What Web 2.0 Means to Securities Firms

Merrill Lynch, Dresdner Kleinwort, Fidelity, and Pioneer Investments are all embracing Web 2.0 - in other words, advanced Web technologies -- according to a recent Tower Group report, "Web 2.0 May Be the Future of the Internet, but What Does It Mean to Securities Firms?"According to the report's author, Matthew Nelson, senior analyst at Tower Group, securities firms are starting to use Web 2.0 tools such as mashups, blogs, wikis, podcasts, RSS feeds and data search services.

Merrill Lynch is rolling out Salesforce.com's Wealth Management platform to its 25,000 retail advisors, the report found, and integrating it with Thomson Financial's Thomson One workstation. Although neither application is intrinsically Web 2.0, the way the two applications interplay with each other and with the mini applications Salesforce.com makes available at its AppExchange site, is a Web 2.0 "mashup" in Nelson's view. "The term 'mashup' came from the deejay world, where you take two pieces of music and you combine them in a new, innovative way and come up with something entirely new," Nelson says. "The concept is the same on the Internet. If you take two different services and cram them together, you customize your experience." In this case, a rep could go into Salesforce.com and mouse over a client name, the API would run that client name against Thompson One, and obtain and display all the holdings and prices for the portfolio.

Investment bank Dresdner Kleinwort has been using blogs and wikis internally since 2005 - first IT people blogged, then business users including capital markets staff joined in, and now the firm has hundreds of blogs. In a 2006 Harvard Business School study, the firm said blogging had increased worker productivity, reduced email traffic, and brought about faster problem solving. But Nelson also cautions in his report that, "Securities firms have very discrete functions that need to be 'walled off' from other functions; one example is investment banking from proprietary trading." How do companies like Dresdner put up such walls? "You can't just open up a single blog or wiki to the entire company," Nelson says. "You roll out a platform and make it available, and push the adoption from the top down, but you provide permissioning and very careful control, which all of these tools support, and then let the individual functional units set up their own team-based sites. Investment banking might have their own." The benefit of collaboration and knowledge sharing between teams in different locations can be significant, he notes. But getting people to fit blogging into their busy schedules can be tricky and firms will have to find ways of working it into people's daily workflow. For instance, "I've heard executives say, don't send me email on a project, I'm not going to read it -- put it in a wiki or blog where the entire team can see it." Toughest, he says, is the "empty quadrant" - a sector of the workforce make up of senior staff who have internal and outside experience to draw on, who tend to be the busiest and the least likely to adopt tools like blogging and social networking, whether it's because they're not tech savvy or have demands on their time. On the other hand, IT staff and young workers (who he calls "Millenials") are very likely to use such tools, which many use at home or in their jobs already.

Mutual fund management companies such as Fidelity, Vanguard, and PIMCO are using next-generation tools for publishing manager commentary and analyst insight, the report found, including podcasts, videocasts, and RSS feeds. According to Nelson, this is a way of marketing and picking up new customers in untraditional places, such as the Apple iTunes site, where users can download podcasts to an iPod and listen to them while they jog or do something else. "Even if it's just a few new people, it's beneficial because the cost of creating an MP3 file is minimal and the distribution cost is minimal," Nelson points out. Videocasts are used more for internal, analyst commentary.

Analysts and portfolio managers at Pioneer Investments, JPMorgan Chase and others are using Web 2.0 data search services (from vendors like firstRain and Monitor 110) to scan traditional media outlets and the blogosphere for information. They're tracking companies they're investing in and gauging customer sentiment on various topics.

No securities firm has started external blogging yet, Nelson says. However, he feels this is coming. "Companies like Sun, IBM, and Microsoft have allowed employees to externally blog for some time, but they've written carefully crafted policies and procedures that give guidelines around how to properly use the tools," Nelson says. "If and when external blogging does make its way into the securities industry, those same rules will have to apply." Part of the value of external blogging is allowing outsiders to post comments on the blog entries and engage with each other and the firm. "That's the double-edged sword to a lot of this," Nelson says. "If I'm a fund manager, a blog post could be a good way to get my commentary out there, just like an RSS feed or a podcast, but the second you open it up for comment, you allow people a free forum right to say what they want, which is dangerous. I don't think anyone's come up with a solution for that yet."

Going forward, Nelson expects to see more brokerage firms and fund managers come out with Web 2.0-based lightweight user interfaces. "We know from discussions we've had that there are some major portal redesigns underway that will be very web 2.0ish," Nelson says. "Ultimately people come to expect across the internet the same experience they get from the most technologically advanced sites, such as MySpace, flicker or Linkedin. "If I then go to my brokerage or my online bank and the site is klunky, old and hard to navigate, that changes my experience for the worse. We know that there are a number of securities firms looking at integrating AJAX, or Adobe Flash into their customer portals."