robwebb2k » KnowledgeBid

Investment Research after the storm

Rob Webb — Thu, 25 Sep 2008 06:25:07 +0000

The last two weeks have kept most in the finance community glued to the headlines trying to figure out which earthquake will hit next. Mainstream media analysis has been focused on global economic issues and with numbers like $700B being thrown around, the $5.7B investment research industry, which has felt a substantial impact from the debt crisis and the Wall Street shakeup, has been largely overlooked. Nearly 3,000 equity research professionals have already been directly impacted.

Brokerages by Research Market Share (Greenwich Associates, pre-shake up)

1. Citi
2. Merrill Lynch (~800 equity analysts)
3. Lehman Brothers (~600 research professionals)
4. JPMorgan (~400 senior equity analysts)
5. Bear Stearns (~90 senior equity analysts)
- Morgan Stanley (~600 research professionals)
- Goldman Sachs (~444 research professionals)
- Credit Suisse
- UBS
- Bernstein
- Robert W. Baird
- Pacific Crest
- Simmons & Co.

Sandy Bragg at Integrity Research reported that JPMorgan took on just one third of Bear Stearns’ analysts post-merger and I’ve heard that some analysts were pushed out of JPMorgan in the process. Apparently all of the Bear analysts found positions before the merger went through, but with Lehman Brothers merging with Barclays, Merrill Lynch merging with Bank of America, and Goldman Sachs and Morgan Stanley facing inevitable downsizing it is unclear how many equity analysts will remain employed at bulge bracket firms and subsequently how many the buy-side, independent, and alternative market firms can absorb thereafter.

Perhaps more importantly, the management of these firms have a chance to not only reshuffle the deck, but also to change the game they are playing which may not bode well for loss-leading segments like traditional equity research and equity sales. This coupled with probable buy-side consolidation and a continued trend toward internalized research at the larger funds may accelerate additional change within the industry.

When the smoke clears, the competitive landscape within the investment research industry will be drastically different. The bulge bracket firms will produce less research and there will be more seasoned analysts on the buy side, at independent shops, and hanging their own shingle. Platforms aggregating distributed expertise will become even more instrumental in connecting researchers with product and industry experts.

Expert networks and sell-side research analysts

Rob Webb — Wed, 24 Sep 2008 04:10:41 +0000

The recent partnership announcement between the Gerson Lehrman Group and Credit Suisse sparked some commentary from research industry insiders who were surprised that GLG was letting sell-side analysts access the GLG network, even for what is sure to be a hefty fee. I was a bit surprised to learn they weren’t doing this already. GLG and other expert networks have tens of thousands if not hundreds of thousands of experts in their networks. Sell-side research operations, while they may be on the decline, still control 75% of the $5.7 billion in trading commissions distributed to research providers annually. At KnowledgeBid, our best customers are firms that sell research and services based on primary research. Contact us if you’d like to learn more about our network and how we can help you meet your customers’ needs. We’d love to help.

Investment Research: Continued Shift

Rob Webb — Wed, 10 Sep 2008 21:02:43 +0000

Ongoing market turmoil and the intensifying financial crunch have accelerated ongoing shift within the investment research industry. This morning Credit Suisse and the Gerson Lehrman Group announced a strategic partnership that will 1) give Credit Suisse analysts access to GLG consultants; 2) give GLG clients access to Credit Suisse analysts; 3) give GLG access to Credit Suisse distribution channels.

Credit Suisse access to GLG consultants: Tom Hutchinson at Integrity Research points out that the partnership is a shift from GLG’s longstanding policy of not providing sell-side analysts with access to their network. Sell-side research has been slowly dying over the last several years as experienced analysts have departed for hedge funds. Hutchinson theorizes that the deal could improve the quality of CS analysis and piss off existing GLG customers. I agree that CS idea generation will likely improve but it will still be produced within the broken commission based model. This aspect of the arrangement an interesting way for GLG to utilize members of their network to non-subscription paying customers with CS analysts as conduits in the middle, shouldering the risk of getting paid via commission.

