Web 2.0 and Financial Services
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The document discusses trends in online communities and their potential application to consumer financial services. It analyzes over 40 existing Web 2.0 sites, interviews industry experts, and identifies key drivers of online communities like customization, collective intelligence, and community formation. The report recommends ways a financial services firm could build user knowledge and offer investment ideas by creating an online community that leverages these trends.
Web 2.0 and Financial Services
- 1. MarketLab Report Web 2.0 Online Communities in Consumer Financial Services Garrett Dodge Sara Greenbaum Dong Min Kim Asier Rufino 14 December 2006
- 2. Project Overview Scope Analyze trends in Web 2.0 online communities and their potential intersection with consumer financial services Process Client Online Strategy Group: online retail investment brokerage Drafted survey questionnaire addressing major areas for project scope Created list of pertinent contacts and relevant data sources Identified 45 people to interview and managed to conduct 24 full interviews Consolidated information emanating from research
- 3. What is Web 2.0? A new generation of web applications using the Internet as a platform for interaction Connects communities of users (buy side) to corporate firms (sell side) Is this sustainable? Or are we facing another dotcom bubble?
- 4. Web 2.0 as a Brokerage Platform Proposition to users of added value functionality: frequently involves empowering the user to publish content or facilitate the communication with other like-minded individuals Creation of a community that interacts as frequently as possible Generation of a critical mass Proposition of added value products to sellers to segment / understand target customers’ behavior to better position advertising Community receives advertising in a way that does not disrupt interaction with other community members and creates some value to them (i.e. pertinent advertising) Agreements arranged on the basis of some revenue sharing
- 5. Methodology Internal documents Online publications Industry sector reports Analysis of over 40 Web 2.0 sites Interviews 5 VCs 6 Entrepreneurs 5 Academics 2 CIOs 6 Product Managers Attended Web 2.0 and VC conferences Primary Research Secondary Research
- 6. Interview Questions What are the key markets in which Web 2.0 plays an integral role? Why have businesses been able to successfully implement Web 2.0 solutions? What are the growth drivers and expectations in light of anticipated improvements in technology related to social networking and online communities? What are the high-level themes or trends found in online communities? What are the breadth of features found in online communities? How do companies create trust online? How are companies monetizing social networking sites? How are companies perceived by their customers or online members? What are the limitations for implementing some of these solutions in the financial services sector? What barriers would we need to overcome in order to implement a solution? How are other financial services firms positioned relative to key competitors? What are the strengths, weaknesses and strategies of the competitors?
- 7. What’s Driving Web 2.0? CUSTOMIZATION COLLECTIVE INTELLIGENCE COMMUNITY
- 8. Market Trend: Customization Users want individual experience online (i.e. microportals) Ability to sort through large amounts of information Customizing user interface or homepage by combining modules Targeted search within personal network Grant personal access to other users Content segmentation Create personal identity or world Develop personal webpage or link Access to customization of other users Tagging and ranking Customized delivery (i.e. RSS, mobile) Model portfolios Create personal peer groups Pertinent information may never be viewed Difficult to frequently update as user habits change High start-up costs Good site design important to users Critical mass required Association with content on site Difficult to present valid information to all users Drivers Constraints Features
- 9. Customization: User-Driven Design Concept: Users get unbiased fully customized stock alerts Features Personalized content and site design Module or widget based platform Interaction with other sites (i.e. Digg, Deli.cio.us) Customized chat related to stocks Similar site: Boursorama www.gstock.com Source: Company websites, Literature Search
- 10. Customization: User-Driven Content Concept: Users create customized social web applications using provided platform Features: 100% user-driven content and design Built-in development tools Provider as facilitator: web hosting, security Aggregated popularity index Similar site: Second Life www.ning.com
