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    Room-Me Business Plan

    BU121 New Venture ProjectLab D05Geoffrey Jones

    Jason Baker, Calvin Leung, Jj Li, Jerry Liu, Kate Protacio

    3/16/2012

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    Table of Contents

    i. Executive Summary

    1. Product Description1.1 Features1.2 Customers

    1.3 Market1.4 Competition

    2. Marketing Strategy2.1 Market2.2 Promotion

    3. Production and Performance

    3.1 Resources3.2 Distribution

    4. Human Resources Strategy5. Finance

    5.1 Assumptions5.2 Initial Capital

    6. Financial Forecasts6.1 Financial Position

    6.2 Fluctuating User Volume7. Financial Performance

    7.1 Breakeven Projection7.2 Key Success Factors

    8. Critical Risks9. Harvest and Exit

    10. Timeline11. Appendix

    12. Works Cited

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    Executive Summary

    Each person is unique, with unique needs and wants, so it is very difficult to find the

    perfect roommate, the perfect home, and the perfect landlord. Room-Me harnesses the power of

    social media and the algorithms behind mass-customization to help users find that perfect match,

    quickly and efficiently.

    For time-strapped students, finding even a good match takes time and effort, which, due to

    their busy schedules, they do not have. Yet a good place to live and having an appealing

    roommate is necessary in constructing a less stressful year. At the same time, the recent trend in

    advertising is towards personal advertisement, tailoring the marketing mix to each unique

    individual. Accumulating the information required, however is difficult and expensive.

    Room-Me is the solution to these problems. Users will fill out a survey of their likes, dislikes,

    schedules, habits, and pet peeves, which a matching algorithm, similar those used by dating sites,

    will use to produce a list of compatible roommates for the user to peruse. This gives them a

    manageable list of likely candidates, instead of an enormous list of unknowns. With the

    information Room-Me gathers in the survey, advertisers can pay for selective and effective

    exposure to a specific profile of users, making their advertising more effective for less cost.

    The advertising industry was a $970 million industry in 2011, increasing at a rate of 7.9% a

    year, projected to pass $1.09 billion in 2015. On the other hand, there were 325 000

    undergraduate students in 2011, a large percentage of who are looking for housing. These

    students are all members of the social media generation, adept at Facebook, Twitter, and more,

    making them both Internet-savvy and accustomed to that platform.

    Even though we have first mover advantage, our unique algorithm, matching system, and the

    accumulated database of user information is our distinct competitive advantage. We will protect

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    our algorithms with legal fail-safes in the short run, but in the long run we will protect ourselves

    with brand loyalty and the lock-in cost of setting up a profile.

    As we will not charge for use of the website, all of our revenue will be from advertisers, who

    will pay well the page views generated by our extensive user base. We will build that user base

    first, giving us something to attract advertisers, and we will approach them later. By our third

    year of operation, we will have broken even. By the end of our fifth year, we will hope to have

    nearly a million users and make a profit.

    Our management team will, collectively, have ten undergraduate degrees from world-class

    institutions; our chief information officer has worked with ScotiaBank as an IT auditor, and the

    others will have at least two years of industry experience. For $45 000, the investor will receive a

    30% stake in a company that will have nearly a million page views and be profitable within five

    years. It also has enormous potential for either an IPO or an acquisition by a large technology

    company.

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    1. Product Description

    Advertisers have trouble reaching students, students have trouble reaching housing and

    roommates, and landlords have trouble reaching suitable tenants. Room-Me connects these three

    groups, offering a unique and simple system that brings together the right tenants, the right

    roommates, the right landlords, and the right advertisements to the right consumers.

    1.1 Features

    By creating value for our users, we create value for our advertising customers by attracting a

    large group of consumers. We create this value through several unique features:

    Matching Roommates

    Servicing Landlords

    Providing Security and Simplicity

    1.1.1 Matching Roommates

    Finding compatible roommates is crucial to a successful term. By filling out a simple survey

    of individual habits and tolerances, students will see a list of compatible roommates and housing

    generated by our unique algorithm. Students choose from this list to find a suitable roommate

    and a comfortable place to live.

