Nitron Advisors’ COO, Scott Lichtman, took detailed notes on last Thursday’s panel on “The State of Independent Research” at the New York Society of Security Analysts. It was a well-attended event that covered questions ranging from how independent research firms are capturing value through new delivery models to the impact of Elliot Spitzer’s global research settlement and prospects for research jobs on the buy-side and sell-side.
NYSSA notes that, ‘These are the opinions of speakers at NYSSA’s Career Chat on Independent Research and do not necessarily reflect the opinions of NYSSA or its members. NYSSA does not endorse or promote any of the opinions or products mentioned.’

SPEAKERS
Eric Alexander, President, Institutional Services, Wall Street Access
Michael W. Mayhew, Founder and CEO, Integrity Research Associates, LLC
Paul Spillane, President and CEO, Soleil Securities Group, Inc.
David Teten, CEO, Nitron Advisors
David Weild IV, President and CEO, The National Research Exchange
CHAIR: Richard G. Lipstein, Boyden Global Executive Search

BIOGRAPHIES

Eric Alexander is president, institutional services, for Wall Street Access, which offers research and execution to hedge funds and money managers. He is responsible for strategic development of the firm’s research offering, including coverage of mergers and acquisitions, energy, healthcare, and special situations. Previously, he served as director of marketing, and was instrumental in forging strategic relationships that helped the firm grow over the next decade. Prior to joining Wall Street Access, Alexander was a vice president with the public relations firm Burson Marsteller, where his clients included AT&T and American Express.

Michael W. Mayhew is founder and CEO of Integrity Research Associates, LLC, a ratings, analysis, and consulting firm for the equity research industry. Prior to founding his firm, he was CEO and president of Garban Information Systems, the financial information division of Garban/United News & Media. Previously, he was director of strategic planning and business development for Standard & Poor’s Financial Information Services Group. Mayhew has been quoted widely by various newswires, newspapers, and industry magazines, including Reuters, Investment Dealers Digest, Institutional Investor Magazine, Bloomberg News, Forbes, The Wall Street Journal, The New York Times, Financial Times, and Business Week. He is a member of the Board of Directors of Investorside, the nonprofit trade organization for the independent research community, and chairs a committee of the board to establish best practices for the research industry.

Paul Spillane, president and CEO of Soleil Securities Group, Inc., has been in the securities industry for over 25 years. He started his career at Goldman Sachs. where he worked in fixed income, foreign exchange, commodities, futures, and options products. He then moved to Deutsche Bank, serving as managing director and head of global market sales for the Americas. Spillane subsequently transferred to global equities as a senior member of the executive team responsible for building the global equities businesses. Most recently, he was responsible for establishing Deutsche Bank’s Global Relationship Management program.

David Teten is CEO of Nitron Advisors, a unique research firm that provides hedge funds, private equity funds, venture capital funds, and law firms with direct access to a global network of carefully selected frontline industry executives, scientists, academics, and consultants. David also is the coauthor of The Virtual Handshake: Opening Doors and Closing Deals Online, the first business book describing how to take full advantage of blogs, social network sites, online networks, and other “social software. ” He runs TheVirtualHandshake.com, a resource site and blog, and co-writes a monthly column for FastCompany.com. Teten was CEO of an executive recruiting firm that he sold to Accolo, and CEO of GoldNames, an investment bank focusing on serving the internet domain name asset class. He has worked with Bear Stearns’ Investment Banking division as a member of their technology/defense mergers and acquisitions team, and was a strategy consultant with Mars & Co.

David Weild IV is president and CEO of The National Research Exchange (The NRE), an innovator in products and services that support capital formation. The NRE provides patent-pending analytics and facilities that enable the systematic evaluation and long-term funding of research and related services. Weild served as vice chairman of The NASDAQ Stock Market and spent fourteen years at Prudential Securities, where he served as president of PrudentialSecurities.com, head of corporate finance, head of technology investment banking, and head of equity capital markets. He also chaired Prudential’s Equity New Issues Commitment Committee.

