a conservative state-run bank in Germany, was so enamored with mortgage securities that it set up an operation to trade mortgage securities and handle other investments from an office in Dublin. Bank of China Ltd., a big state lender, said its exposure to U.S. subprime mortgages stood at $9.65 billion. In the U.S., by comparison, the take-up among conservative investors looks relatively small.
The CDOs that washed up on Manly's tree-lined beaches were selected by Grange, which has since been bought by Wall Street brokerage Lehman Brothers Holdings Inc. The firm distributed its first CDO in 2002. Grange negotiated with investment banks such as Lehman or Barclays PLC of the United Kingdom to tailor products for its conservative client base, people close to Lehman said. "We saw an opportunity and, indeed, a need from an investor base to get advisory services and have access to the broader fixed-income market," said Glenn Willis, Grange's country head.
By August 2005, there were A$5.7 billion of publicly offered Australian CDOs outstanding, according to an Australian central-bank report. Since 2002, roughly 65% of Australian CDOs were bought by such investors as local governments or charity endowments.
Manly is part upscale Sydney suburb and part beach town. Many of its residents enjoy one of the world's most stunning commutes, riding ferries across Sydney Harbor, past the famous Sydney Opera House, to get to work.
The town, which invested a sum equivalent to roughly 10% of its annual operating budget with Grange, now is counting its losses. Manly saw the value of its investment in one CDO called Federation plummet to A$172,310 as of Aug. 31, from its original investment value of A$500,000.
Many other Australian councils face the same predicament and must decide whether to suffer the losses now or hang onto securities that face an uncertain future. "We're good at local government, but we're not necessarily good at investment," said Ross Fleming, Manly's chief financial officer.
Three councils say Grange put them into CDOs that were outside their criteria for investments or contained other irregularities, according to people familiar with the matter. For instance, the CDO called Federation is due to mature in 2047, exceeding the 10-year limit for the Woollahra Council, another Sydney suburb, to hold any security.
Grange has paid at least several million dollars in reimbursements to councils, council officials say. They declined to comment on why the money had been paid, citing confidentiality agreements with Grange. Woollahra Council, for instance, demanded the Federation security be bought back, and Grange complied, said Tony Lewis, managing director of Lewis Securities Ltd., who acted as an independent adviser to the council.
Grange declined to comment on individual clients. A spokesman said that the firm has "canceled trades" in a limited number of instances and that it "engaged in appropriate selling practices in the distribution of its products to clients." People close to Lehman note that more than 90% of Grange's CDOs have performed well so far.
Another gripe was that some of its CDOs, which contained U.S. and European assets, had Australian names, such as Kalgoorlie (a western Australian mining town famous for gold, nickel and brothels).
These labels disguised the true nature of the investments, some say. "I will make the conclusion that they were trying to mislead us, by giving Australian names to U.S. assets; you can draw your own conclusion," said Councillor Andrew Petrie in Woollahra, which owned Kalgoorlie. "If they'd been called 'Detroit,' you'd have said, 'What's this?' "
The Grange spokesman said the securities were denominated in Australian dollars and had other Australian characteristics. Market participants said it wasn't unusual for such securities to have Australian names.
WSJ, 4-Oct-2007
By JACKIE RANGE
At a recent meeting of the Manly Council, which governs a beachfront Sydney suburb, topics included Meals on Wheels, an antismoking policy for outdoor areas and U.S. subprime mortgages.
Earlier this year, the council handed 5.5 million Australian dollars (US$4.9 million) to Grange Securities, a small Australian investment bank. Council staffers were taken with the idea of slightly higher returns that Grange representatives proffered. They also were put at ease by Grange's client list, which includes dozens of Australian councils.
Grange was "quite firm and quite positive about the fact that they thought they could do a bit better than what we were doing ourselves," says Jenny Nascimento, manager of finance operations at Manly Council.
Now, Manly is ruing its investment decision, as are many councils across Australia. Manly officials say A$3 million of the money the council gave Grange was invested in collateralized debt obligations -- bonds underpinned by large pools of debt, including, in one case, U.S. subprime mortgages. As of Aug. 31, Manly was facing a paper loss of A$588,767 on the money it gave to Grange, funds that were collected from residential and business taxes, and charges for sporting facilities and parking, among other things.
"All of the client base are recognized as sophisticated investors who are responsible for their own due diligence relating to their investment decisions," a Grange spokesman said. "However, we do spend a great deal of time explaining the investments to our clients and ensuring all risks, etc., are clearly outlined in the documentation."
Initially, CDOs and other mortgage-backed securities were almost solely in the purview of investment banks and hedge funds. As these sophisticated buyers became saturated and the U.S. housing boom of the past several years kept delivering vast quantities of mortgages, the banks that created CDOs and other mortgage securities looked further afield for potential buyers to sop up the supply. Last year, banks issued $388 billion of all types of CDOs world-wide, up from $52 billion in 1999, according to Dealogic, a data-research firm.
They found a willing audience among town councils, small governments, charities, conservative state-run banks and risk-averse individual investors. Most of them were outside the U.S. and many had just a few million dollars, at most, to invest.
CDOs were appealing to many of these average investors because they promised to add a dash of juice to their investment portfolios. Although CDOs often are portrayed as complex and risky derivatives that offer huge returns, in many cases they offer an interest rate just a smidgen above government securities or a savings account, but supposedly with no more risk.
SachsenLB, a conservative state-run bank in Germany, was so enamored with mortgage securities that it set up an operation to trade mortgage securities and handle other investments from an office in Dublin. Bank of China Ltd., a big state lender, said its exposure to U.S. subprime mortgages stood at $9.65 billion. In the U.S., by comparison, the take-up among conservative investors looks relatively small.
The CDOs that washed up on Manly's tree-lined beaches were selected by Grange, which has since been bought by Wall Street brokerage Lehman Brothers Holdings Inc. The firm distributed its first CDO in 2002. Grange negotiated with investment banks such as Lehman or Barclays PLC of the United Kingdom to tailor products for its conservative client base, people close to Lehman said. "We saw an opportunity and, indeed, a need from an investor base to get advisory services and have access to the broader fixed-income market," said Glenn Willis, Grange's country head.
By August 2005, there were A$5.7 billion of publicly offered Australian CDOs outstanding, according to an Australian central-bank report. Since 2002, roughly 65% of Australian CDOs were bought by such investors as local governments or charity endowments.
Manly is part upscale Sydney suburb and part beach town. Many of its residents enjoy one of the world's most stunning commutes, riding ferries across Sydney Harbor, past the famous Sydney Opera House, to get to work.
The town, which invested a sum equivalent to roughly 10% of its annual operating budget with Grange, now is counting its losses. Manly saw the value of its investment in one CDO called Federation plummet to A$172,310 as of Aug. 31, from its original investment value of A$500,000.
Many other Australian councils face the same predicament and must decide whether to suffer the losses now or hang onto securities that face an uncertain future. "We're good at local government, but we're not necessarily good at investment," said Ross Fleming, Manly's chief financial officer.
Three councils say Grange put them into CDOs that were outside their criteria for investments or contained other irregularities, according to people familiar with the matter. For instance, the CDO called Federation is due to mature in 2047, exceeding the 10-year limit for the Woollahra Council, another Sydney suburb, to hold any security.
Grange has paid at least several million dollars in reimbursements to councils, council officials say. They declined to comment on why the money had been paid, citing confidentiality agreements with Grange. Woollahra Council, for instance, demanded the Federation security be bought back, and Grange complied, said Tony Lewis, managing director of Lewis Securities Ltd., who acted as an independent adviser to the council.
