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| Investing in social networking |
January 2, 2008 |
Financial services firm Stockgroup is building Web 2.0 capabilities into its community interaction
By Gail Balfour
When Marcus New founded his financial media company a decade ago, he had no idea of the gold mine he had stumbled upon. The Internet was in its infancy and many believed it was only a passing fad. But while other financial players were sticking to their guns and limiting themselves to traditional brokerage services, New saw the potential for more.
His dream was to create an online community where average consumers could learn about the stock market and collaborate with each other. Vancouver-based Stockgroup Information Services was born and it turns out New was ahead of his time; the company gained an edge because of his dream.
“Ten or 12 years ago, the one path to the stock market was through your advisor,” said New, president and CEO of Stockgroup. “Then the Internet came along and people started to get more educated. But for most financial companies, the first five years (of the Internet) were spent in denial.”
Today Stockgroup offers a platform of approximately 40 software applications for financial information, including realtime streaming of quotes and information, wireless access to stock prices, management tools, charting systems and mutual fund centres. These are used by the company itself, but are also licensed to about half the major brokerage firms and three of the top four media groups in the country. “For example, if you logged in as a client at National Bank and checked your portfolio and the mutual fund centre, that’s actually all run by us,” New said. “So from a Web services perspective, we run that infrastructure for the brokerage firm or the bank on their behalf and put their name on it.”
Building on Web 2.0
However, the company is probably best known for its popular community-based financial portal Stockhouse.com, which gets about 800,000 unique visitors and 80 million page views a month and is the only product of its kind in Canada, according to New. It employs approximately 30 wire sources for financial content as well as what New likes to call “citizen journalism,” or user-generated content.
“This is the place to talk about stocks in Canada…there is no bigger place in the country. We own it in a 98-per-cent market- share kind of way,” New said, adding that the company has recently partnered with Yahoo! Canada to provide it with financial content. “[Yahoo! is] now pushing traffic through to us because they have been unable to break into the community side of the financial business.”
And those page views and syndication are based on the existing version of the site.
Rolling out at time of writing is a beta version of a new and improved Stockhouse, which incorporates many aspects of social networking sites like Facebook. “What we have done is taken the best of social networking technology and enabled it within Stockhouse for people who are interested in the investing vertical,” New said.
“There is a new mechanism for users to share content amongst themselves really rapidly. I can take a chart, I can mark it up, I can leave it for people in my group. So it’s different than putting up pictures of yourself and what you did on the weekend, but it’s still a form of social networking,” he said. “Stockhouse is one of only five communities in North America that has a critical mass of user-generated content in the financial space.”
The Digg model
The problem with relying so heavily on user-generated content, New said, is ensuring the quality is up to high standards. His challenge was in trying to figure out how to filter the content so that only the most accurate and relevant material was seen by the community. And there was far too much content being created to go through it manually.
The answer was to build a complex back-end system so the community itself would be able to automatically regulate the content it produced, used and shared. “Two years ago we sat down and said if we can solve the quality problem we could, theoretically, create the largest depth and breadth feed on the stock market in history. So we started to build a new system to actually look at and manage the quality of content from contributors,” New said. “And a few weeks ago we launched the beta of the first reputation system on the stock market to really help delineate this.”
Stockhouse’s new system uses eight different filters to rate the content produced at what New calls the “reputation layer” of an individual contributor. Some of these filters employ “wisdom of the crowd”—a rating system similar to that used by sites like eBay and Digg.
But it gets more complicated. Individuals are also rated, for example, by how well their stock portfolio is doing, so a member with a high-performance portfolio has a higher “reputation rating” than someone whose stocks are not doing as well.
You do the math
“For the first time, we can say: here are the people who have the highest-quality (content). If you have a low-quality rating, you are either going to go away or you will try to increase the quality,” New said.
“Where it gets really interesting, and really complex algorithmically, is that the opinions given by people with the better reputations are actually more meaningful...and how they rate content also carries more weight.”
Many community-based organizations are attempting to use rating filters to regulate content, but the most useful filters are actually quite complex to build, said Bruce Johnson, principal consultant with Toronto-based Object Sharp Consulting.
“At its simplest level it could be a ranking system, say one to five, and then averaged out. A filter, from a software design perspective, is just an attribute. Whether it’s readability, predictability or accuracy, or any value you care to filter, it’s simply another dimension,” he said.
“On the more complicated side, as with community-based sites, you want to see what people who are like you would want. So it becomes a little bit more sophisticated. What you think of as good and what I think of as good may be two entirely different things. The more sophisticated you get and the more meaningful you want that algorithm to be, the tougher it is to create.”
So will it work?
According to one analyst, Stockgroup is in a good market segment, has made impressive progress and has a powerful partner in Yahoo!, but there are challenges ahead. “Adding elements of social networking to their property is obviously a good thing… but they have work to do in terms of search-engine optimization and the monetization rates of their property,” said Ron Shuttleworth, technology research analyst at Toronto-based Jennings Capital.
“There is also some risk, because not only do they have to find new customers, but they have to keep the ones they’ve got. And people resist change in this demographic.”
Shuttleworth also pointed out that social networks like Facebook generally attract a younger demographic than the financial retail market space, so he is not convinced all the customers will be willing to embrace this look and feel so readily. “That doesn’t mean they aren’t going to be successful. I think the most important thing is that they have gone out and done it. Whether all of it is going to work, no one knows. But it certainly has the potential to be pretty popular.”
David McFadgen, an analyst with Toronto-based Cormark Securities, agreed. “Stockgroup got in early on the user-generated content front, but now the question is, how do they monetize it? And how do they keep it going?” he said. “A strong user base is not easy to generate from the get-go, so Stockgroup is lucky they were there early.”
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