GLG client access to Credit Suisse analysts: The addition of Credit Suisse analysts to the GLG roster is not terribly significant since the bulk of GLG customers are hedge funds that would be able to get the ear of a Credit Suisse analyst simply by picking up the phone. That said, CS will be able to lease out their analysts through GLG to consulting firms, PE shops and corporate clients that don’t typically deal with prime brokers or consume sell-side research. However all of these types of researchers are extremely savvy and use services like GLG to drill into specific investment theses so it’s unclear how much macroindustry input they are really looking for. It would be helpful for a PE shop to have access to a sell-side analysts for specific merger analysis, but that may fall into the prohibited “investment advice” part of the deal.

GLG access to Credit Suisse clients and distribution: The potential for broader distribution has significant potential for GLG and likely the primary reason why they were interested in the deal. The sell-side has very little to sell right now. Selling GLG services and getting direct commissions on those sales would be an effective way for CS to monetize their sales force separate from the trade commission game. That said, structuring the cost, discount, fees, and commissions for something like this will likely be a bit of a shot in the dark and will be hard to execute without angering existing GLG customers. However these factors are minimized in the instances where CS sales keeps pushing CS analysts’ ideas which utilize GLG consulting hours. This aspect of the deal is similar to the GLG/Morgan Stanley AlphaWise partnership announced in March.

Congrats to both companies in completing what I’m sure was a very sticky deal. At the end of the day this is massive validation of expert networks. Over the last several years the sell-side has lost inside access to companies and as a result has been forced to do deep primary research alongside everyone else…and they’re using expert networks to do it.

Edit: Great post from Mike Mayhew at Integrity put up last night.

It’s the recruiters, stupid!

Rob Webb — Mon, 18 Aug 2008 04:21:49 +0000

Jobs have long been targeted on the web. The economics involved are attractive. People want good jobs and employers are willing to pay for good employees.

In the last ten years, hundreds of businesses have launched with the goal of using the web to bring efficiencies to job markets and capturing value in the process. As a result, newspaper classifieds have died, consumed almost entirely by dynamic, searchable sites with tens of millions of listings.

Recruiters and headhunters, on the other hand, haven’t gone anywhere.

In fact, the most successful employment focused sites all rank recruiters among their most loyal users. Monster, LinkedIn, CareerBuilder, BountyJobs, CraigsList, KnowledgeBid (my company), HotJobs, and Facebook are used by recruiters to search profiles, send messages, create connections, run advertisements, make referrals, and post listings. All this while sites that have tried to cut recruiters out of the employment equation have in large part failed.

The web has given recruiters access to hundreds of millions of user profiles and inexpensive niche job postings. The technology shift has changed how recruiters do their jobs, and it’s arguable that the explosion of information on the web has made them more valuable. Either way recruiters are certainly the heaviest users of job technology, so if you’re planning on launching a business in this space you’d best make sure they’re included.

The classified puzzle

Rob Webb — Thu, 31 Jul 2008 00:27:49 +0000

It’s a funny coincidence that Microsoft will be pulling the plug on their little known Live Expo classified service just three days after MySpace announced that they will be ramping theirs up with Oodle. These changes are indicative of the larger trend: the classified game remains elusive for large major new entrants. Facebook‘s classified service has been less than stellar (I can’t even find a link to it right now) and Edgeio has been shuttered while Craigslist and eBay continue to dominate the all-in-one classified scene.

However a number of niche sites operating alongside the classified space have popped up and many have flourished. Some of these services offer an intermediary layer between consumer to consumer and business to consumer transactions that otherwise would be a direct connections in a pure play classified scenario while others target specific demographics design and marketing. It will be interesting to keep tabs on these services and their impact on the big dogs.

Tickets: StubHub, Viagogo

Jobs: SimplyHired, Indeed, Jobster, LinkedIn

Electronics and Cell Phones: Flipswap, VenJuvo

Consulting: KnowledgeBid (my company), Gerson Lehrman Group

Technology Gigs: eLance, oDesk, Rent-a-Coder

Parking Spots: ParkWhiz, Parkatmyhouse, CarHarbor

Hand Crafted Goods: Etsy

Shipping: uShip

Dating and Personals: JDate, Match, PlentyofFish (and many more)

Leave a comment if you think I’ve missed a company or category and I’ll at them to the list.