Grange declined to comment on individual clients. A spokesman said that the firm has "canceled trades" in a limited number of instances and that it "engaged in appropriate selling practices in the distribution of its products to clients." People close to Lehman note that more than 90% of Grange's CDOs have performed well so far.
Another gripe was that some of its CDOs, which contained U.S. and European assets, had Australian names, such as Kalgoorlie (a western Australian mining town famous for gold, nickel and brothels).
These labels disguised the true nature of the investments, some say. "I will make the conclusion that they were trying to mislead us, by giving Australian names to U.S. assets; you can draw your own conclusion," said Councillor Andrew Petrie in Woollahra, which owned Kalgoorlie. "If they'd been called 'Detroit,' you'd have said, 'What's this?' "
The Grange spokesman said the securities were denominated in Australian dollars and had other Australian characteristics. Market participants said it wasn't unusual for such securities to have Australian names.
Friday, September 28, 2007
Tuesday, September 25, 2007
An Empty Apology
An Empty Apology
The New York Times, July 18, 2005
By BOB HERBERT
One of President Bush's surrogates went before the N.A.A.C.P. last week and apologized for the Republican Party's reprehensible, decades-long Southern strategy.
The surrogate, Ken Mehlman, is chairman of the Republican National Committee. Perhaps he meant well. But his words were worse than meaningless. They were insulting. The G.O.P.'s Southern strategy, racist at its core, still lives.
"Some Republicans gave up on winning the African-American vote, looking the other way or trying to benefit politically from racial polarization," said Mr. Mehlman. "I am here today as the Republican chairman to tell you we were wrong."
He made his remarks during an appearance in Milwaukee at the annual convention of the N.A.A.C.P., which has a relationship with President Bush reminiscent of the Hatfields' relationship with the McCoys. In a chilling act of political intimidation, the Internal Revenue Service responded to criticism of Mr. Bush by the N.A.A.C.P.'s chairman by launching an investigation of the group's tax-exempt status.
The Southern strategy meant much, much more than some members of the G.O.P. simply giving up on African-American votes. Put into play by Barry Goldwater and Richard Nixon in the mid- to late 1960's, it fed like a starving beast on the resentment of whites who were scornful of blacks and furious about the demise of segregation and other civil rights advances. The idea was to snatch the white racist vote away from the Democratic Party, which had committed such unpardonable sins as enacting the Civil Rights and Voting Rights Acts and enforcing desegregation statutes.
The important thing to keep in mind was how deliberate and pernicious the strategy was. Last month a jury in Philadelphia, Miss., convicted an 80-year-old man, Edgar Ray Killen, of manslaughter in the slaying of three civil rights workers - Andrew Goodman, Michael Schwerner and James Chaney - in the summer of 1964. It was a crime that made much of the nation tremble, and revolted anyone with a true sense of justice.
So what did Ronald Reagan do in his first run for the presidency, 16 years after the murder, in the summer of 1980? He chose the site of the murders, Philadelphia, Miss., as the perfect place to send an important symbolic message. Mr. Reagan kicked off his general election campaign at the Neshoba County Fair in Philadelphia, an annual gathering that was famous for its diatribes by segregationist politicians. His message: "I believe in states' rights."
Mr. Reagan's running mate was George H. W. Bush, who, in his own run for president in 1988, thought it was a good idea to exploit racial fears with the notorious Willie Horton ads about a black prisoner who raped a white woman. Mr. Bush's campaign manager, Lee Atwater, said at the time that the Horton case was a "values issue, particularly in the South - and if we hammer at these over and over, we are going to win."
Mr. Bush's son, the current president, has been as devoted as an acolyte to the Southern strategy, despite anything Ken Mehlman might think. Like so many other Republican politicians and presidential wannabes, George W. Bush was happy to appear at Bob Jones University in Greenville, S.C., at a time when the school was blatantly racially discriminatory.
And in both of Mr. Bush's presidential campaigns, his supporters, especially his brother Jeb, the governor of Florida, have gone out of their way to prevent or discourage blacks from voting. In a particularly vile episode last year, Florida state troopers conducted a criminal investigation that zeroed in on black voter turnout efforts in Orlando. A number of people were indicted, including the mayor, Buddy Dyer, a Democrat who was then suspended from office.
In April, with the election safely out of the way, the indictments were dropped and Mr. Dyer was reinstated as mayor.
At its heart, the Southern strategy remains the same, a cynical and remarkably successful divide-and-conquer strategy that nurtures the bigotry of whites and is utterly contemptuous of blacks.
My guess is that Mr. Mehlman's apology was less about starting a stampede of blacks into the G.O.P. than about softening the party's image in the eyes of moderate white voters. If the apology was serious, it would mean the Southern strategy was kaput. And we know that's not true.
The New York Times, July 18, 2005
By BOB HERBERT
One of President Bush's surrogates went before the N.A.A.C.P. last week and apologized for the Republican Party's reprehensible, decades-long Southern strategy.
The surrogate, Ken Mehlman, is chairman of the Republican National Committee. Perhaps he meant well. But his words were worse than meaningless. They were insulting. The G.O.P.'s Southern strategy, racist at its core, still lives.
"Some Republicans gave up on winning the African-American vote, looking the other way or trying to benefit politically from racial polarization," said Mr. Mehlman. "I am here today as the Republican chairman to tell you we were wrong."
He made his remarks during an appearance in Milwaukee at the annual convention of the N.A.A.C.P., which has a relationship with President Bush reminiscent of the Hatfields' relationship with the McCoys. In a chilling act of political intimidation, the Internal Revenue Service responded to criticism of Mr. Bush by the N.A.A.C.P.'s chairman by launching an investigation of the group's tax-exempt status.
The Southern strategy meant much, much more than some members of the G.O.P. simply giving up on African-American votes. Put into play by Barry Goldwater and Richard Nixon in the mid- to late 1960's, it fed like a starving beast on the resentment of whites who were scornful of blacks and furious about the demise of segregation and other civil rights advances. The idea was to snatch the white racist vote away from the Democratic Party, which had committed such unpardonable sins as enacting the Civil Rights and Voting Rights Acts and enforcing desegregation statutes.
The important thing to keep in mind was how deliberate and pernicious the strategy was. Last month a jury in Philadelphia, Miss., convicted an 80-year-old man, Edgar Ray Killen, of manslaughter in the slaying of three civil rights workers - Andrew Goodman, Michael Schwerner and James Chaney - in the summer of 1964. It was a crime that made much of the nation tremble, and revolted anyone with a true sense of justice.
So what did Ronald Reagan do in his first run for the presidency, 16 years after the murder, in the summer of 1980? He chose the site of the murders, Philadelphia, Miss., as the perfect place to send an important symbolic message. Mr. Reagan kicked off his general election campaign at the Neshoba County Fair in Philadelphia, an annual gathering that was famous for its diatribes by segregationist politicians. His message: "I believe in states' rights."
Mr. Reagan's running mate was George H. W. Bush, who, in his own run for president in 1988, thought it was a good idea to exploit racial fears with the notorious Willie Horton ads about a black prisoner who raped a white woman. Mr. Bush's campaign manager, Lee Atwater, said at the time that the Horton case was a "values issue, particularly in the South - and if we hammer at these over and over, we are going to win."
Mr. Bush's son, the current president, has been as devoted as an acolyte to the Southern strategy, despite anything Ken Mehlman might think. Like so many other Republican politicians and presidential wannabes, George W. Bush was happy to appear at Bob Jones University in Greenville, S.C., at a time when the school was blatantly racially discriminatory.