    1.1.2 Servicing Landlords

    While Room-Me allows tenants to search for landlords, it also allows landlords to search for

    tenants, unlike the competition; they use the same algorithms to quickly and efficiently search

    for tenants. By creating value for landlords, we will attract them to our service, giving students

    more options and greater value.

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    1.1.3 Providing Security and Simplicity

    Our users are busy people, so Room-Me will provide simple visuals and intuitive control

    combined with peace-of-mind. The intuitive design allows students and landlords to quickly

    adapt to the interface, and the security features give them the confidence to share sensitive

    information. One of the ways we will ensure this security is by requiring that students register

    with a valid university email address. Also, registered users will be able to rate their landlords,

    tenants, and roommates based on their experiences.

    1.2 Customers

    Since Room-Mes services are offered free of charge to our users, we will earn revenue

    through advertising. Companies in many industries, especially telecommunications and banking,

    want to reach young consumers before their competitors do, hoping to make them into long-term

    customers. Because they are just starting to live as independent consumers, students are the ideal

    targets for those industries.

    Since we have so much information about our users, we can match advertisers to receptive

    consumers using that information. For example, companies who are cost-driven could focus their

    advertising on students who are looking for low-cost housing. This follows the trend of micro-

    media, providing a more effective and valuable package of unique benefits for advertisers.

    Both of these factors are valuable to large companies, representing potentially significant

    profits. Because we provide these valuable factors, and because large companies have large

    advertising budgets, making them more willing to spend on risky ventures, these large

    companies are our target customers.

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    1.3 Market

    Room-Me operates in three distinct markets: students, landlords, and advertisers. Our multi-

    sided platform means that we will use the human capital provided by our users, the students and

    landlords, to create value for our customers, the advertisers.

    Looking at the competition and alternatives of our service, we recognize that they each

    have individual benefits and weaknesses. By comparing the competition based on required time

    and money investment versus effectiveness of finding housing, certain trends can be seen (See

    Figure 1).

    Real estate firms tend to be most

    expensive, albeit the most effective.

    Other options, such as newspapers and

    other online sites, require a smaller

    financial investment but a much larger

    time commitment for a much less

    convenient return. The goal of Room-

    Me is to incorporate the benefits of all

    alternatives while minimizing the weaknesses. Although Room-Me requires a higher initial time

    commitment, because users must create a profile, it is a one-time investment, and the service is

    free. Our personalization algorithm sorts through the many listings quickly, saving time by

    showing the most relevant first.

    1.4 Competition

    Initially, we can see that the growing demand for housing (Datamonitor 2006) has attracted

    many competitors. However, our matching algorithm and the intuitive design of our service

    Figure 1

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    provides a significant competitive advantage. To maintain our market position in the face of new

    entrants, we will use legal protections, especially copyrights and patents, to protect our core

    benefit against mimicry.

    Although the Internet is becoming more popular, we must also consider traditional

    substitutes such as newspapers, fliers, and word of mouth. Although at first these substitutes

    appear to be a threat, this is not actually the case. Common sense dictates that it is most effective

    for prospective tenants and landlords to explore as many channels as possible; as opposed to

    being substitutes, these channels complement each other.

    2. Marketing Strategy

    Room-Me caters directly towards the needs of university students, landlords, and advertisers,

    all of whom seek convenience, not confusion. This service will bridge the gaps between students

    trying to find the right roommates, landlords finding the right tenants, and students finding the

    right places to live. Room-Me satisfies all of these at once.

    2.1 Market

    In dealing with marketing segments, we have decided to take on a multi-faceted platform

    catering to two separate groups: the students and landlords as users, and the advertisers as

    customers.

    2.1.1 Niche Market: Students and Landlords

    Our service will be targeting these students and landlords as part of a niche market since

    they will be residing in specific university towns, where there is always a demand for student

    housing; a significant portion of the 325 000 undergraduate students in Ontario (Ontario

    Universities 2011) need to find off-campus housing.

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    2.1.2 Mass Market: Advertisers

    To attract customers, we will enter the advertising mass market. The value of this market has

    been increasing, and is projected to reach $1.09 billion by the end of 2015 (Datamonitor 2011),

    which indicates a steady and growing market for us to enter. We will be attracting those

    companies who provide goods and services specifically to the student market. These goods and

    services would include any necessities for students such as clothing, furniture, internet, and cable

    services. Room-Me will provide these advertisers with effective exposure. Room-Me will use the

    information gathered through surveying our users to allow our customers to target specific

    demographics. This will allow their advertisements to reach those students who are more likely

    to be interested, thus maximizing the return of each ad. For example, users who have indicated

    that they enjoy doing yoga will be a benefit for sports equipment and athletic wear retailers.