- 11. Market Trend: Networking Trust: networks built upon social connections Reverse Network Effects: many users dilute quality Social Accountability: Obligations to community drive behavior Sub-grouping: Users form groups to share financial advice, compete in contests, etc. Readily available, searchable market data Self-organization into interests, affiliations Targeted market Self-policing and sustainable Keeps sensitive information within allowed network, promotes greater openness Eases transition to full community participation Security: privacy of member profiles Shallow Relationships: unclear extension into real world Inherent Filtering: required to gather data Promotes groupthink Potential for fragmentation of community Drivers Constraints Features
- 12. Community: Social Networking Source: Company websites, Literature Search Concept: Users join online communities focused around social connections Features Self-selected user data (affiliations, interests, etc.) Information sharing with immediate network (event invitations, group messages) Corporate-sponsored groups Restricted membership Similar site: LinkedIn, MySpace www.facebook.com
- 13. Community: Resource Matching Source: Company websites, Literature Search Concept: Users solve R&D problems of companies (solvers & seekers) Features Clear incentives for those with resource/knowledge surplus More efficient markets, lower costs Reverse network effects: too many users dilute quality Similar sites: Prosper, Match, Monster www.innocentive.com
- 14. Community: Competition Source: Company websites, Literature Search Concept: Users build teams of players from a given sport and compete in leagues based on player statistics Features: Competition promotes high engagement level on site Targets young, male demographic Data-driven management Users pay for live updates Similar Site: Motley Fool CAPS fantasysports.yahoo.com
- 15. Community: Information Sharing Concept: Users post estimates of their net worth Features Comparison of financial information by age, profession, etc. Blogs on personal finance decisions Openness of users in sharing financial data Similar sites: Wesabe, Foonance, DimeWise, Bullpoo www.networthiq.com Source: Company websites, Literature Search
- 16. Market Trend: Collective Intelligence Intelligence of aggregate community vs. the individual Information-sharing by individuals Low cost creation of content by users Increased access to user’s knowledge Incentives for sharing (social recognition or monetary reward) Low-cost for large amounts of data Self-policing within well-designed constraints Information constantly updating Constant customer feedback Easily accessible consumer data Innovative content creation Law of averages creates greater accuracy Necessary to filter contributions of all users (negative network effects) Intellectual Property is a concern since open forum Critical mass of users necessary to achieve results and draw other users Gaming by users undermines trust Potential for exploitation Drivers Constraints Features
- 17. CI: Knowledge of the Masses Concept: Users compete by managing virtual portfolios Features Top investors aggregate into index Premium members get stock alerts, weekly insight, daily stock info Only members in top 25% for six months can post in forums Option to create clubs with friends, family, etc. Similar sites: Iowa Electronic Exchange, Wikinancial www.marketocracy.com Source: Company websites, Literature Search “ What better form of collective intelligence is there than a market.” - CISR Research Scientist
- 18. CI: Collaboration Concepts: Users collaborate to author a book about intelligence of communities Features Members add, edit, delete content Discussion forum, prediction market competition Incentive from book royalties (author credit divided among all contributors) Similar Sites: Helium, Tax Almanac, A Million Penguins www.wearesmarter.org Source: Company websites, Literature Search
- 19. CI: Tagging / Bookmarking Concept: Tagging financial news articles based on ticker symbols of featured stocks Features User categorization of items in personal lexicon (sub-grouping) Ranking and monitoring of relevant stock information Results in trusted search Similar sites: Digg, deli.cio.us www.digstock.com
- 20. CI: Product Development www.threadless.com Concept: Product development instance for a community-centered T-shirt store Features: Publishing of T-shirt designs online, which are put to a public vote Product development tool: only T-shirts with highest votes are printed Rewarding publishers of relevant content for the community
- 21. Applying the Web 2.0 Brokerage Model Online communities must be monetized in a way that creates value without disrupting interaction among users Trust + Knowledge + Investment Ideas ADDED VALUE / FUNCTIONALITY BUILDING COMMUNITY MONETIZATION SWITCHING COSTS