And in both of Mr. Bush's presidential campaigns, his supporters, especially his brother Jeb, the governor of Florida, have gone out of their way to prevent or discourage blacks from voting. In a particularly vile episode last year, Florida state troopers conducted a criminal investigation that zeroed in on black voter turnout efforts in Orlando. A number of people were indicted, including the mayor, Buddy Dyer, a Democrat who was then suspended from office.
In April, with the election safely out of the way, the indictments were dropped and Mr. Dyer was reinstated as mayor.
At its heart, the Southern strategy remains the same, a cynical and remarkably successful divide-and-conquer strategy that nurtures the bigotry of whites and is utterly contemptuous of blacks.
My guess is that Mr. Mehlman's apology was less about starting a stampede of blacks into the G.O.P. than about softening the party's image in the eyes of moderate white voters. If the apology was serious, it would mean the Southern strategy was kaput. And we know that's not true.
Wednesday, July 11, 2007
Wednesday, June 20, 2007
PBS: Frontline - Rough Cut Nepal: A Girl's Life Making room to read
PBS: Frontline
Rough Cut
Nepal: A Girl's Life
Making room to read
BY Sachi Cunningham
June 07, 2007
"Once upon a time there was a girl whose name was Sabina Timilsina..."
So begins "A Girl's Life" in the sing-song broken English of a 9-year-old who lives in a village outside Kathmandu, the capital of Nepal. It's the voice of a girl narrating her own life. A girl with a mother, a father and a brother. A girl who rises at dawn, brushes her teeth, and goes to school. A girl who likes to play volleyball and badminton, but most of all loves to read.
You can tell right away she's playful and smart, but her story seems rather ordinary -- until you realize that her family is of the lowest caste, the Dalits, or "untouchables," who typically earn their living breaking rocks. In a country where 70 percent of the women are illiterate, Sabina is an exception, an extraordinarily lucky girl who has a scholarship that will take her through high school.
Sabina's benefactor is an American named John Wood, who started a literacy program called Room to Read, the subject of this week's Rough Cut by FRONTLINE/World's Senior Associate Producer Sachi Cunningham. (more>>>>)
Click here to watch the program
Rough Cut
Nepal: A Girl's Life
Making room to read
BY Sachi Cunningham
June 07, 2007
"Once upon a time there was a girl whose name was Sabina Timilsina..."
So begins "A Girl's Life" in the sing-song broken English of a 9-year-old who lives in a village outside Kathmandu, the capital of Nepal. It's the voice of a girl narrating her own life. A girl with a mother, a father and a brother. A girl who rises at dawn, brushes her teeth, and goes to school. A girl who likes to play volleyball and badminton, but most of all loves to read.
You can tell right away she's playful and smart, but her story seems rather ordinary -- until you realize that her family is of the lowest caste, the Dalits, or "untouchables," who typically earn their living breaking rocks. In a country where 70 percent of the women are illiterate, Sabina is an exception, an extraordinarily lucky girl who has a scholarship that will take her through high school.
Sabina's benefactor is an American named John Wood, who started a literacy program called Room to Read, the subject of this week's Rough Cut by FRONTLINE/World's Senior Associate Producer Sachi Cunningham. (more>>>>)
Click here to watch the program
Wednesday, May 23, 2007
The man who owns the Internet
The man who owns the Internet
Business 2.0 Magazine, May 22 2007 (June 1 Issue)
By Paul Sloan, Business 2.0 Magazine editor-at-large
Kevin Ham leans forward, sits up tall, closes his eyes, and begins to type -- into the air. He's seated along the rear wall of a packed ballroom in Las Vegas's Venetian Hotel. Up front, an auctioneer is running through a list of Internet domain names, building excitement the same way he might if vintage cars were on the block.
As names come up that interest Ham, he occasionally air-types. It's the ultimate gut check. Is the name one that people might enter directly into their Web browser, bypassing the search engine box entirely, as Ham wants? Is it better in plural or singular form? If it's a typo, is it a mistake a lot of people would make? Or does the name, like a stunning beachfront property, just feel like a winner?
When Ham wants a domain, he leans over and quietly instructs an associate to bid on his behalf. He likes wedding names, so his guy lifts the white paddle and snags Weddingcatering.com for $10,000. Greeting.com is not nearly as good as the plural Greetings.com, but Ham grabs it anyway, for $350,000.
Ham is a devout Christian, and he spends $31,000 to add Christianrock.com to his collection, which already includes God.com and Satan.com. When it's all over, Ham strolls to the table near the exit and writes a check for $650,000. It's a cheap afternoon.
Just a few years ago, most of the guys bidding in this room had never laid eyes on one another. Indeed, they rarely left their home computers. Now they find themselves in a Vegas ballroom surrounded by deep-pocketed bankers, venture-backed startups, and other investors trying to get a piece of the action.
And why not? In the past three years alone, the number of dotcom names has soared more than 130 percent to 66 million. Every two seconds, another joins the list.
But the big money is in the aftermarket, where the most valuable names -- those that draw thousands of pageviews and throw off steady cash from Google's and Yahoo's pay-per-click ads -- are driving prices to dizzying heights. People who had the guts and foresight to sweep up names shed during the dotcom bust are now landlords of some of the most valuable real estate on the Web.
The man at the top of this little-known hierarchy is Kevin Ham -- one of a handful of major-league "domainers" in the world and arguably the shrewdest and most ambitious of the lot. Even in a field filled with unusual career paths, Ham's stands out.
Trained as a family doctor, he put off medicine after discovering the riches of the Web. Since 2000 he has quietly cobbled together a portfolio of some 300,000 domains that, combined with several other ventures, generate an estimated $70 million a year in revenue. (Like all his financial details, Ham would neither confirm nor deny this figure.)
Working mostly as a solo operator, Ham has looked for every opening and exploited every angle -- even inventing a few of his own -- to expand his enterprise. Early on, he wrote software to snag expiring names on the cheap. He was one of the first to take advantage of a loophole that allows people to register a name and return it without cost after a free trial, on occasion grabbing hundreds of thousands of names in one swoop.
And what few people know is that he's also the man behind the domain world's latest scheme: profiting from traffic generated by the millions of people who mistakenly type ".cm" instead of ".com" at the end of a domain name.
Try it with almost any name you can think of -- Beer.cm, Newyorktimes.cm, even Anyname.cm -- and you'll land on a page called Agoga.com, a site filled with ads served up by Yahoo (Charts, Fortune 500).
Ham makes money every time someone clicks on an ad -- as does his partner in this venture, the West African country of Cameroon. Why Cameroon? It has the unforeseen good fortune of owning .cm as its country code -- just as Germany runs all names that end with .de.
The difference is that hardly any .cm names are registered, and the letters are just one keyboard slip away from .com, the mother lode of all domains. Ham landed connections to the Cameroon government and flew in his people to reroute the traffic. And if he gets his way, Colombia (.co), Oman (.om), Niger (.ne), and Ethiopia (.et) will be his as well.
"It's in the works," Ham says over lunch in his hometown of Vancouver, British Columbia. "That's why I can't talk about it." He's nearly as reluctant to share details about his newest company, called Reinvent Technology, into which he's investing tens of millions of dollars to build a powerhouse of Internet businesses around his most valuable properties.
Given Ham's reach on the Web -- his sites receive 30 million unique visitors a month -- it's remarkable that so few people know about him. Even in the clubby world of domainers, he's a mystery man. Until now Ham has never talked publicly about his business. You won't find his name on any domain registration, nor will you see it on the patent application for the Cameroon trick.
There are practical reasons for the low profile: For one, Ham's success has drawn enemies, many of them rivals. He once used a Vancouver post office box for domain-related mail -- until the day he opened a package that contained a note reading "You are a piece of s**t," accompanied by an actual piece of it.