PROGRAM DESCRIPTION
The entire research industry is undergoing a seismic shift that will produce both winners and losers in the coming years. Some of the more innovative research providers will continue to experience growth, while the total number of independent research firms is to expected to fall almost two-thirds by 2009. The need for good research, however, will never go away. Learn the reasons for the coming shakeout and how you can be among the success stories.

Scott Lichtman’s notes:

Richard Lipstein Question: Please describe your business models for independent research.

David Weild IV: We are a utility for Wall Street to get research paid for explicitly, while achieving coverage and liquidity for smaller public firms. Coverage continues to be shed across the industry. Fewer IPOs are symptomatic of this. There were < 200 IPOS in each of last 3 years. Pre-bubble, there were 460 IPOs/year avg. We have 14 patents.

David Teten: We provide access to frontline industry experts who can provide deep insight into the companies and industries you are analyzing. There is a circle of economic agents around any company – suppliers, customers, regulatory observers– who are in an appropriate position to provide fresh information to investors. We provide access to that circle. This means your analysts are drawing conclusions and making the buy/sell recommendations (not us), while you benefit from ready access to unique sources.

There are three trends that drive the fast growth of our model:
1) The destruction of credibility of sell-side research.
2) Trend towards more people, including senior executives, who are managing their careers individually, without assuming they are wedded long-term to a given firm. These “corporate alumni’ are an exceptional base of knowledge.
3) A trend towards people having a public, articulated virtual identity, through personal web sites, bios and resumes online, social network sites, and software that is aggregating people’s backgrounds into a chronological whole. I discuss these technologies in more depth in The Virtual Handshake: Opening Doors and Closing Deals Online.

We are actively seeking out consulting firms and individuals who would like to consult through our platform.

Paul Spillane, Soleil Securities. Our goal: Premier aggregator and distributor of intellectual content. We are a registered broker dealer. We have a significant distribution platform, analysts all around the country and an agency trading desk in New York. Covering 320 stocks, 32 analysts, 3-5 alternative products. Analysts work when they want, get paid based on deliverables. Incorporating Fixed income, Commodities, Equities, and commentary on data sources. If you can think of a new idea, you can provide content in our model. We are looking for employees, firms to partner with and new sources of content.

Michael Mayhew: Integrity is the leading provider of information assessment and evaluation on the research industry. We publish research on the industry including a blog, web-based tools, due diligence on 436 research firms. Now adding 60 firms in Europe to the database. We help funds find research to add alpha, and mitigate risk in using research. Very little due diligence is typically done on hiring a research firm, especially compared to investing in a fund or fund-of-funds. We help funds reduce their risk in hiring a research firm.

Eric Alexander: We offer clients an integrated service, including access to a team of leading analysts in M&A, special situations, oil and gas, utilities and agribusiness. We also offer clients access to a proprietary network of healthcare experts. Also have a trading desk – important for clients to gain a full range of service and for us to get paid appropriately. We customize offerings for each client.

Richard Lipstein Question: What are challenges facing independent research firms.

David Teten: Research has a very unusual economic model: You usually get paid well after the service is delivered, you usually don’t know how much you’ll get paid, and neither seller nor the purchaser knows the exact value of the service. The value of research varies enormously from highly negative to many millions of dollars, yet it’s not common to define, let alone track, the metrics to place a value/price on it. Also, declining commissions on a per trade basis are putting pressure on the economic equation.

Michael Mayhew: 2 major trends.
1) Biggest challenge is proving value, day in and day out. The kind of research that could be sold 20 yrs ago has changed. Today folks want trading ideas and proprietary data points. Very large % of research firms have a tough time proving value, and probably shouldn’t be in business.
2) Getting paid is hard, even if you prove value.