    Room-Me creates a differential competitive advantage by providing this unique benefit to these

    customers.

    2.2 Promotion

    With our own advertising budget, we will be emphasizing more promotion towards the

    student user base rather than the customers in the beginning. Advertising to the advertisers will

    involve appearing at industry events and trade shows, and through active personal networking.

    By attending trade shows, we can familiarize ourselves with the expectations of potential

    customers and learn to meet their needs more effectively. At these events, we can also identify

    possible competitors and the ways they are reaching and serving these advertisers. A more

    aggressive advertising strategy will be directed towards Room-Mes user base. Promotion

    strategies will include guerrilla advertising, flier campaigns, and advertising in student

    publications and real estate magazines. Guerrilla marketing is becoming an increasingly popular

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    promotional method by newbusinesses. It has proven to be successful because it is simple to

    understand, easy to implement and outrageously inexpensive (Levinson, 2011). This is the most

    appropriate method, will be the most effective in attracting our student user base, and allow us to

    stay within our marketing budget.

    3. Production and Performance

    As a web-based firm, little production is required for Room-Me to be made available. The

    tangible product that our company works with is infrastructure: our website, database, and

    algorithms. However, as a service based-company, we must effectively satisfy human capital.

    The infrastructure is a customized product composed of some mass-produced elements and

    some custom-made; it is easy to assemble, and can be produced intermittently with one design

    lasting for several years and minor updates being applied continuously.

    Because Room-Me will first launch in the Kitchener-Waterloo market, we will put the

    production center in that area. Not only are we close to our targeted customers and users, but the

    many technology companies in Waterloo opens the possibility for networking and partnering

    with more experienced companies.

    Our production facility and office building must be the same, so we will use a traditional

    office layout. However we would like to avoid the cubicle farm style in favourof an open-plan

    office which encourages collaboration and an integrated company atmosphere. As Room-Me

    grows, we will need to move the database servers to an off-site data center. As those are

    expensive, we will try to partner with large tech firms to share resources.

    Room-Mes infrastructure ties directly into its customer-perceived performance, which is the

    primary focus. To achieve this, the operational focus will be on continual maintenance and

    intermittent structural updates, as well as technical issues reported by our customers or users.

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    As a service company, we deal with three groups with unsatisfied needs: students seeking

    housing and roommates, landlords seeking tenants, and advertisers seeking customers. Our

    operational focus will be on minimizing service outages, maximizing website ease-of-use, and

    ensuring efficient data transfer.

    Service outages will be discussed in the critical risks sections, but it can be prevented by

    maintaining a stable Internet connection.

    The technology team will be responsible for website ease-of-use, constantly reviewing

    design. We will make use of the design consultant resources available to us (discussed in the HR

    section) to perform regular look-and-feel analyses to ensure maximum convenience.

    Efficient, and above all fast, data transfer is a limitation of our hardware. The hard drives we

    will be purchasing are rated at a maximum transfer of 121 MB/second (Tom 2010) which,

    although far from the fastest enterprise hard drive on the market, is the most cost-effective, and

    the speed is more than sufficient for our needs.

    3.1 Resources

    For Room-Me to stay functional, there are two important resources to consider.

    The first, and arguably the most important, is a server. Room-Me requires large amounts of

    data to function, and so having a large, stable, and efficient server is critical. Designs for a

    scalable, low-cost server are provided freely by BackBlaze, a cloud storage company (Nufire

    2011). We will pursue this design, as it is space- and energy-efficient, with high transfer speeds.

    We also require a personal computing solution. Because Room-Me relies heavily on

    computing for production, all employees who are part of the production process will require a

    computer workstation with appropriate software. Software is a simple task; most development

    software is available at no cost, and downloading them to employee workstations is simple.

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    Hardware is more challenging; in the early stages, when the company has only a small number of

    programmers, this can be accomplished with their own computers; most people, and certainly

    those most qualified to work in that part of our company, have computers of their own that are

    more than sufficient. As Room-Me grows, however, it will become necessary to provide

    workstations, for greater convenience and security.