Bitter domainers are one thing, lawyers another. And at the moment, Ham's biggest concern is that corporate counsels will come after him claiming that the Cameroon typo scheme is an abuse of their trademarks. He may be right, since this is the first time he's been identified as the orchestrator.
When asked about the .cm play, John Berryhill, a top domain attorney who doesn't work for Ham, practically screams into the phone, "You know who did that? Do you have any idea how many people want to know who's behind that?"
Spreading the word
Kevin Ham is a boyish-looking 37-year-old, trim from a passion for judo and a commitment to clean living. His drink of choice: grapefruit juice, no ice. His mild demeanor belies the aggressive, work-around-the-clock type that he is. Ham frequently steers conversations about business back to the Bible. Not in a preachy way; it's just who he is.
The son of Korean-born immigrants, Ham grew up on the east side of Vancouver with his three brothers. His father ran dry-cleaning stores; his mother worked graveyard shifts as a nurse. A debilitating illness at the age of 14 led Ham to dream of becoming a doctor. He cruised through high school and then undergraduate work and medical school at the University of British Columbia.
Christianity had long been a mainstay with his family, but as an undergrad, he made the Bible a focal point of his life; he joined the Evangelical Layman's Church and attended regular Bible meetings. Ham recalls that it was about this time -- 1992 or 1993 -- that he was introduced to the Web. A church friend told him about a powerful new medium that could be used to spread the gospel.
"Those words really struck me," Ham says. "It's the reason I'm still working."
After he graduated from med school in 1998, Ham and his new bride took off for London, Ontario, for a two-year residency. By the second year, Ham had become chief resident, and when he wasn't rushing to the emergency room, he indulged his growing fascination with the Net, teaching himself to create websites and to code in Perl.
Information about Web hosting at the time was so scattered that Ham began creating an online directory of providers, complete with reviews and ratings of their services. He called it Hostglobal.com.
From there it was a short step to the business of buying and selling domains. About six months after he launched Hostglobal, Ham was earning around $10,000 per month in ad sales. But when one of his advertisers -- a service that sold domain registrations -- told him that a single ad was generating business worth $1,500 a month, Ham figured he could get in on that too.
From doctor to domainer
It made sense: People shopping for hosting services were often interested in buying a catchy URL, so Ham launched a second directory, called DNSindex.com. Like similar services operating at the time, it gave customers a way to register domain names.
But Ham added the one feature that early domain hunters wanted most: weekly lists of available names, compiled using free sources he found on the Web. Some lists he gave away; others he charged as much as $50 for. In a couple of months, he had more than 5,000 customers.
By the time he finished his residency in June 2000, his two small Web ventures were pulling in more money in a month -- sometimes $40,000 -- than Ham made that year at the hospital. That was enough, he reasoned, to put off starting a medical practice for three more months, maybe six. "It just didn't make sense not to do it," he says.
With a new baby in tow, Ham and his wife moved back to Vancouver, settling into a one-bedroom apartment. Ham's timing, it turned out, was spot-on. Tech stocks were tumbling, dotcoms were folding left and right, and investors were fleeing the Web. More important to him, hundreds of thousands of valuable domain names that were suddenly considered worthless began to expire, or "drop." Ham and a handful of other trailblazers were ready to snap them up.
Figuring out when names would drop was tedious work.
At the time, Network Solutions controlled the best names; it was for a long time the only retail company, or registrar, selling .coms. It didn't say when expiring names would go back on the market, but twice a day it published the master list of all registered names -- the so-called "root zone" file (now managed by VeriSign (Charts)). It was a fat list of well over 5 million names that took hours to download and often crashed the under-powered PCs of the day.
So Ham wrote software scripts that compared one day's list with the next. Then he tracked names that vanished from the root file. Those names would be listed briefly as on hold, and Ham figured out that they would almost always drop five or six days later -- at about 3:30 a.m. on the West Coast. In the dark of night, Ham launched his attacks, firing up five PCs and multiple browsers in each. Typing furiously, he would enter his buy requests and bounce from one keyboard to the next until he snagged the names he wanted.
He missed a lot of them, of course.
Ham had no clue that there were rivals out there who were way ahead him, deploying software that purchased names at a rate that Ham's fingers couldn't match. Through registration data, he eventually traced many of those purchases to one owner: "NoName." Behind the shadowy moniker was another reclusive domain pioneer, a Chinese-born programmer named Yun Ye, who, according to people who know him, operated out of his house in Fremont, Calif.
By day Ye worked as a software developer. At night he unleashed the programs that automated domain purchases. (Ye achieved deity status among domainers in 2004 when he sold a portfolio of 100,000 names to Marchex (Charts), a Seattle-based, publicly traded search marketing firm, for $164 million. He then moved to Vancouver.)
Ham went back to the keyboard, writing scripts so that he, too, could pound at the registrars. Ham's track record began to improve, but he still wasn't satisfied. "Yun was just too good," he says.
Then Ham did something brash: He bought his way to the front of the line. Since registrars had direct connections to Network Solutions's servers, Ham's play was to cut out the middleman. He struck deals with several discount registrars, even helping them write software to ensure that they captured the names Ham wanted to buy during the drops. In exchange for the exclusivity, Ham offered to pay as much as $100 for some names that might normally go for as little as $8.
Within weeks Ham had struck so many deals that, according to rivals, he controlled most of the direct connections. "I kept telling them to hit them harder," Ham says in a rare boastful moment. "We brought down the servers many times." During one six-month period starting in late 2000, Ham registered more than 10,000 names.
Rival domainers, locked out of much of the action, didn't appreciate Ham's tactics. It was one of them, most likely, who sent him the turd. "Kevin came in and closed the door for everyone else," says Frank Schilling, a domainer who figured out what Ham had done and sealed similar deals. "There was a ton of professional jealousy."
Ham, in fact, owes a lot to Schilling. Both men lived in Vancouver at the time, and after Ham sought out Schilling in November 2000, the two met at a restaurant to compare notes.
"How much traffic do you have?" Schilling asked. An embarrassed Ham replied that he had no idea. Schilling mentioned that he was experimenting with a new service, GoTo.com, that would populate his domains with ads. Ham spent the next week figuring out how much traffic his sites were generating, and he was amazed by the initial tally: 8,000 unique visitors per day from the 375 names he owned at the time.
"From then on," Ham says, "I knew that what I was building would be very, very valuable." He soon signed up with GoTo (which was later purchased by Yahoo). On his first day, Ham made $1,500.
The system worked then as it does now: People don't always use Google (Charts, Fortune 500) or Yahoo to find something on the Web; they'll often type what they're looking for into a browser's address bar and add ".com."
It's a practice known as "direct navigation," or type-in traffic, and millions do it. Need wedding shoes? Type in "weddingshoes.com" -- a site that Ham happens to own -- and you'll land on what looks like a shoe-shopping portal, filled with links from dozens of retailers.
Click on any one of those links, and the advertiser that placed it pays Yahoo, which in turn pays a cut to Ham. That single site, Ham says, brings in $9,100 a year. Small change, maybe, but the name cost him $8, and his annual overhead for it is about $7. Multiply that model several thousand times over, and you get a quick idea of the kind of cash machine that Ham was creating from his living room.
By early 2002, roughly $1 million a year was pouring into Ham's operation, which he ran with the help of his high school friend and current partner, Colin Yu. But again he felt the tug of his conscience. He occasionally left Vancouver to do medical missionary stints, helping patients in Mexico, the Philippines, and China. He found the experience rewarding, but the development boom he saw taking off in China just reminded him of the virtual real estate boom he was leading back home.
