Tag Archives: technology

Future of online trading: App stores for investing

It’s been a truism that the secret to runaway success in technology has PlatformLeadershipBookalways been in platform building.

I learned about the intricacies of building platform leadership from a book by the same name, “Platform Leadership” which I read during my MBA. The book by Gawer and Cusumano detailed how Cisco, Intel and Microsoft drove industry innovation by building a robust, standardized technology platform other leading-edge products could plug into.

The premise of the book was powerful: companies that could create products/services that served the center of a powerful ecosystem of ancillary items built on top of these products become extremely valuable.  Think Intel Inside and Microsoft’s dominance of the OS.  Presently, think of what Salesforce.com is doing with its platform as well as Apple’s iPhone App Store.  By creating a platform around which 3rd party developers are incentivized to design and build products, these companies have created something much more valuable and harder to displace than a mere product.  They’ve created a platform.

Investment field riddled with platforms

The investment field is riddled with platforms, too.  Bloomberg runs an empire based on an install-base of thousands of terminals in most of the leading investment institutions around the world.  You want to reach institutional investors with financial content? Gotta work through Bloomberg.  Yahoo Finance is the granddaddy of financial websites, far and away seeing more pageviews than any of its competitors.  You want to reach the retail investor, gotta get on Yahoo Finance.

Platforms provide necessary structure to certain markets.  In the investment field, platforms like Bloomberg and Yahoo Finance serve to

  • Aggregate content: investors don’t have to hunt down information by doing hundreds of Boolean searches on the Internet.  By serving as content aggregators, the platforms serve as a clearing house and central node to consumer info.
  • Establish an orderly market: Platforms create order by creating certain standards for their products and partners.  Bloomberg and Yahoo Finance established syndication guidelines via which partners must comply to be on the platform.
  • Create viable business models: It’s not clear to me that many investment research products could survive on a standalone basis.  Investors don’t like to pay for content and by aggregating pageviews on a single site, Yahoo Finance actually creates a viable business model for their partners and shares it out with them.
  • Consolidates usage to make single a jumpoff point to reach users: By consolidating the market, making it orderly and putting viable financial metrics behind it, finance platforms are the gateway to the users.  It’s too hard, complicated and expensive to reach investors directly.  These platforms act as market makers for the investment content bringing suppliers and customers together.

Online Brokerages as Investment Platform

While reviewing a recent product/service that E*Trade launched last week, I stumbled upon the realization that online brokerages are doing the exact same thing that Apple is doing around the iPhone.

In fact, it’s a HUGE misnomer to call these firms “online brokers”.  What were once merely online trading systems, companies like Ameritrade and E*Trade are actually now in the platform business.  As this evolution develops away from just trading toward the development of a true investment platform, these firms are creating something so much larger than just online trading or banking services.  I like the term “investment platform”.

Ameritrade’s Premier Partners

platformpartners

Check out what Ameritrade is doing with its partner platform.  This page lists a handful of 3rd party applications that run on top of Ameritrade for clients to receive trading alerts, Jim Cramer’s wisdom, ongoing advice about when to sell and some nifty charting.

None of these services are completely groundbreaking in and of themselves, but Ameritrade is establishing itself as the nucleus of the investment ecosystem.  By allowing developers to build tools and hook them up to Ameritrade’s API, the firm is concretizing its position as the investment platform of choice.

You want to reach investors?  Gotta get on the platform.

While the platform provider has an unbelievable amount of power, on the other hand, having a platform enables software/services developers to effectively reach the investor smack dab in the middle of the investment process — something heretofore impossible to do.  Look to see a lot of services develop around this ecosystem.

It’s like milk — for everyone

It’s a boon for Ameritrade — they can provide more services for their client base without developing them in-house.  It’s a boon for consumers because they no longer have to wait on their broker to provide new services.  It’s a boon for software developers because a move toward a platform puts them in business.

Maybe this was self-evident.  Maybe others understood that this evolution was unfolding right in front of us. In fact, both Ameritrade and E*Trade have allowed 3rd party financial advisors access to their platform, technology, services and clients for years.  Yet, I think this is a huge breakthrough in the understanding of what the future holds for these particular firms, their clients and technology development. It’s the financial industry’s equivalent of a mash-up.