David Weild IV: A rough statistic: He took all research analysts, divided by (monthly) trading volume, and got 20,000 shares/analyst. If 50% is program-based, 50% of what’s left is algorithm based, and therefore there’s only 5,000 shares traded to pay each analyst. That’s roughly 250 shares/day. At 5c/share that is not a lot of money to spread around, and 5c is a high figure by current trading standards. The business is fundamentally bankrupt at some level.
Clients want 3 things – 1) access to management, (2) experts, (3) traditional research. People want things that no one else has.

Eric Alexander: A lot of what the industry does is a commodity. Some of the forms of compensation are a thing of the past. It’s much more entrepreneurial now.

Richard Lipstein Question: Buyside firms are decrying the lack of research but cutting back on # of research suppliers. How did we get in this contradictory situation?

David Teten: The buyside is not seeing enough compelling research from the sell-side. However, the number of buyside analysts is way up, which shows a commitment to proprietary sources.

Michael Mayhew: Other trends are happening too. There will be a significant reduction in # of firms getting paid. Firms will separate research fees and execution fees. You may only have 20 firms getting commissions, but hundreds getting research checks.

Richard Lipstein Question: Paul, how does one manage a virtual corporation?

Paul Spillane: Everything about the decline in research firms/getting paid is music to our ears. This is the only industry I’ve seen that has no idea of COGS (cost of goods sold). We love a value-driven model. If you can add value, clients will pay you unlimited amounts. So good analysts in their virtual workspace are making 2-3x what they did in a bulge-bracket environment. “We manage by compensation.”

The industry needs to get away from the lack of connection between quality and reward – casual votes on who should get what. We have the same regulatory framework that any registered broker-dealer has, with the analysts being registered 86s or 87s. Our good analysts work “24×7″ at times because they love the work and get paid well, and other times take a break.

“It’s an absolutely fantastic time to be an analyst. The bottom is here.” The # of stocks covered by bulge-bracket firms is going lower and lower. The bottom line is here, there will be less people around, but those who are good will be making money. Like Nitron, we only pay an expert when they get a phone call.

Eric Alexander: Research revenues might go from $3.9bn to $3.6bn, but it’s still a big opportunity.

David Weild IV: Wall St research firms are getting smart that they do get paid. Roughly 50-70% of bulge bracket revenues for an offering are for the deal, and 30% is to provide coverage, but the funds aren’t always allocated to that purpose. It seems like Reuters and Thompson want to know who is consuming their research and cut out people who are drinking for free. The tide is turning on getting paid.

Eric Alexander: We are still committed to trading desk model. It’s hard without a desk; it’s integral. The buyside sees their traders as integral to their team and so do we.

AUDIENCE QUESTIONS

Q to Soleil: What does it mean for an analyst to “deliver” value and get paid commensurately?

Paul Spillane: There are many ways to signal how to pay: a voting mechanism, # of visits set up, commissions paid. Clients now are responsible, e.g. Via the UK’s regulations, to say how research is allocated. More hedge funds have a formal voting mechanism due to regulatory requirements. Checks come in with specific analyst names on them to us.

Michael Mayhew: All about producing good research. To one client that’s management access, to another it’s industry expertise, and to another it’s performance recommendations. Issue is that if you produce me-too maintenance research, models that don’t outperform, you have to worry.

Question: What about outsourcing research to India and other places.
Eric Alexander: This question is symptomatic of how much has become commoditized. Reg FD has commoditized information.

Michael Mayhew: Couple years ago, the avg cost of wall st to cover a company was $192K – per company. There was an absolute need to lower that cost, so moving some research oversees made a lot of sense. But value-add of a research firm can’t be outsourced.

David Weild IV: But you can create new value by leveraging offshore resource. It may become a necessity to have competency in offshore inputs.

Paul Spillane: The last mile is where the value is. We get 7 calls/month from Indian firms to provide us with outsourcing. Most of those analysts don’t have 86s/87s and don’t talk to management. Offshores won’t complete with mainline analysts, they will focus on filtering through existing data in more conventional ways, at least for now.
Offshore won’t be a huge threat. We think $8bn will be paid out, over time, in hard research. If you look at outsourcing initiatives in the technology world, JPM outsourced their platform to IBM in a multi-billion deal, but brought it back in-house when the deal expired. We’ll all experiment with it, but when cost goes up for offshore it will lose competitiveness. We used to pay $25K for an associate abroad, now its $50K.

