May 23

Jimmy Guterman

Jimmy Guterman

Release 2.0.2: Web 2.0 Meets Wall Street

We've been hearing much about how Web 2.0 methods are invading Wall Street -- and vice versa -- so the most recent issue of Release 2.0 explores what those markets have to teach one another. We talk to experts on both sides of the fence and we document the beginnings of some fascinating combinations.

Let me emphasize that "beginnings" part. The issue of the newsletter is as comprehensive as we could make it, but we feel we're covering the beginning of a huge story, one we'll be covering in the newsletter and on Radar for a good long time.

For now, to give you a taste of what we're learning, here's a quick guide to some of the parallels (so far) between the markets of Web 2.0 and Wall Street:

1. Latency
If, as some suggest, the latency of financial transactions is moving from milliseconds to nanoseconds, approaching zero, the business benefits of even incremental speed increases can be considerable. That’s why Automated Trading Desk moved equipment from South Carolina to New York: Gaining the handful of extra milliseconds made business sense. It’s all about speed. But speed doesn't necessarily make you smarter. As Warburg Pincus senior advisor (and O'Reilly board member) Bill Janeway puts it, “It’s cheaper, faster, and easier to buy the wrong stock.” Similarly, for many years the canonical Google front page was as bare as possible: a lighter page meant a faster load meant more reliable customers.

2. Connectivity
Connectivity is the liquidity of Web 2.0. Liquidity gives financial markets the lubrication to move; connectivity gives Web 2.0 an opportunity to exist. Your fastest, most efficient application won’t accomplish much if it can’t connect to the Net. No wonder so much effort is being put into Web 2.0 applications that can work offline -- it would change our definition of how we can do business in Web 2.0. Another way connectivity is like liquidity: The more desperately we need it, the less available it is.

3. Sensors and actuators
We all have access to the pretty much the same sensors. As Peter Bloom of General Atlantic notes, the trick is to extract the relevant signal from the avalanche of noise. It’s identifying the actuators and putting them to work in a timely manner that helps define business winners. We acknowledge that almost everything we need to know is in the cloud; the trick is to know where to look and how to act.

4. Reputation
Once upon a time, a stockbroker performed an almost curatorial role. He (it was usually a he) had access to the proprietary data and decided how best to distribute it. Now, with reputational systems ranging from eBay to SwiftTrade rating us in sundry parts of our business lives, we don’t have to believe someone has all the information. We have evidence. With this information, each stop in a transaction, whether in financial or Web 2.0 markets, can become a new point of innovation.

As I noted above, it doesn't end there. We've continued with many conversations since the issue was completed. In particular, Joshua Levine of Kita Capital (he's the former CTO of E*Trade) has sent our research in some new directions. We'll keep you posted.

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Comments: 2

  Chris M [05.23.07 10:20 AM]

Bollocks. Bill Janeway is right. That's why folks should stick with index funds.

  Thomas [01.23.08 02:07 PM]

thx for your ideas of web2 and the wallstreet and in some point i agree with you BUT th web 2.0 is a hype which will end soon in my eyes (don´t want to start a web 2.0 discussion in here now) the wallstreet is a market existing long and will exist in the future as well (hopefully)

I am not sure how many start-ups the web can take until the hype will end but if you# get your company traded on the wallstreet this will be more than just a hype for 1-2 years. this will be longterm.

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