    3.1.1 Supply

    In the early stages of the company, our technology needs will be best served by consumer

    computer retailers; we can easily purchase components and assemble our hardware in-house.

    This is true both of our workstation and server needs, as both are very similar products. Once

    Room-Me begins to grow, it will be more cost-effective to enter the business-to-business market.

    The last hardware resource we need is a server case. Since we lack the ability to produce

    these in-house, we must outsource to a manufacturing firm. In the early stages of the company

    we can easily purchase cases on an individual basis, but it will become more cost-effective to

    place larger orders at a time.

    Our software needs are easily satisfied, as development software is easily obtained directly

    from the developer.

    3.2 Distribution

    Room-Me will employ a model of self-directed distribution. This is possible because our

    service is Internet-based, and faces few of the distribution challenges common in bricks-and-

    mortar companies. However, as discussed in the marketing section, the company will market

    itself heavily to increase awareness and improve the effectiveness of this distribution model.

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    4. Human Resources Strategy

    When the company is founded, the management team will consist of five recent graduates of

    two world-class programs, each with significant industry experience. Each of the five will be

    responsible for a different portion of the business, depending on their prior experience: Calvin

    will be in charge of managing the supply chain; Jason will be in charge of the technological

    aspects; Jerry will be responsible for managing the firms finances; Jj will manage the firms

    human resources; and Kate will be in charge of marketing the firm. Although each executive has

    their own area of focus, all five will support each others efforts to the best of their abilities.

    We will have to hire legal, design, and security consultants to lend their expertise. Kate has a

    personal network that we will take advantage of to obtain these services. We will also hire a co-

    op student to help Jason develop the platform, and later hire a part-time sales person in each

    target city to help launch our service there. We can expand our full-time staff as the company

    grows, giving preference to former co-op students, and hire new co-op students to gain their

    insight into our target demographic.

    We are also fortunate enough to count Gary Baker and Ron Protacio on our Board of

    Advisors. Mr. Baker has had thirty years of accounting and IT risk management experience,

    while Mr. Protacio has twenty years of experience in operations and IT management. We will

    leverage their experience to more effectively convert risk into value.

    5. Finance

    The financial model presented uses common industry averages and market prices at the time

    of writing, taking a very conservative stance. The model allows for two years to build the user

    base before soliciting advertising accounts. More detail can be found in the initial capital

    breakdown, income statement, user projections, and cash flow statement found in the appendix.

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    5.1 Assumptions

    $16 000 would be used to pay for the one fourth-year computer science Co-op student

    from the University of Waterloo, since it is above the posted average, and the candidate

    needs to do a wide variety of work

    The advertisements operate on a cost-per-page-view basis.

    Most websites charge less than $0.01 per page view, on average (Agarwal 2009), but

    Room-Me offers high-value targeted advertising. Therefore, we will charge $0.02 per

    page view

    The average user has at least 50 page views per term. Since most social networks have a

    much higher rate, the Facebook application should bring many more, but the model will

    stay conservative with 50 page views per user per term

    The drives on the server need not be replaced, because they come with a five-year

    warranty (Hitachi 2011).

    Students generally stay for 2 years, since the first year is often spent in residence

    We are not renting a physical location because we are assuming that the server will stay

    at the home of one of the founders

    Room-Me will be formed as a partnership, and taxes will be divided amongst the

    founders personal income taxes

    5.2 Initial Capital

    Room-Me requires a certain amount of cash before it can officially launch. This will cover

    all of our fixed costs, as well as all of our operating cost for five years, the first two of which will

    have zero revenue. In total, we need $66 429.20. Each of the founders will contribute $6 000, for

    a total of $30 000, and we are asking investors to contribute $40 000 in exchange for a 30%

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    stake. This $70 000 initial investment gives us $3 570.80 of flexibility, in case of unexpected

    costs. A breakdown of where this investment would be spent is included in Exhibit 2 of the

    Appendix.