Soon Ham was back working full-time on the Web. "There was just too much more to do," he says.
A little taste
There was no looking back. The next few years were among Ham's most aggressive. One of his most valuable tricks was one he had experimented with in the early days, a practice called domain "tasting." Tasting takes advantage of a provision that allows domain-name buyers a free five-day trial period. Intended to protect customers who mistakenly purchase the wrong name, it handed aggressive domainers another means with which to expand -- and exploit -- their portfolios.
Ham cobbled together new lists of domain words in every combination, registering hundreds of thousands of new names for free, monitoring the traffic, and then returning the duds. By 2004, Ham had amassed such a deep portfolio that he pulled his names from third-party registrars, launched his own registrar, and then created another company, appropriately named Hitfarm, that could do a better job than Yahoo of matching ads with domain names -- for himself and 100 or so other domainers.
Like any shopping spree, though, Ham's tasting binge didn't last. It brought in so many names -- offbeat strings of letters, names with too many dashes, and other variations that humans would be hard-pressed to think of -- that Ham saw the quality of his portfolio dropping in proportion to its growing size. For every few thousand names he'd register, he'd toss back all but a hundred or so.
Tasting exacerbated another problem too: Ham's software grabbed all kinds of typographical variations of trademarked names. Called typo-squatting, it's a practice now coming under the same intense scrutiny long faced by cybersquatters. Microsoft (Charts, Fortune 500) and Neiman Marcus are just two companies whose lawyers have brought anti-cybersquatting lawsuits, charging domainers with intentionally profiting from variations of their trademarks.
"Tasting changed everything," says Ham, who has since abandoned the practice, though he concedes that Hitfarm still holds some problematic names. "I said, forget it," he says. "Generic names are already too hard to come by. And the legal risks are too great."
The legal risks should diminish, however, if you don't own the domain names at all -- and that's the secret behind the Cameroon play.
New world order
The domain confab in Vegas is like any other trade conference: The real intrigue happens at cocktail hour. One subject in the air is Cameroon. Late last summer, domainers began noticing that something odd happens to .cm traffic: It all winds up at a site called Agoga.com. Domainers know, of course, that .cm belongs to Cameroon. And they know that whoever controls Agoga.com has created a potential gold mine.
What they don't know is who's behind it all.
At one of the meet-and-greets, Ham is standing drinkless, as usual, sporting a polo shirt, chatting with a few people he knows and some he's just met. In this crowd, it seems, everyone wants to know Ham. Finally, he is alone.
"I hear you're the guy behind .cm?"
Ham looks surprised by the reporter's question, then flashes a big smile and says, "I had help."
Over a series of conversations a few weeks later in Vancouver, Ham shares some details about a deal that, despite his innate reticence, he's clearly proud of. About a year ago, he says, he worked his contacts to gain connections to government officials in Cameroon. Then he flew several confidantes to Yaoundé, the capital, to make their pitch. His key programmer went along to handle the technical details.
"Hey," Ham says, flagging his techie down near the office elevator. "Didn't you meet with the president of Cameroon?"
"Nah," the programmer says. "We met with the prime minister. But we did see the president's compound."
It's an odd scene to picture: a domainer's reps in a sit-down with Ephraim Inoni, the prime minister of Cameroon, to discuss the power of type-in typo traffic and pay-per-click ads. And yet, as with most of the angles Ham has played, the Cameroon scheme is ingeniously straightforward.
Ham's people installed a line of software, called a "wildcard," that reroutes traffic addressed to any .cm domain name that isn't registered. In the case of Cameroon, a country of 18 million with just 167,000 computers connected to the Internet, that means hundreds of millions of names. Type in "paper.cm" and servers owned by Camtel, the state-owned company that runs Cameroon's domain registry, redirect the query to Ham's Agoga.com servers in Vancouver.
The servers fill the page with ads for paper and office-supply merchants. (Officials at Yahoo confirm that the company serves ads for Ham's .cm play.) It all happens in a flash, and since Ham doesn't own or register the names, he's not technically typo-squatting, according to several lawyers who handle Internet issues.
The method is spelled out in a patent application filed by a Vancouver businessman named Robert Seeman, who Ham says is his partner in the venture and who also serves as chief adviser at Reinvent Technology. (Seeman declined to be interviewed for this story.)
Ham won't reveal specifics but says Agoga receives "in the ballpark" of 8 million unique visitors per month. Fellow domainers, naturally, are envious.
"As soon as it started happening, there was a huge sense of 'Why didn't I think of that?'" says attorney Berryhill, who represents Schilling and other domainers.
Still, several companies have already tracked down Ham's attorneys, claiming trademark infringement. Ham argues that his system is legally in the clear because it treats every.cm typo equally and doesn't filter out trademarked names.
Berryhill concurs. "You can't really say that [wildcarding] is targeting trade-marks," he says. "It captures all the traffic, not just trademark traffic." Moreover, the anti-cybersquatting statute applies only to people who register a trademarked domain; using a wildcard doesn't require registering names.
Clever though it may be, .cm is "a very small part of our operations," Ham says. He won't disclose how much he pays to the government of Cameroon, whose officials could not be reached for comment.
The partnership has been a rocky one so far, and the system has sporadically shut down. But .cm is only one of several country domains where the typo play can work. According to Ham, he and his team are working with other governments. The dream typo play -- .co -- belongs to Colombia, to which Ham says Seeman paid several visits long before they began working on Cameroon. (Citing safety concerns, Ham hasn't yet made the trip. "I would only go if the president requests to meet me," he says.)
As for other countries he might soon invade, Oman (.om) is an obvious target. Niger and Ethiopia are out there too, but since they would play off less lucrative .net typos, they might not be worth the trouble.
As for Colombia, Ham says, "we're making progress."
The long view
Ham leans over his office PC to check on a domain auction. Steven Sacks, a domainer based in Indianapolis who works for Ham, is telling him about some names up for sale. Ham shoots back an instant message: "I like doctordegree.com ... and rockquarry.com ... sunblinds.com."
The days of figuring out the drop are long over. Everything's open now. Lists are easy to obtain. You can preorder a name before it drops and hope to get it. Or, like Ham, you can shell out five or six figures in online auctions. The only great deals, at least for .com names, tend to happen privately, when a domainer manages to find an eager or naive seller.
Ham still buys 30 to 100 names a day, but he's no longer getting them on the cheap. In fact, he and Schilling, who today maintains a $20 million-a-year portfolio from his home in the Cayman Islands, are often accused of driving up prices.
Take, for example, the $26,250 Ham paid for Fruitgiftbaskets.com, or the $171,250 for Hoteldeals.com. "The amount he will pay is crazy," says Bob Martin, president of Internet REIT, a domain investment firm that has raised more than $125 million from private investors, including Maveron, the venture firm backed by Starbucks founder Howard Schultz.
Nonsense, Ham says. The names are expensive only if you value them the way people like Martin do. The VCs and bankers, who were late to the domain gold rush, assess names by calculating the pay-per-click ad revenue and attaching a multiple based on how long it would take to pay off the investment.
Viewed that way, Ham's personal portfolio alone is worth roughly $300 million. But some of Ham's recent domain purchases would also look silly: They'd take 15 or 20 years just to justify the price, and that assumes continuation of the pay-per-click model.
But Ham is taking a longer view. The Web, he says, is becoming cluttered with parked pages. The model is amazingly efficient -- lots of money for little work --but Ham argues that Internet users will soon grow weary of it all.
