Archive | December, 2007

ING Direct Enters Low Cost Investing

18 Dec

ShareBuilder LogoWith an email announcement sent to ING Direct customers last night, the integration of ING Direct and ShareBuilder is official:

I’m pleased to announce that ShareBuilder, America’s most innovative online brokerage, is now part of ING DIRECT.

… ShareBuilder was created by its pioneering founders to make it simple and affordable for regular folks to invest in the stock market.  Thanks to ShareBuilder, investors big and small can now invest, big time.

The deal, which was first announced in November, introduces an interesting new element into the world of low cost brokerages.

Earlier this year, BusinessWeek covered several new players in the world of low cost equity investment, including the likes of TradeKing, Zecco, and ThinkorSwim, who use a powerful combination of social networking and low cost trading to target first time investors. First time investors value the social element because it helps them make sense of the world of investing through easy to follow blogs, forums, and FAQs. Users answer one another’s questions, reducing the need to hire an army of support staff to help them.

Yet first time investors are also the target audience for ShareBuilder, which earned rave reviews in Forbes “Best of the Web” for its investor starter packages that included an investment guide, investment certificate, and a copy of the Wall Street Journal Guide to Understanding Personal Finance; distinctly “old-school” approaches to targeting this same audience. Its online guides to investing in ETFs are similarly praised by Forbes, and 40% of their users invest in them.

So the question comes to my mind: why did ING pick ShareBuilder? From the little I know of the company, here is some common-sense speculation:

  • Acquire a well-established (ShareBuilder has been around since 1996) with a good reputation and track record
  • Acquire new customers for ShareBuilder, and use the existing base of ING Direct users to add new users to ShareBuilder
  • Acquire a company with a similar target customer to ING Direct: the financially inexperienced
  • Extend ING Direct’s product offering of simple investment offerings to include equity investments and ETFs

How can we analyze those criteria to understand the prospects for these new social investment sites to be acquired?  The first two bullets don’t currently play well, as both are still young and have relatively small pools of users, but that could change with time.  The third and fourth fit quite well, assuming there are some other big fish like ING Direct looking to get into the world of equity investments.

But it is the choice of ShareBuilder and its technology approach which has me thinking this morning. It seems to be part of the “old guard” of web investment (forgive the expression: web investing 1.0), lacking any significant social elements that the new players are using as their main differentiator. But which is the better approach to addressing the needs of new investors? Easy to use, self-service FAQs and free investment books, or forums and user-generated content?

Since obviously the answer to that will depend on the particular user, and their need and desire to interaction and personal advice, I suppose the question really becomes: how big is the pool of new investors who prefer “traditional” help tools, as compared to “social” tools? Are there enough new users comfortable with social networking to slowly erode share from eTrade, ShareBuilder, and the like?

An emerging generation of young professionals who spent their college careers on social networking sites would seem to bode well for Zecco and TradeKing, but it would be interesting to see an analysis: for every 100 new investors joining a brokerage online today, how many go to each?  And what can the new players do to increase those figures to their advantage?

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Opportunity to Build a Worldwide Brand of Boutique Hotels

16 Dec

Thai Boutique Hotel - BangkokTourists visiting new cities are certainly not all looking for the same thing out of their experience. Some seek inexpensive or unique shopping experiences, some seek thrills and adventure, others seek the opportunity to say “I went, I saw, I … took a picture.” What generally unites people when they are traveling, particularly in parts of the world that are new and unfamiliar to them, is the desire to sample and taste a bit of the culture that makes their destination unique.

For tourists, selecting a hotel is a challenge of balancing their desires. In most cases, they want:

  • A hotel they can afford
  • A hotel where they feel they will receive the level of service they are accustomed to
  • A hotel that is comfortable, safe, and clean
  • A hotel that is conveniently located to the places they want to visit

Trying to satisfy these four challenges is difficult enough, and in many cases lead people to choose the Marriott, Hilton, or Sheraton, even as they aspire to “immerse themselves” in their experience. They settle for these international chains because they are reliably consistent, delivering fundamentally the same hotel experience wherever you go.  Yet that, inherently, is their fundamental flaw – they fail to meet the truly differentiating fifth and sixth criteria for a truly remarkable hotel experience:

  • A hotel that reflects the culture and local flavour of the surrounding city
  • A hotel that is exciting and unique; an adventure unto itself

I have little doubt that in nearly every corner of the world there are wonderful local hotels that meet all six of these criteria (though, sadly, not all – Jizan, Saudi Arabia comes to mind). The challenge for the tourist is how to FIND these hotels. For the more adventurous, sites like TripAdvisor can help. Where you are lucky enough to have a local friend to serve as your guide, you might be directed as to the best place to stay.

Moroccan Boutique HotelBut, at the end of the day, CatLover245’s rave reviews and assurances of good customer service really aren’t enough for most people to choose the Little Damascus Inn over the Sheraton. At least you can be reasonably confident that you won’t find bed bugs at the Sheraton.

The challenge of building confidence with consumers that a hotel can, in fact, meet all of these criteria creates a significant opportunity to build a network of branded boutique hotels in major tourist destinations throughout the world.