    6. Financial Forecasts

    6.1 Financial Position

    To ensure Room-Me has enough capital to operate if page views drop, we will maintain at

    least enough cash to operate at full capacity for the next calendar year. This will not include any

    hardware upgrades or replacements planned for that year, as such investments would be

    postponed. This amounts to at least $6098.84 every year, which covers basic necessities such as

    Internet access and electricity. In the first few years, we will need more cash on hand, due to the

    need to hire a part-time marketing team.

    6.2 Fluctuating User Volume

    The vast majority of students search for housing during the winter term (Jan-Apr), in

    preparation for the upcoming September, as many students will note be in the area during the

    summer. For this reason, Room-Me expects a greater volume of users during the winter term.

    The financial model is built on the basis that 70% of registered members will average 50 clicks

    on Room-Me for the winter term. Projections for the Kitchener-Waterloo region show a higher

    number of new users during the spring and fall terms, compared to other regions, because the

    local universities have dedicated co-operative education programs in which different students are

    on work terms every four months. For these reasons, we assume that 30% of registered users

    from the University of Waterloo and Wilfrid Laurier University will be active during each of

    those two terms, as opposed to the conservative 20% assumed for other universities. Once

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    Room-Me has expanded to the other universities, we expect a very conservative 17 080 active

    users every winter term, and 5 012 active users the rest of the year.

    7. Financial Performance

    7.1 Breakeven Projection

    Room-Me is not going to pursue contracts with advertisers until after the second year of

    operations. After beginning to incorporate advertisements in September of 2018, Room-Me is

    expected to break even in March and April 2019. Numeric confirmation of this is shown in

    Exhibit 4 of the Appendix. Based on these projections, Room-Me is expected to be cash-flow

    positive starting in 2019, just eight months after beginning to display advertisements.

    7.2 Key Success Factors

    7.2.1 Consistent User Visits

    Room-Mes profitability is dependent mainly on student visits, but projections were made to

    be conservative. Of the 236 550 students1 looking for housing in winter every year, we are

    assuming that less than 25 000 of them visit the site. We will try to increase this using traffic

    generated by the Facebook and mobile apps.

    7.2.2 Ongoing Costs and Expenses

    In order to remain operational, Room-Me requires an enterprise-level internet connection

    and enough electricity to keep the server functional at all times. These expenses are summarized

    in the projected income statement in Exhibit 4 of the Appendix.

    8. Critical Risks

    Room-Me faces certain critical risks, including the following.

    1 This number is calculated from statistics of four Canadian universities: McMaster University, University ofToronto, University of Waterloo, and Wilfrid Laurier University. The sources can be found in the Works Cited.

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    Since Room-Me handles a lot of sensitive information, the possibility of our users data

    falling into the wrong hands is our greatest concern. This could come about in one of two ways.

    The first is if Room-me itself were to accidentally leak inappropriate data to third parties, such as

    our customers. Since we must maintain customer satisfaction, this could only happen due to a

    faulty database design. Every precaution would be taken to guard against this, building

    safeguards into the database system to prevent human error, and including clauses in employee

    contracts to prevent intentional tampering. Any additional leaks would be dealt with as

    efficiently as possible.

    The second way our data could be compromised is through an outside attack. Because our

    servers much be connected to the Internet at all times, it is very difficult to prevent this sort of

    attack, so we must instead defend against it. It is partly for this reason that we will hire security

    consultants, as discussed earlier, to help protect our system against intrusion. To ensure

    accountability, a discussion of the measures taken to protect our users data will be included in

    the Terms of Use and Privacy Policy, which will be available to any visitor to the site.

    As a mostly-automated service, it is impossible to provide a 100% satisfaction guarantee for

    our users. With this in mind, an additional risk would be if one of our users has experienced a

    negative outcome from using Room-Me. To mitigate this risk, we must constantly evaluate the

    effectiveness of our algorithm, but must also make it clear to our users that despite our best

    efforts, 100% satisfaction is beyond our ability.

    The final risk to be considered is a service outage. If something happened that compromised

    the integrity of our site, our tech staff would immediately start working to resolve the issue, not

    stopping until service resumed.

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    9. Harvest and Exit

    Under optimal conditions, there are two main ways that Room-Me will have a profitable

    harvest: IPO and acquisition.

    If Room-Me is very successful, we will consider taking the company public in the future. A

    high-value initial public offering would raise a huge amount of revenue and be a perfect

    opportunity for investors to recoup their money.