He also expects Google, Microsoft, and Yahoo to find ways to effectively combat typo-squatting. Some browsers can already fix typos; Internet Explorer catches unregistered domains and redirects visitors to a Microsoft page -- in effect controlling traffic the same way that Ham is doing with .cm. "The heat is rising," Ham says.
When Ham buys a domain now, he's not doing pay-per-click math but rather sizing it up as a potential business. Reinvent Technology aims to turn his most valuable names into mini media companies, based on hundreds of niche categories.
Among the first he'd like to launch, not surprisingly, is Religion.com. Ham recently leased the entire 27th floor in his Vancouver building and is now hiring more than 150 designers, engineers, salespeople, and editorial folks.
Much of that effort is going into developing search tools based more on meaning and less on keywords. "Google is only so useful," Ham says.
The aim is to apply a meaning-based, or "semantic," system across swaths of sites, luring customers from direct navigation and search engines alike. Religion.com would then become an anchor to which scores of other sites would be tied.
"It's time to build out the virtual real estate," Ham says. "There's so much more value in these names than pay-per-click." Seeman's patent application even mentions the possibility of turning Web traffic from Cameroon and other future foreign partners into full-fledged portals.
It's all part of the master plan, as Ham aims to become the first domainer to move from the ranks of at-home name hunter to Internet titan. Smaller players have been selling out to VC-backed groups, and Ham expects that the best names will eventually be owned by just a handful of companies.
If he bets right, he might very well be one of them. "If you control all the domains," he says, "then you control the Internet."
Paul Sloan, an editor-at-large at Business 2.0, covers the ever-changing Internet landscape on his blog, The Key. Top of page
To send a letter to the editor about this story, click here.
Business 2.0 Magazine, May 22 2007 (June 1 Issue)
By Paul Sloan, Business 2.0 Magazine editor-at-large
Kevin Ham leans forward, sits up tall, closes his eyes, and begins to type -- into the air. He's seated along the rear wall of a packed ballroom in Las Vegas's Venetian Hotel. Up front, an auctioneer is running through a list of Internet domain names, building excitement the same way he might if vintage cars were on the block.
As names come up that interest Ham, he occasionally air-types. It's the ultimate gut check. Is the name one that people might enter directly into their Web browser, bypassing the search engine box entirely, as Ham wants? Is it better in plural or singular form? If it's a typo, is it a mistake a lot of people would make? Or does the name, like a stunning beachfront property, just feel like a winner?
When Ham wants a domain, he leans over and quietly instructs an associate to bid on his behalf. He likes wedding names, so his guy lifts the white paddle and snags Weddingcatering.com for $10,000. Greeting.com is not nearly as good as the plural Greetings.com, but Ham grabs it anyway, for $350,000.
Ham is a devout Christian, and he spends $31,000 to add Christianrock.com to his collection, which already includes God.com and Satan.com. When it's all over, Ham strolls to the table near the exit and writes a check for $650,000. It's a cheap afternoon.
Just a few years ago, most of the guys bidding in this room had never laid eyes on one another. Indeed, they rarely left their home computers. Now they find themselves in a Vegas ballroom surrounded by deep-pocketed bankers, venture-backed startups, and other investors trying to get a piece of the action.
And why not? In the past three years alone, the number of dotcom names has soared more than 130 percent to 66 million. Every two seconds, another joins the list.
But the big money is in the aftermarket, where the most valuable names -- those that draw thousands of pageviews and throw off steady cash from Google's and Yahoo's pay-per-click ads -- are driving prices to dizzying heights. People who had the guts and foresight to sweep up names shed during the dotcom bust are now landlords of some of the most valuable real estate on the Web.
The man at the top of this little-known hierarchy is Kevin Ham -- one of a handful of major-league "domainers" in the world and arguably the shrewdest and most ambitious of the lot. Even in a field filled with unusual career paths, Ham's stands out.
Trained as a family doctor, he put off medicine after discovering the riches of the Web. Since 2000 he has quietly cobbled together a portfolio of some 300,000 domains that, combined with several other ventures, generate an estimated $70 million a year in revenue. (Like all his financial details, Ham would neither confirm nor deny this figure.)
Working mostly as a solo operator, Ham has looked for every opening and exploited every angle -- even inventing a few of his own -- to expand his enterprise. Early on, he wrote software to snag expiring names on the cheap. He was one of the first to take advantage of a loophole that allows people to register a name and return it without cost after a free trial, on occasion grabbing hundreds of thousands of names in one swoop.
And what few people know is that he's also the man behind the domain world's latest scheme: profiting from traffic generated by the millions of people who mistakenly type ".cm" instead of ".com" at the end of a domain name.
Try it with almost any name you can think of -- Beer.cm, Newyorktimes.cm, even Anyname.cm -- and you'll land on a page called Agoga.com, a site filled with ads served up by Yahoo (Charts, Fortune 500).
Ham makes money every time someone clicks on an ad -- as does his partner in this venture, the West African country of Cameroon. Why Cameroon? It has the unforeseen good fortune of owning .cm as its country code -- just as Germany runs all names that end with .de.
The difference is that hardly any .cm names are registered, and the letters are just one keyboard slip away from .com, the mother lode of all domains. Ham landed connections to the Cameroon government and flew in his people to reroute the traffic. And if he gets his way, Colombia (.co), Oman (.om), Niger (.ne), and Ethiopia (.et) will be his as well.
"It's in the works," Ham says over lunch in his hometown of Vancouver, British Columbia. "That's why I can't talk about it." He's nearly as reluctant to share details about his newest company, called Reinvent Technology, into which he's investing tens of millions of dollars to build a powerhouse of Internet businesses around his most valuable properties.
Given Ham's reach on the Web -- his sites receive 30 million unique visitors a month -- it's remarkable that so few people know about him. Even in the clubby world of domainers, he's a mystery man. Until now Ham has never talked publicly about his business. You won't find his name on any domain registration, nor will you see it on the patent application for the Cameroon trick.
There are practical reasons for the low profile: For one, Ham's success has drawn enemies, many of them rivals. He once used a Vancouver post office box for domain-related mail -- until the day he opened a package that contained a note reading "You are a piece of s**t," accompanied by an actual piece of it.
Bitter domainers are one thing, lawyers another. And at the moment, Ham's biggest concern is that corporate counsels will come after him claiming that the Cameroon typo scheme is an abuse of their trademarks. He may be right, since this is the first time he's been identified as the orchestrator.
When asked about the .cm play, John Berryhill, a top domain attorney who doesn't work for Ham, practically screams into the phone, "You know who did that? Do you have any idea how many people want to know who's behind that?"
Spreading the word
Kevin Ham is a boyish-looking 37-year-old, trim from a passion for judo and a commitment to clean living. His drink of choice: grapefruit juice, no ice. His mild demeanor belies the aggressive, work-around-the-clock type that he is. Ham frequently steers conversations about business back to the Bible. Not in a preachy way; it's just who he is.
The son of Korean-born immigrants, Ham grew up on the east side of Vancouver with his three brothers. His father ran dry-cleaning stores; his mother worked graveyard shifts as a nurse. A debilitating illness at the age of 14 led Ham to dream of becoming a doctor. He cruised through high school and then undergraduate work and medical school at the University of British Columbia.
Christianity had long been a mainstay with his family, but as an undergrad, he made the Bible a focal point of his life; he joined the Evangelical Layman's Church and attended regular Bible meetings. Ham recalls that it was about this time -- 1992 or 1993 -- that he was introduced to the Web. A church friend told him about a powerful new medium that could be used to spread the gospel.
"Those words really struck me," Ham says. "It's the reason I'm still working."