An entrepreneur with good financial backing could make a small number of hotel investments in high-growth tourism cities such as the Middle East and Northern Africa, bring them up to international standards of quality and service, unite them under a brand, and market them to tourists from abroad. With time, as CatLover245 and her friends write positive reviews, and as more and more customers experience the benefits of the hotel in its diverse locations, it will build a faithful following of advocates and frequent stayers.

I would choose to first target the developing world, where many hotels miss out on substantial opportunity to attract visitors merely by lack of a web presence with photos and a map, written in fluent English. With an understanding of the increase in revenue that could be expected by linking a hotel into online reservation systems like Orbitz and Hotels.com, investors could value properties higher than their current owners.

By upgrading service, renovating and redecorating rooms, and bringing in an additional infusion of local flavours and colours, the hotels could start charging more for rooms. Substantial changes to management and workforce wouldn’t be necessary so much as bringing a few leaders who can help oversee the transition to world-class standards.

How long this opportunity will remain untapped is questionable. Already, chains like Joie de Vivre and Kimpton are building branded networks of boutique hotels throughout California and the United States. Companies like Mexico Boutique Hotels are taking that concept to other popular mainstream tourist destinations. It’s only a matter of time before the same basic concept is carried to other parts of the world.

Further reading on Boutique Hotels:

PayPal Should Go Social

14 Dec

PayPal LogoPayPal, the electronic payment program launched to prominence by eBay, should join the social networking bandwagon and create social applications for LinkedIn and Facebook. While other stalwarts of “Web 1.0,” such as eBay and Skype, have launched into this space, PayPal has inexplicably lagged behind.

My friend Tony and I were discussing this idea yesterday as we tried to finally sort out payment from a recent trip we took together to Spain. We had a few ideas about how a social application could add real value for the company:

  • Build Awareness: PayPal already has good penetration and is clearly the market leader in the US for electronic money transfer. It is not, however, universally understood or used. Trying to arrange payments for a company ski trip recently I discovered that more than half of my colleagues had never used the program. Facebook badges and notifications about friends adding the new application would surely help further build brand awareness for their service, and attract more users.
  • Find Fellow Users More Easily: Similar to Skype’s Facebook application, PayPal could help users of the application to more easily identify which of their friends also use PayPal to make it easier to determine the easiest way to send payments to them

But with an ounce of innovation, combined with a new social platform, PayPal could start to offer some truly interesting services.

  • Collaborative Accounts: Allow multiple users to create a common account linked to each of their individual accounts for making payments and managing cashflows relevant to all of them. This would have been perfect for organizing the company ski trip, as it would have both allowed users to easily add money into the account, it would allow a small group of “Administrators” to make payments out of it and to the various vendors that needed payment (lodging, lift tickets, shuttle services, etc). Everyone would be able to see how much money is in the account, and how it’s being spent. Its transparency and paper trail would largely eliminate the need for a single person to be the “Treasurer.”
  • Pay Backs: So you and your friends went camping this weekend. Two bought $40 worth of groceries each, one bought $200 in alcohol, and your other three friends, well, they ate and drank. How are you going to work out repayment? A newly social PayPal could help friends solve this dilemma, allowing multiple users to add money to a common account (called, perhaps, “BoozeCamp”) which would then be repaid evenly to all members. A little creativity on how to allow people to add non-cash value (receipts) to represent their contributions, and you’d be set
  • Communal Payments: You have three roommates, and a landlord who insists on receiving only one check each month for rent. Or perhaps, you and your friends want to chip in to help out your friend who hosted a great party, or who paid for a birthday present from “everyone.” Basically just a slight modification on the above ideas, PayPal could create an easy system for making payments together, by aggregating funds from multiple users, and allowing everyone to see who has paid, and who hasn’t

Any of these innovations could add new uses to the stagnating PayPal platform (who, by the way, could still use a user-interface makeover while they are at it – even after they prettied-up their front page), and help combat new entrants. There could be some tough legal issues to overcome regarding money laundering, but I imagine there could be some balance struck between putting maximum fund-limit caps on accounts while still allowing 90% of legal uses.

Trading “Green” – The Global Carbon Index

13 Dec

BarcapI ran across an interesting press release from Barclays Capital today about their recent launch of the Barclays Capital Global Carbon Index (BGCI). It was also covered in various News Outlets:

This is the first time that such an index has been made available to asset managers, private banks and institutional investors, according to Barcap.

The Barclays Capital global carbon index (BGCI), intended as a benchmark for the rapidly growing carbon emissions markets, is made up of two sub-indices that track the performance of EUA credits in the EU emissions trading scheme (EU ETS) and Certified Emission Reduction (CER) credits generated by the clean development mechanism (CDM) [part of the Kyoto Treaty].

While my understanding of the financial markets is limited, this is an interesting innovation in that it will allow investors to buy into the growing market for “greenness” – the offsets and certified environmental upgrades of businesses.

It would seem that, certainly over the long term at least, truly environmentally-friendly business opportunities and technological advancements will continue to become scarcer and more difficult to achieve. For polluters needing to trade their carbon emissions with more “green” counterparts under increasingly popular carbon trading schemes (the US is set to follow in the EU’s footsteps here), selling “black” and buying “green” will only become more expensive with time.

A commodity with growing demand and increasing scarcity? Sounds like a good investment to me.