- 22. What to do? Bookmarks and tagging of stocks, news, etc. for trusted searching SMS/email messaging among trusted users Customization Community Collective Intelligence Trust Knowledge Ideas Switching Formation of groups with different levels of access Partnering with existing sites? Monitoring of top performers in aggregate (“genius picks”) Management of virtual portfolios Competition through incentives for good performance Leagues or contests at group level Searchable aggregate market data Internal prediction markets Blogs/bulletin boards for sharing advice Search capabilities based on user profiles Buzz index (most traded, most researched, etc.) Community voting on new products Modifiable look and feel of homepage User profiles, generation of “microportals” Network of friends, trusted advisors, etc. Provide exclusive content, portal information Network effects associated with critical mass
- 23. Recommendation: Build User Knowledge Targets unregistered users Increases frequency with which people access site Creation of forums / blogs talking about general questions concerning self-investment (e.g. taxes, different vehicles) Unregistered users would not be able to post information Create a parallel investment environment (Marketocracy, fantasy sports leagues) Use of training modules (SecondLife, America’s Army) Boost Market Data content (e.g. quotes, broker notes, news, indexes, FOREX, Commodities, major benchmarks)
- 24. Recommendations: Offer Investment Ideas Targets both registered and unregistered users Rankings of stocks (e.g., top 10 volumes, increases, decreases by market) Forums / blogs talking about the dynamics of intra-day trading Adopt Threadless concept to have users voting for investment ideas Buzz Index: Maintain aggregate statistics based on user activity Most researched stocks, most traded, most tagged, etc. Create search capabilities based on user profile information (Facebook) Share portfolio with friends (NetworthIQ, Marketocracy)
- 25. Appendix Web 2.0 Online Communities in Consumer Financial Services Garrett Dodge Sara Greenbaum Dong Min Kim Asier Rufino 14 December 2006
- 26. Criteria RELEVANCE: Is there a logical connection with financial services? Are there inherent association problems? VALUE: Are users finding enough value out of our site? Are there enough incentives to become an active member of the community? How do we monetize this value? SUSTAINABILITY: Is this a short-term or long-term solution? Are there issues of scale or scope? Are we just trying to keep up with the latest trends? Are we providing enough value for users to create high switching costs? FEASIBILITY: How much time and money will it require to start up and maintain the site? Is the market too saturated for entry? Are users really ready to share their financial information openly?
- 27. Competition: Boursorama () Boursorama 2005 Financial Report Background: top on-line broker in Europe Owned by Société Générale 462,000 accounts; 4,4M orders executed; EBITDA: 25M EUR (*) Features: Virtual portfolios; quotes Exclusive content: technical analysis, notes of brokers Forums and online interviews Paid advertising RSS feeds @boursorama.com e-mail boursorama.com
- 28. Selected Quotations Customization Community Collective Intelligence “ What better form of collective intelligence is there than a market.” - CISR Research Scientist “ In my communities research I have found that there are several types of communities cropping up online, customer service, product innovation, market research, and communities for commerce.” - hstrout, We Are Smarter “ It is also a very natural and healthy dynamic for a community to have many more 'readers' than people participating in the conversation or in the creation of media. You will find that this is the case in most communities online.” - Yaronb, We Are Smarter “ Widgets that have office functionality—and their inclusion on Intranet dashboards—is probably where Google, Microsoft and the smaller players like Pageflakes and Netvibes are heading.” - Richard MacManus, Tales from the Web 2.0 Frontier
- 29. References “ Results from a Dozen Years of Election Futures Markets Research” by Joyce Berg, Robert Forsythe, Forrest Nelson, Thomas Rietz; College of Business Administration University of Iowa, November 2000 “ Structure and Evolution of Online Social Networks” by Ravi Kumar, Jasmine Novak, Andrew Tomkins; Yahoo! Research, June 2006 “ The Challenge of ‘Customerization’ in Financial Services” by Jerry Wind; Journal of Interactive Marketing, Winter 2001 “ Friendster and Publicly Articulated Social Networking” by Danah Michele Boyd: CHI 2004 “ Searching Social Networks” by Bin Yu & Munindar Singh; AAMAS July 2003 “ HT06, Tagging Paper, Taxonomy, Flickr, Academic Article, To Read” by Cameron Marlow & Danah Boyd August 2006