After he graduated from med school in 1998, Ham and his new bride took off for London, Ontario, for a two-year residency. By the second year, Ham had become chief resident, and when he wasn't rushing to the emergency room, he indulged his growing fascination with the Net, teaching himself to create websites and to code in Perl.
Information about Web hosting at the time was so scattered that Ham began creating an online directory of providers, complete with reviews and ratings of their services. He called it Hostglobal.com.
From there it was a short step to the business of buying and selling domains. About six months after he launched Hostglobal, Ham was earning around $10,000 per month in ad sales. But when one of his advertisers -- a service that sold domain registrations -- told him that a single ad was generating business worth $1,500 a month, Ham figured he could get in on that too.
From doctor to domainer
It made sense: People shopping for hosting services were often interested in buying a catchy URL, so Ham launched a second directory, called DNSindex.com. Like similar services operating at the time, it gave customers a way to register domain names.
But Ham added the one feature that early domain hunters wanted most: weekly lists of available names, compiled using free sources he found on the Web. Some lists he gave away; others he charged as much as $50 for. In a couple of months, he had more than 5,000 customers.
By the time he finished his residency in June 2000, his two small Web ventures were pulling in more money in a month -- sometimes $40,000 -- than Ham made that year at the hospital. That was enough, he reasoned, to put off starting a medical practice for three more months, maybe six. "It just didn't make sense not to do it," he says.
With a new baby in tow, Ham and his wife moved back to Vancouver, settling into a one-bedroom apartment. Ham's timing, it turned out, was spot-on. Tech stocks were tumbling, dotcoms were folding left and right, and investors were fleeing the Web. More important to him, hundreds of thousands of valuable domain names that were suddenly considered worthless began to expire, or "drop." Ham and a handful of other trailblazers were ready to snap them up.
Figuring out when names would drop was tedious work.
At the time, Network Solutions controlled the best names; it was for a long time the only retail company, or registrar, selling .coms. It didn't say when expiring names would go back on the market, but twice a day it published the master list of all registered names -- the so-called "root zone" file (now managed by VeriSign (Charts)). It was a fat list of well over 5 million names that took hours to download and often crashed the under-powered PCs of the day.
So Ham wrote software scripts that compared one day's list with the next. Then he tracked names that vanished from the root file. Those names would be listed briefly as on hold, and Ham figured out that they would almost always drop five or six days later -- at about 3:30 a.m. on the West Coast. In the dark of night, Ham launched his attacks, firing up five PCs and multiple browsers in each. Typing furiously, he would enter his buy requests and bounce from one keyboard to the next until he snagged the names he wanted.
He missed a lot of them, of course.
Ham had no clue that there were rivals out there who were way ahead him, deploying software that purchased names at a rate that Ham's fingers couldn't match. Through registration data, he eventually traced many of those purchases to one owner: "NoName." Behind the shadowy moniker was another reclusive domain pioneer, a Chinese-born programmer named Yun Ye, who, according to people who know him, operated out of his house in Fremont, Calif.
By day Ye worked as a software developer. At night he unleashed the programs that automated domain purchases. (Ye achieved deity status among domainers in 2004 when he sold a portfolio of 100,000 names to Marchex (Charts), a Seattle-based, publicly traded search marketing firm, for $164 million. He then moved to Vancouver.)
Ham went back to the keyboard, writing scripts so that he, too, could pound at the registrars. Ham's track record began to improve, but he still wasn't satisfied. "Yun was just too good," he says.
Then Ham did something brash: He bought his way to the front of the line. Since registrars had direct connections to Network Solutions's servers, Ham's play was to cut out the middleman. He struck deals with several discount registrars, even helping them write software to ensure that they captured the names Ham wanted to buy during the drops. In exchange for the exclusivity, Ham offered to pay as much as $100 for some names that might normally go for as little as $8.
Within weeks Ham had struck so many deals that, according to rivals, he controlled most of the direct connections. "I kept telling them to hit them harder," Ham says in a rare boastful moment. "We brought down the servers many times." During one six-month period starting in late 2000, Ham registered more than 10,000 names.
Rival domainers, locked out of much of the action, didn't appreciate Ham's tactics. It was one of them, most likely, who sent him the turd. "Kevin came in and closed the door for everyone else," says Frank Schilling, a domainer who figured out what Ham had done and sealed similar deals. "There was a ton of professional jealousy."
Ham, in fact, owes a lot to Schilling. Both men lived in Vancouver at the time, and after Ham sought out Schilling in November 2000, the two met at a restaurant to compare notes.
"How much traffic do you have?" Schilling asked. An embarrassed Ham replied that he had no idea. Schilling mentioned that he was experimenting with a new service, GoTo.com, that would populate his domains with ads. Ham spent the next week figuring out how much traffic his sites were generating, and he was amazed by the initial tally: 8,000 unique visitors per day from the 375 names he owned at the time.
"From then on," Ham says, "I knew that what I was building would be very, very valuable." He soon signed up with GoTo (which was later purchased by Yahoo). On his first day, Ham made $1,500.
The system worked then as it does now: People don't always use Google (Charts, Fortune 500) or Yahoo to find something on the Web; they'll often type what they're looking for into a browser's address bar and add ".com."
It's a practice known as "direct navigation," or type-in traffic, and millions do it. Need wedding shoes? Type in "weddingshoes.com" -- a site that Ham happens to own -- and you'll land on what looks like a shoe-shopping portal, filled with links from dozens of retailers.
Click on any one of those links, and the advertiser that placed it pays Yahoo, which in turn pays a cut to Ham. That single site, Ham says, brings in $9,100 a year. Small change, maybe, but the name cost him $8, and his annual overhead for it is about $7. Multiply that model several thousand times over, and you get a quick idea of the kind of cash machine that Ham was creating from his living room.
By early 2002, roughly $1 million a year was pouring into Ham's operation, which he ran with the help of his high school friend and current partner, Colin Yu. But again he felt the tug of his conscience. He occasionally left Vancouver to do medical missionary stints, helping patients in Mexico, the Philippines, and China. He found the experience rewarding, but the development boom he saw taking off in China just reminded him of the virtual real estate boom he was leading back home.
Soon Ham was back working full-time on the Web. "There was just too much more to do," he says.
A little taste
There was no looking back. The next few years were among Ham's most aggressive. One of his most valuable tricks was one he had experimented with in the early days, a practice called domain "tasting." Tasting takes advantage of a provision that allows domain-name buyers a free five-day trial period. Intended to protect customers who mistakenly purchase the wrong name, it handed aggressive domainers another means with which to expand -- and exploit -- their portfolios.
Ham cobbled together new lists of domain words in every combination, registering hundreds of thousands of new names for free, monitoring the traffic, and then returning the duds. By 2004, Ham had amassed such a deep portfolio that he pulled his names from third-party registrars, launched his own registrar, and then created another company, appropriately named Hitfarm, that could do a better job than Yahoo of matching ads with domain names -- for himself and 100 or so other domainers.
Like any shopping spree, though, Ham's tasting binge didn't last. It brought in so many names -- offbeat strings of letters, names with too many dashes, and other variations that humans would be hard-pressed to think of -- that Ham saw the quality of his portfolio dropping in proportion to its growing size. For every few thousand names he'd register, he'd toss back all but a hundred or so.
Tasting exacerbated another problem too: Ham's software grabbed all kinds of typographical variations of trademarked names. Called typo-squatting, it's a practice now coming under the same intense scrutiny long faced by cybersquatters. Microsoft (Charts, Fortune 500) and Neiman Marcus are just two companies whose lawyers have brought anti-cybersquatting lawsuits, charging domainers with intentionally profiting from variations of their trademarks.