LinkedIn quietly launches Research Network and DirectAds…let the monetization begin.

Rob Webb — Mon, 30 Jun 2008 03:45:16 +0000

LinkedIn DirectAds
LinkedIn has quietly launched a beta version of a dynamic CPM text advertising platform called LinkedIn DirectAds. No formal announcement of the launch was made on the LinkedIn blog or elsewhere. According to the DIrectAds FAQ, advertisers will be able to dynamically target ads by age, gender, geography, educational institution, industry, and seniority. Minimum order size for an advertisement is $25, with the minimum number of impressions dependant on the targeting audience chosen by the advertiser. The rate that you pay for a CPM (1000 impressions) changes as you add or remove targeting options from your ad. Apparently the product will give click-through rates to advertisers, but billing will be based on CPM. In a unique twist, ads will also include the advertisers name and a link to their LinkedIn profile in hopes of “increasing transparency and visibility into the advertiser.” Much like the Facebook SocialAds platform, advertisers must have a profile on the network to launch an ad, although LinkedIn says they are limiting advertisers by completeness of profile, number of connections, date of profile creation and a number of other factors. I was unable to access the platform through my profile.

The DirectAds platform will bring LinkedIn closer to Facebook’s Social Ads technology, with these two leaving Bebo, MySpace, Plaxo, Friendster and the rest of the social networking world behind for now. I hope to be able to try the LinkedIn platform soon and give a head-to-head comparison. LinkedIn will continue to extract a premium on their advertising, as it seems they will be setting the price per CPM internally. A true market (e.g. Overture/pre-Panama Yahoo) or partial market (e.g. Google quality score) influence on price would likely result in prices lower than they would like, and they are clearly avoiding a CPC model for a reason since they are measuring CTR anyways. I think this slow transfer is very smart on their end especially considering their pre-IPO status, but as an advertiser I wish they would switch to a free market faster. Their ad margins will likely be lower than what they were getting with their rate card (although perhaps not), but the volume of advertisements will definitely spike upwards as you no longer have to go through a traditional advertising salesperson process to launch a targeted ad on their network.

LinkedIn Research Network
Additionally, on Thursday of last week LinkedIn quietly launched the LinkedIn Research Network, a product the company first mentioned back in February. No formal announcement of the actual launch was made on the LinkedIn blog or anywhere else, but the Research Network product page is live and linked to from the Premium Product footer, along with job, corporate, and upgrade links. Also linked is a 2 page product summary PDF. The product page outlines what is essentially a premium version of InMail (pdf). A Research Network subscriber can send send 20 InMails at once, and no monthly or daily limits are mentioned. Previously, LinkedIn BusinessPlus subscribers had the most InMail access and were limited to 10 InMails per month, so this is a dramatic increase in potential InMail volume. In the past advertisers could send targeted InMail blasts through LinkedIn’s advertising platform at $1 – $5 per recipient.

The LinkedIn Research Network is an attempt to move into the expert network industry and will be sold primarily to hedge, private equity and venture funds. According to a recent Integrity Research Associates report, there are roughly 25 expert networks in existence today. Aside from my company KnowledgeBid, every other expert network service operates on a subscription model. LinkedIn is likely gunning for the fat subscription fees that players like the Gerson Lehrman Group are pulling from investors (+$50k for access to one industry vertical of experts for 6 months), but the product they have launched is far more like the resume search/direct email services offered by Monster, HotJobs, CareerBuilder, Dice, etc. than an expert network. Perhaps down the road LinkedIn will try to facilitate the actual expert matching, but this iteration of the product just enables subscribers to send a large volume of cold emails to potential consultants. Additionally, the product page makes no mention of facilitating consultant payment and the only compliance functionality mentioned is a “research history”. Legal compliance is arguably the largest issue faced by expert networks today, and something that expert network users have come to expert from service providers. It’s possible that LinkedIn is intentionally not involving themselves with payment of experts in an attempt to remove themselves from the chain of liability if their service were to be used to facilitate insider trading or the like.

