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January 1, 1999

The Internet Shopper

By Stephen Lacey

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The Internet traffic light turned from red to a flashing green in 1998, as investors revved up for what will surely be remembered as a record-breaking year for web retailers.

"I think it was an absolutely blowout Christmas for Internet retailers," said Abhishek Gami, who tracks the sector for Chicago-based William Blair & Co. "They are much more sophisticated, and the quality of this season's products is much better than last year's."

Investors' expectations clearly underscored his remarks. The ISDEX index of 50 Internet stocks closed December 8 at $235 5/16, up 142 percent over the last 12 months, and up roughly 44 percent since the beginning of November, according to Mecklermedia (Nasdaq:MECK), administrator of the index.

By the close of this year's holiday shopping season Thanksgiving to Christmas cybervaults are expected to have chimed in an estimated $5 billion in sales, according to a forecast by San Francisco-based BancBoston Robertson Stephens analyst Keith Benjamin.

Battle Lines

With such high stakes, retailers across the web are frantically scrambling to tweak their business models in an effort to attract more consumer dollars. The stock of (Nasdaq:AMZN), for example, climbed to a record-high of $233 1/8 a share in mid-December on word that the book and music-retailing giant had added video and holiday gifts to its arsenal of products. Also unwilling to forgo their invitations to the party, search-engine providers Yahoo! (Nasdaq:YHOO) and Excite (Nasdaq:XCIT) threw kerosene into the fire by announcing retail strategies of their own.

However, it's not just the industry's leaders who have upped the ante. Virtually all of the second and third-tier retailers also joined the fray through advertising campaigns, strategic alliances and stand-alone product offerings. Here is a sampling:

* Computer retailer Cyberian Outpost (Nasdaq:COOL) rolled out a national print and television advertising campaign ahead of the holidays that suggested consumers should "stay home and shop for computers." The Kent, Conn.-based company announced in November that it was joining forces with CDnow (Nasdaq:CDNW) and other retailers to form a shopping network.

* Internet mall retailer CyberShop (Nasdaq:CYSP) said in November that it was going to expand its offerings through more focused, category-killer boutiques. In moves that significantly increased marketing expenses, the New York-based company recently launched, a joint venture with Tops Appliance City (Nasdaq:TOPS) and, a gift-oriented site that enables shoppers to place orders as late as 9 p.m. EST for next-day delivery.

* Within the course of one week, Digital River (Nasdaq:DRIV) inked distribution agreements with U.S. West (NYSE:USW) and Anything Internet to distribute its 131,000 software titles over the Internet. Privately-

held Anything Internet operator of, and is currently readying itself to make a run at the public market, according to Scott Sitra, who sits on the company's board of directors.

Chasing Tulips?

Despite the good cheer over the holiday shopping season, many analysts have questioned whether individual stock valuations may once again be moving ahead of themselves. As recently as June, the sector climbed 35.7 percent only to retrench almost 40 percent over the following two months.