"Tasting changed everything," says Ham, who has since abandoned the practice, though he concedes that Hitfarm still holds some problematic names. "I said, forget it," he says. "Generic names are already too hard to come by. And the legal risks are too great."
The legal risks should diminish, however, if you don't own the domain names at all -- and that's the secret behind the Cameroon play.
New world order
The domain confab in Vegas is like any other trade conference: The real intrigue happens at cocktail hour. One subject in the air is Cameroon. Late last summer, domainers began noticing that something odd happens to .cm traffic: It all winds up at a site called Agoga.com. Domainers know, of course, that .cm belongs to Cameroon. And they know that whoever controls Agoga.com has created a potential gold mine.
What they don't know is who's behind it all.
At one of the meet-and-greets, Ham is standing drinkless, as usual, sporting a polo shirt, chatting with a few people he knows and some he's just met. In this crowd, it seems, everyone wants to know Ham. Finally, he is alone.
"I hear you're the guy behind .cm?"
Ham looks surprised by the reporter's question, then flashes a big smile and says, "I had help."
Over a series of conversations a few weeks later in Vancouver, Ham shares some details about a deal that, despite his innate reticence, he's clearly proud of. About a year ago, he says, he worked his contacts to gain connections to government officials in Cameroon. Then he flew several confidantes to Yaoundé, the capital, to make their pitch. His key programmer went along to handle the technical details.
"Hey," Ham says, flagging his techie down near the office elevator. "Didn't you meet with the president of Cameroon?"
"Nah," the programmer says. "We met with the prime minister. But we did see the president's compound."
It's an odd scene to picture: a domainer's reps in a sit-down with Ephraim Inoni, the prime minister of Cameroon, to discuss the power of type-in typo traffic and pay-per-click ads. And yet, as with most of the angles Ham has played, the Cameroon scheme is ingeniously straightforward.
Ham's people installed a line of software, called a "wildcard," that reroutes traffic addressed to any .cm domain name that isn't registered. In the case of Cameroon, a country of 18 million with just 167,000 computers connected to the Internet, that means hundreds of millions of names. Type in "paper.cm" and servers owned by Camtel, the state-owned company that runs Cameroon's domain registry, redirect the query to Ham's Agoga.com servers in Vancouver.
The servers fill the page with ads for paper and office-supply merchants. (Officials at Yahoo confirm that the company serves ads for Ham's .cm play.) It all happens in a flash, and since Ham doesn't own or register the names, he's not technically typo-squatting, according to several lawyers who handle Internet issues.
The method is spelled out in a patent application filed by a Vancouver businessman named Robert Seeman, who Ham says is his partner in the venture and who also serves as chief adviser at Reinvent Technology. (Seeman declined to be interviewed for this story.)
Ham won't reveal specifics but says Agoga receives "in the ballpark" of 8 million unique visitors per month. Fellow domainers, naturally, are envious.
"As soon as it started happening, there was a huge sense of 'Why didn't I think of that?'" says attorney Berryhill, who represents Schilling and other domainers.
Still, several companies have already tracked down Ham's attorneys, claiming trademark infringement. Ham argues that his system is legally in the clear because it treats every.cm typo equally and doesn't filter out trademarked names.
Berryhill concurs. "You can't really say that [wildcarding] is targeting trade-marks," he says. "It captures all the traffic, not just trademark traffic." Moreover, the anti-cybersquatting statute applies only to people who register a trademarked domain; using a wildcard doesn't require registering names.
Clever though it may be, .cm is "a very small part of our operations," Ham says. He won't disclose how much he pays to the government of Cameroon, whose officials could not be reached for comment.
The partnership has been a rocky one so far, and the system has sporadically shut down. But .cm is only one of several country domains where the typo play can work. According to Ham, he and his team are working with other governments. The dream typo play -- .co -- belongs to Colombia, to which Ham says Seeman paid several visits long before they began working on Cameroon. (Citing safety concerns, Ham hasn't yet made the trip. "I would only go if the president requests to meet me," he says.)
As for other countries he might soon invade, Oman (.om) is an obvious target. Niger and Ethiopia are out there too, but since they would play off less lucrative .net typos, they might not be worth the trouble.
As for Colombia, Ham says, "we're making progress."
The long view
Ham leans over his office PC to check on a domain auction. Steven Sacks, a domainer based in Indianapolis who works for Ham, is telling him about some names up for sale. Ham shoots back an instant message: "I like doctordegree.com ... and rockquarry.com ... sunblinds.com."
The days of figuring out the drop are long over. Everything's open now. Lists are easy to obtain. You can preorder a name before it drops and hope to get it. Or, like Ham, you can shell out five or six figures in online auctions. The only great deals, at least for .com names, tend to happen privately, when a domainer manages to find an eager or naive seller.
Ham still buys 30 to 100 names a day, but he's no longer getting them on the cheap. In fact, he and Schilling, who today maintains a $20 million-a-year portfolio from his home in the Cayman Islands, are often accused of driving up prices.
Take, for example, the $26,250 Ham paid for Fruitgiftbaskets.com, or the $171,250 for Hoteldeals.com. "The amount he will pay is crazy," says Bob Martin, president of Internet REIT, a domain investment firm that has raised more than $125 million from private investors, including Maveron, the venture firm backed by Starbucks founder Howard Schultz.
Nonsense, Ham says. The names are expensive only if you value them the way people like Martin do. The VCs and bankers, who were late to the domain gold rush, assess names by calculating the pay-per-click ad revenue and attaching a multiple based on how long it would take to pay off the investment.
Viewed that way, Ham's personal portfolio alone is worth roughly $300 million. But some of Ham's recent domain purchases would also look silly: They'd take 15 or 20 years just to justify the price, and that assumes continuation of the pay-per-click model.
But Ham is taking a longer view. The Web, he says, is becoming cluttered with parked pages. The model is amazingly efficient -- lots of money for little work --but Ham argues that Internet users will soon grow weary of it all.
He also expects Google, Microsoft, and Yahoo to find ways to effectively combat typo-squatting. Some browsers can already fix typos; Internet Explorer catches unregistered domains and redirects visitors to a Microsoft page -- in effect controlling traffic the same way that Ham is doing with .cm. "The heat is rising," Ham says.
When Ham buys a domain now, he's not doing pay-per-click math but rather sizing it up as a potential business. Reinvent Technology aims to turn his most valuable names into mini media companies, based on hundreds of niche categories.
Among the first he'd like to launch, not surprisingly, is Religion.com. Ham recently leased the entire 27th floor in his Vancouver building and is now hiring more than 150 designers, engineers, salespeople, and editorial folks.
Much of that effort is going into developing search tools based more on meaning and less on keywords. "Google is only so useful," Ham says.
The aim is to apply a meaning-based, or "semantic," system across swaths of sites, luring customers from direct navigation and search engines alike. Religion.com would then become an anchor to which scores of other sites would be tied.
"It's time to build out the virtual real estate," Ham says. "There's so much more value in these names than pay-per-click." Seeman's patent application even mentions the possibility of turning Web traffic from Cameroon and other future foreign partners into full-fledged portals.
It's all part of the master plan, as Ham aims to become the first domainer to move from the ranks of at-home name hunter to Internet titan. Smaller players have been selling out to VC-backed groups, and Ham expects that the best names will eventually be owned by just a handful of companies.
If he bets right, he might very well be one of them. "If you control all the domains," he says, "then you control the Internet."
Paul Sloan, an editor-at-large at Business 2.0, covers the ever-changing Internet landscape on his blog, The Key. Top of page
To send a letter to the editor about this story, click here.
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