Congrats to LinkedIn on the product launches. I’m glad to see them competing with Facebook on the advertising technology side of things (let’s see an API guys!) and will certainly be keeping tabs on these products as they mature.

Facebook Ads now targeting professional titles, taking LinkedIn head on…

Rob Webb — Tue, 17 Jun 2008 23:29:24 +0000

Facebook continues to quickly and quietly improve their advertising platform. In yet another innovation launched without formal announcement, Facebook now allows advertisers to target ads based on professional titles in user profiles. Previously ads could only target by keywords listed in users’ “interests” field. Now Facebook has indexed professional titles and allows for dynamic targeting through the Facebook Ads platform. Perhaps the recent launch of the advertising feedback function was in anticipation of an aggressive move towards monetization via heightened ad targeting? We’re still waiting on the Facebook Ads API but LinkedIn is still using a massively inflated CPM rate card despite their recent $1B valuation and and MySpace still uses Google adwords, putting Facebook miles ahead of the rest of the social networking pack when it comes to advertising technology.

Cloud Consulting + Distributed Professional Services

Rob Webb — Tue, 27 May 2008 06:54:12 +0000

The Times recently ran an article by Michael Fitzgerald on the red hot cloud computing trend. Fitzgerald defined cloud computing to be “obtaining computing resources . . . from someplace outside your own four walls, and paying only for what you use.” The concept of cloud computing makes perfect sense: instead of paying for massive amounts of computing capacity to be ready for spikes in usage, site owners pay only for what they need, when they need it.

Fitzgerald’s definition illustrates the parallels between cloud computing and what we’re up to at KnowledgeBid as well as, in a larger sense, a growing trend in the professional services space. Like cloud computing services, KnowledgeBid provides services on an as needed basis, the difference being that instead of tapping into a cloud of computational power, KnowledgeBid facilitates access to a cloud of expertise and information.

A new lean breed of professional service companies is maturing with similar operating models, silently taking market share from the incumbent players. These firms have minimal office leases on their balance sheets and aren’t burdened with massive annual partnership payouts. They offer customized, lower priced services and often have broader offerings than their traditional competitors. The management of these firms plays a new and rapidly evolving role, combining matchmaker, headhunter, temp agency, accounting firm, compliance officer, and human resources department.

One of the hottest of these new breed is Axiom Legal Solutions, Inc. Founded in 2000 by Mark Harris and Alec Guettel and backed by Greenhill & Co., Benchmark Capital, and Panorama Capital, Axiom is disrupting the legal world by working closely with the in-house counsel at major corporations to fuel them with niche, qualified attorneys on a contract basis. Axiom “combines the flexibility of outside counsel with the best attributes of a sophisticated corporate law department”, collecting fees on attorney hours but without the weight of partner payouts and massive office leases. Axiom “is not a law firm” and “does not provide legal representation or advice” but does interview attorneys, hire them full-time, then place them directly with clients for specific engagements. Their clients include American Express, Bank of America, Cisco, Dow Jones, Goldman Sachs, Johnson & Johnson, New York Times, Nokia, Sun Microsystems, and Viacom, among others.

The most advanced segment of these new service providers is arguably the web development and design sector. Dominated by oDesk and eLance, these companies give customers access to a global network of developers, designers, and database architects. They don’t hire service providers directly but serve as a platform for clients to screen, interview, monitor and compensate service providers. These companies have seen explosive growth thanks to the web 2.0 boom. The chart above shows the number of hours worked through oDesk by month since 2003.

Running a similar model in the engineering space, Exponent, Inc. hires professionals on full time and staffs them with clients according to their specific needs much like Axiom. Exponent has been around in one form or another since 1967, and has morphed several times. It’s currently a publicly traded company and employs over 500 engineering and scientific professionals, covering 20 practice areas including biomechanics, buildings & structures, civil engineering, construction consulting, ecological & biological sciences, electrical & semiconductors, environmental & earth sciences, health sciences, chemical registration, food safety, epidemiology, biostatistics, computational biology, toxicology, mechanistic biology, exposure assessment, public health, industrial hygiene, industrial structures, mechanical engineering, materials science, statistical & data sciences, thermal sciences, and vehicle analysis. Exponent does have significant lease liabilities (~$5M in ‘07) but most/all is non-premium warehouse and laboratory space. The company saw solid growth vs the S&P last year.