Richard Lipstein: One bulge analyst I know is having increasing quality issues, exacerbated by language barriers, time differences. They didn’t see benefit anymore.

Michael Mayhew: I’m concerned about long term risk. If we outsource associates, when do future senior analysts come from? Are we going to hire the offshore people and bring them here?

David Teten: All of this gloom & doom is great news for Nitron. Offshore people working off same public data further commoditizes publicly available analytics. Basic Yahoo! finance data is free. There are so many hedge funds out there, and they’re all obsessed with chasing alpha, which they can’t do with the same tools as everyone else. (The hedge fund incubators, incidentally, remind me of the dot-com incubators we used to see, which is a sign that there is a surplus of hedge funds. 2006 is the first year when we’re on track to see more hedge funds shut down than open up.)

Audience Question/Observation: In the last few years, lot of great info free on internet has become available in forms of blogs. Incredible corporate-experience types, speaking their minds and providing insights while going after eyeballs. They are getting paid $550K/year monetizing eyeballs (Editor’s note: I know extremely few bloggers earning that type of money!).

Paul Spillane: This industry has to recognize that as a threat. The audience member asking the question has worked in tech – so she’s better able to know where to find quality information. The insights aren’t there for (isolated) associates to make money.

Michael Mayhew: There is a model that’s been developed over a few years, for readily available info: Research that is restricted to small # of clients (and which delivers alpha). Hedge funds will pay lots and lots of money for restricted access, which means 30,40, or 60 clients. Hedges won’t trade off blog content because it’s available to thousands/millions of people. Also, most hedge funds don’t want to say: “if this deal blows up, I’ll tell my manager I got the info free off the internet. ” Give me a break!

David Teten: If I have really good info, am I giving it for free on a blog? Publicly-available information (on a blog, New York Times, etc.) is designed to be relevant to the average person. If you want customized analysis for your portfolio/your situation, then you typically pay the person who produced the analysis that’s broadly relevant. He proves his credibility with his general analysis.

Eric Alexander: Blogs are a threat. Collaborative relationships deliver distinct ideas. You need a talented, experienced analyst with an expert network to find the alpha idea. Blogs don’t work standalone but they are a valuable contribution.

Paul Spillane: Most investors have an overload of info. We have a product to grade blog: Collective Intellect. Using AI to sort through hundreds of millions of blogs a day to rate for accuracy. This product is on desks of some of the largest prop trading desks in the world. It can be a CYA, but you can’t sort through all the available info and it becomes more productive.

Audience observation: Great bloggers are identified and filtered by word of mouth. Experienced people don’t read every single blog.

Paul Spillane: But imagine if you can also grade them all. We’re excited about the prospects.

David Weild IV: In my west coast conversations, a lot of funds are using expert networks. One guy I spoke with was a well respected 1990s internet analyst. Widely followed. He said that one key problem with Wall St research is deteriorated quality. Because of Reg FD, executives are uncomfortable with sharing corporate info. Sourcing of independent experts has become very important. One guy is using expert networks to do due diligence on potential portfolio co’s. Won’t replace need for direct access.

Audience Question: What’s the career opportunity and income oppty for sell-side analysts. Do you see migration to buyside? What about buy/sellside relative compensation?

Eric Alexander: It’s important to be part of an organization with a regulatory structure, so the analyst can focus on the work. There’s an opportunity to be more entrepreneurial these days. Locked in salaries and guarantees are much less available.

Richard Lipstein: The top of the Internet bubble skewed compensation and demand for analysts. Comp for internet analysts gone down significantly. They used to be able to make 7-8 figures. Compensation has bottomed out because of disappearance of guarantees and extreme salaries. Not easy for sell-side analyst to move to the buyside because they’re viewed as a salesperson. However, hedge funds hire more sellsiders, young ones, than mutual funds.