Exciting.

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Schwab beginning to get the social nature of retirement services

Charles Schwab announced today that it was launching what it calls “Real Life Retirement(TM) Services”.  You can see what it looks like here (screenshot to the right).

schwab-retirement-services

Background info on the launch

From the press release:

“We have a different point-of-view from other financial firms in how we approach retirement. For most people, retirement isn’t about hang-gliding or hitting the golf course every day. People dream of balance – enjoying a comfortable lifestyle, covering healthcare costs, spending time with family and friends, and making sure they won’t run out of money,” said Mark Jamison, vice president, Charles Schwab. “We chose to build a service that addresses real life challenges people are facing today, which typically don’t involve a life sailing around the world,” he added.

Why now

Schwab conducted a pulse survey in the first two weeks of 2009 and found the following:

  • One in four (26%) adults surveyed ages 55-64 do not know whose advice to trust when it comes to retirement planning.
  • 33% of 55-64 year olds indicated they are confused about weighing the immediate marketplace alongside their long-term goals.

There is a lot of info on this site and much of it is traditional online brokerage marketing/services like portfolio review, retirement calculator, and a free consultation.  But there is something really interesting lurking beneath what’s going on here and it has to do with the social aspect of how Schwab is marketing itself.

You see, retirement investing is very much about allaying fears and how better to soothe anxious retirement investors than a channel to ask questions and to see what questions they should be asking by seeing what others are concerned with.

I’ll show you what I mean:schwab-retirement-questions
First note the question input box.  It’s friendly and accessible.  No login requirements and it’s open to non-Schwab account holders.

Second, I can peer into the other questions being asked.  Questions like “How are my expenses likely to change in retirement” and “How do I estimate health care costs in retirement”.  Because Schwab is a broker/dealer, the firm can’t respond directly to specific questions thrown at it but can address the general nature of the question.  Not perfect but definitely a step in the right direction.

What Schwab accomplishes with this launch

Schwab does a couple of things with launching this portal (again, you can see it here)

  1. Baby steps towards adopting social media: If social media’s success is built off an inherent voyeurism we all share, Schwab’s question/answer system enters the game.  Traditional online brokerages have been slow to adopt social media while upstarts like Zecco and TradeKing have been more aggressive in differentiating themselves as upstarts in a field that’s somewhat commoditized.
  2. Redefines how baby-boomers nearing retirement think about retirement: Baby boomers are using the Internet and when it comes to researching such anxiety-ridden issues like retirement, they are reaching out to one another for support.  Schwab leverages this trend indirectly via its ability to harness questions and publish the answers.  It’s good for investors and the questions in and off themselves are good content.
  3. Schwab gets great market research.  Much is discussed about social media’s ability to help get users smart fast.  Social media is totally about the publisher getting smart about what its readers/prospects/investors are interested in.  Schwab has a living lab to tap the collective interest of its constituents.  That’s powerful.

Let’s keep an eye on this space.  I expect to see a lot of activity as competition for investment assets continues to grow.

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Post Mortem for Monitor110

Monitor110 jumped onto the investment technology scene in a big way.  Its backers and proponents took the audacious task of attempting to create a huge content system that would enable investors to monitor the increasing content with investment value that is the Internet.  With backing from Roger Ehrenberg, some big names on the BOD, and a big raise behind it, Monitor 110 ceased ops today.

Roger has a great post today with good personal insight into what went right and ultimately, what went wrong.

Roger lists 7 deadly sins that ultimately did-in Monitor 110:

  1. The lack of a single, “the buck stops here” leader until too late in the game
  2. No separation between the technology organization and the product organization
  3. Too much PR, too early
  4. Too much money
  5. Not close enough to the customer
  6. Slow to adapt to market reality
  7. Disagreement on strategy both within the Company and with the Board

Read more on his experiences here.

I guess what I’m left with is that there is still a tremendous opportunity in the ex-Bloomberg/Reuters world of alternative information.  Accoding to Ehrenberg, “The market for alternative information and tools is very, very challenging, and the current market environment isn’t making it any easier. But there are clear needs out there that should and will be addressed. I will write a post on the alternative information market at a later time. Thanks for listening.”

My ears are open, Roger.