At the end of the day these companies all provide value by making connections and managing relationships. As the world becomes more and more connected, I think this trend will continue. The professional services cloud will become more accessible, and the companies that facilitate access to it will gain market share at the cost of traditional professional service providers.

Investment Research + Massive Industry Shift

Rob Webb — Fri, 18 Apr 2008 23:26:22 +0000

I had the opportunity to present KnowledgeBid at the Investorside Alternative Research conference in New York last week (conference agenda), attended by an interesting mix of independent alternative investment research providers and buy-side folks. The investment research industry has undergone massive change in the last 10 years, much of which is a result of the information technology explosion, Regulation FD, and unbundled commissions. The dominant groups at the conference last week primarily fell into three categories: 1) expert networks, 2) data mining, and 3) research management. Very few, if any, new players are producing traditional research reports with buy/sell recommendations or general industry analysis. Even fewer are associated with particular trading desks, something that never would have been seen 10 years ago. The recent explosion of the alternative research space has in large part been at the expense of traditional sell side research.

The sell side and other large financial service players are now actively partnering with, investing, and acquiring alternative research operations. There has been an explosion of activity in the space in the last six months, part of a larger trend that has been emerging since Reg FD was passed eight years ago. I’ve aggregated major announcements and milestones below (let me know if I missed anything interesting).

10.23.2000: Regulation FD Ratified by the SEC
3.2001 – 11.2001: US Economic Recession
10.15.2001: FirstRain $11M Series A
4.28.2003: $1.43B Global Analyst Research Settlement
7.15.2003: FirstRain $8M Series B
7.21.2003: BNY launches Jaywalk initiative
2.2004: Bessemer Ventures invests in Gerson Lehrman Group
3.4.2005: Standard & Poor’s acquires Vista Research
2.6.2006: Goldman Sachs invests in Investars
3.2006: UBS announces partnership with ASSET4
6.2006: Goldman Sachs launches Hudson Street initiative
6.29.2006: GS / Hudson Street invests in ASSET4
9.7.2006: DFJ invests in Monitor110 $5M Series B
10.30.2006: DFJ invests in Monitor110 $11M Series C
12.20.2006: Morgan Stanley partnership with Tamale Software
2.9.2007: GS / Hudson Street invests in Connotate Technologies
3.29.2007: BNY / Jaywalk announces alliance with Code Red
4.5.2007: GS / Hudson Street invests in iSuppli
5.2.2007: Evalueserve acquires Nitron Advisors
5.8.2007: GS / Hudson Street invests in Medley Global Advisors
9.10.2007: GS / Hudson Street invests in Lusight
9.27.2007: Merrill Lynch announces partnership with ASSET4
12.19.2007: Silver Lake invests +$200M in Gerson Lehrman Group
1.14.2008: Oak Partners invest in $13.6M FirstRain Round (Series C ?)
1.25.2008: RiskMetrics $245M IPO
2.11.2008: GS / Hudson Street invests in TrimTabs
2.27.2008: BNY / Jaywalk announces alliance with Tamale Software
3.6.2008: UBS invests in Integrity Research Associates
3.21.2008: GS / Hudson Street invests in QSG
3.27.2008: Morgan Stanley partnership with Gerson Lehrman Group
4.7.2008: Standard & Poors / CapIQ announces alliance with FirstRain
4.9.2008: Merrill Lynch launches Open Minds with Asset 4; Audit Integrity; Cypress Group; Decision Resources; Global Media Intelligence; HPDI and Primary Source
4.17.2008: Instinet exclusive relationship with Norbury Financial