    The second option is if Room-Me is purchased by a larger technology firm, much like how

    Microsoft recently purchased Skype (Microsoft 2011). Large technology firms, especially

    Google, spend a lot of time acquiring valuable tech start-ups, and often pay large amounts, so

    this is another plausible way for investors to make back their money.

    Management succession is more difficult. The current management team will commit to

    staying on until at least the company breaks even. If, however, any want to leave the company,

    then replacing management is not challenging; once the infrastructure is in place, it is relatively

    easy to find people with the appropriate skill sets to maintain it and build from it. The original

    management team must reach consensus on the candidate before they can replace the leaving

    member. University of Waterloo computer science or software engineering graduates and Wilfrid

    Laurier business graduates are our first choice for succession.

    In terms of exit, however, to minimize investor risk, we will offer the opportunity to recoup

    50% of the initial investment if investors want to pull out early. One year after the company

    breaks even, we will buy the equity back at the rate of $1 300 per percentage of equity, adjusted

    for inflation, if the investors would like to exit.

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    10. Timeline

    We will begin with first generation software, already developed and fully functional in 2016.

    Our timeline would then follow as below.

    Year Activity Milestones

    2016

    Build server

    Connect server to Internet

    Install software

    Hire first co-op student

    Organize beta testing

    Partnership formed

    Website fully

    functional

    2017

    Intensive website development

    Develop Facebook and mobile apps

    Organize marketing campaign

    Beta testing open in

    Waterloo

    2018

    Advertising push

    Start earning revenue

    Constant promotion

    Official Ontario-wide

    launch

    2019 Seek advertising accounts

    15 000 users

    First advertising

    account

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    10. Appendices

    [Removed for brevity]

    12. Works Cited

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    Baker J., Leung, C., Li, J., Liu, J., Protacio, K. (2011, November 27th). E-Roomie: The Future of

    Online House Hunting.

    Bell Canada. (n.d.) Business Internet Dedicated. Retrieved from

    http://www.bell.ca/shop/Sb_viewProduct.page?sku=SB_INT_DED&region=ON.

    Council of Ontario Universities. (2011). Total Enrolment by Program. Retrieved from

    http://www.cou.on.ca/statistics/cudo.

    Datamonitor. (2006).Real Estate Management & Development[Industry Profile]. Retrieved on

    November 9, 2011 from Business Source Complete database website:

    http://datamonitor.com.

    Gary Baker. (2012). LinkedIn Profile. Retrieved from http://www.linkedin.com/in/gsbaker.

    GoDaddy.com (n.d.) Domain Names, Web Hosting, and SSL certificates. Retrieved from

    http://www.godaddy.com/.

    Hitachi Global Storage Technologies. (2011, March). Ultrastar 5K3000. Retrieved from

    http://www.hitachigst.com/tech/techlib.nsf/techdocs/F9EC919C140E20498825785A005E6

    648/$file/US5K3000_ds.pdf.

    Levinson, Jay Conrad. (2011). What is Guerrilla Marketing. Retrieved from

    http://www.gmarketing.com/articles/4-what-is-guerrilla-marketing.

    http://www.bell.ca/shop/Sb_viewProduct.page?sku=SB_INT_DED&region=ONhttp://www.bell.ca/shop/Sb_viewProduct.page?sku=SB_INT_DED&region=ON
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    McMaster University. (2012). McMaster Residence Buildings. Retrieved from

    http://housing.mcmaster.ca/Residence_Admissions/buildings.html.

    Microsoft News Center. (2011).Microsoft to Acquire Skype. Retrieved from

    http://www.microsoft.com/presspass/press/2011/may11/05-10corpnewspr.mspx.

    Ontario Hydro (n.d.). Ontario Hydro Current Date. http://www.ontario-

    hydro.com/index.php?page=current_rates.

    Ron Protacio. (2012). LinkedIn Profile. Retrieved from http://www.linkedin.com/in/ronprotacio.

    Shopbot.ca. (2012, March 15th). Hitachi Deskstar 5K3000 3TB CoolSpin 32MB Serial ATA III.

    Retrieved from http://www.shopbot.ca/pp-hitachi-deskstar-5k3000-3tb-coolspin-32mb-

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