My picks: The best service providers for startups

Rob Webb — Mon, 31 Mar 2008 16:12:25 +0000

A friend of mine…I’ll call him Arnold Babar…is in the early stages of starting a company. Over a few beers the other night, Arnold asked me a few general questions about service providers we’ve used for various aspects of building the KnowledgeBid expert network management platform and other projects. A few came to mind immediately…then I thought of a few later that night…then a few more the next day. I’m putting them all into a post in the hopes that I might save someone else the hours of head + wall collisions it took me to find these guys. I’m only going to include services that I use heavily myself and would recommend to a close personal friend. I’ll add to this as more come to me. My top priorities: 1) cost; 2) functionality / flexibility; 3) quality; 4) reliability.

Best Corporate Telephony / PBX / Fax Service: RingCentral
My previous write-up on RingCentral is here. Super flexible PBX, digital fax delivery, digital voice mail delivery, $19.95/month. Can’t beat it. Mac friendly except for the sound recording / uploading feature.

Best Payment Processing Service: Braintree Payment Solutions
My previous write-up on Braintree is here. The payment processing industry is a total mess. The Braintree guys are straight shooters. Save yourself serious pain and go straight to them.

Best Press Release Services: PRZOOM, The Open Press
The web has antiquated the newswire industry. These two providers are free and get your PR messages on sites other than your own, which is all you really need. PRWeb and the others try to get you to pay, but it’s really not worth it.

Best Conference Call Service: Free Conference
My previous write-ups on the free conference call industry are here. The FCC says these guys can stay in business and so long as you just need them to work for your call tomorrow or next week, you’ll be fine. Call quality is good and reliability is good. I would advise against trying to bake them into your app though…you get what you pay for and who knows how long their loophole will be open.

Best Desktop Sharing Software: Glance
This a simple, functional, reliable piece of software perfect for sharing your desktop for demos. No install needed for your clients, but this means there is no way to see the screen of the person on the other end. It’s $39/month and WebEx has dropped prices in response. There may be some free stuff out there too but I would rather have my demos work and pay a little. Glance is Mac friendly, WebEx is not.

Best Domain Registrar: One and One
One and One is clean, easy to use, without constant upselling, ads and pop-ups. GoDaddy is a nightmare IMO.

Best Hosting Service: M5 Hosting
Previous mention here. These guys were referred to us by a friend and they have done a great job so far. Stay the hell away from MediaTemple.

Best Blog Platform: WordPress.com, WordPress.org
The best blogging and simple content management system out there, IMO. Open source so there are an amazing number of plug-ins, style sheets, and high quality WordPress designers out there so you can really make anything. WordPress.com is a free, hosted blogging platform (example here) while you need to host WordPress.org on your own server (example here, here, and here).

Best Corporate Email Solution: Google Apps for Your Domain
Face it, yourcompanyname@gmail.com is JV. Google Apps makes it free and easy to have Google tools under your own domain.

Best Bug Tracker: Mantis
We’re coming up on our 300th mantis ticket and so far, so good. Free, open source bug tracking & project management. We tried some of the more trendy solutions out there and were very disappointed.

Best Stock Photography: Stockxpert
High quality stock photography on a pay-as-you-go model. Many other players out there have high subscription fees which sucks when you only need 1 or 2 pictures. Examples here and here.

Best Professional Voice Recording: VoiceVector
These guys and gals are based in Alaska but you wouldn’t know it. $1o for your first 12 words and $8 for each additional group of 12 or fewer words in a single recording. Quick, easy, high quality, and they give you your recording in lots of formats. For example call here.

Best Screencast Solution: Camtasia
The web video world is like the credit card processing world…it’s a total mess. Camtasia makes it easy to record a screencast, polish it up, and host it so anyone can watch it. Example here. They have a free demo period. Tip: don’t try to cut and splice within a single recording – just go all the way through.

Best Competitive / Industry Monitor: Google Alerts
Previous write-up here. Cut down on your unnecessary news reading and get productive.

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I’d love to hear comments on these and other solid services out there. I’m actively looking for these:

Best Headset for Blackberry 8703e

Best Low Volume SMS Solution

Best Free CRM

Best Password / Login Manager