It’s worth noting that a typical analyst will make more than 98% of the US population rather than 99.9% in the past.

Paul Spillane: You summed it up perfectly. It’s not easy to move to the buyside. But everyone is still paying people 6-7 figures. A lot of doctors, lawyers, fireman who don’t get paid that – who arguably provide critical value to society.

David Teten: I saw a talk by a prominent person in the research industry, who said, “If you meet an analyst that’s been on sellside for more than 5 yrs, they’re not good at picking stocks, because if they were, they’d get a job on the buy-side.”

There is increasingly a disaggregation of analyst’s responsibilities. Management access is highly valued by the buy-side–but that’s a concierge service firms like ours (Nitron) do more effectively than generalist research firms.

Richard Lipstein Question: The typical independent research firm is much smaller than bulge bracket dept. There have been problems, eg Overstock.com took a research firm to court for allegedly being part of a plan to devalue and short sell the stock. How can small firm deal with intimidation of big corporation, particularly when issuing negative research?

Paul Spillane: Associate yourselves with a firm with strong compliance. Reputation of your employer is important to focus on when you are an analyst. Unless you commit fraud, you are in a good position to make clear statements - your opinion is your opinion. One analyst whose opinion dropped a stock 50% (is rumored to have) received death threats – from a retail firm!

Richard Lipstein: I think it’s more an issue of small research firms can’t cover legal costs to defend themselves.

Paul Spillane: Agencies like SEC, NASDAQ won’t allow that intimidation…and the First Amendment.

Eric Alexander: Be clear who the customer is. It’s not the company covered, it’s the investor.

Paul Spillane: WSJ or NYT would love to ‘defend’ the small guy with strong opinion. The court of public opinion doesn’t cost much. And it’s great PR.

David Teten: Most of time, the analyst is doing right thing. Owen Lamont research showed that, the more a corporation fights a critical analyst, the more likely it is later on that the analyst is correct. Jeff Skilling said “They’re on to us,” in response to a certain piece of independent research. That’s a great ad for independent research! (As Jim Chanos pointed out in a recent talk).

Audience Question: Given internet bubble, do you see another shakeout?

David Weild IV: There’s a rationalization, but other models are flourishing. The big shoe that dropped wasn’t the bubble, it was decimalization in 2001. That cuts 95% of the commission flow. The internet brought direct transaction models and commission compression – commission went from $350 avg to 5 bucks.

David Teten: Creative destruction is a benefit, not a bug, of capitalism. Net net, people are making a lot of money in finance. The industry is always evolving, companies change, people move around, but the quality people do just fine.

Michael Mayhew: For sell side research, unbundling will have a big impact. When asst mgr has ability to select research and broker independently, that will really impact someone like Goldman Sachs. If they charge 4c/sh, how much is for research and how much will get they for this

Question: What’s the track record of Spitzer agreement to channel $s to indie firms?

Eric Alexander: Some large firms got huge funds channeled to them. We’re not in that space at all. I’m hopeful this is over soon, it hasn’t been effective at all.

David Teten: Spitzer uses lawsuits effectively for gubernatorial campaigns, but not necessarily in the pursuit of justice.

Someone asked a panel I participated on earlier this year “where should I invest, as a retail investor?” Look, you as a retail investor have the worst information and the worst prices. You’re much better off hiring a professional, by putting your money in a mutual fund, hedge fund, or hiring a Financial Advisor.

Spitzer agreement was a solution in search of a problem. The retail investor will almost inevitably have inferior returns to the professional, because of the nature of the industry.

Richard Lipstein: The Wall St. Journal said ‘you can’t legislate against greed’.

David Weild IV: I’ve talked to many of the NASD regulators. All agreed that the Spitzer agreement has been an “absolute disaster”. Jack Coffee, of Columbia, on their board, calls it a new form of government. It has created a level of paralysis – 3 years left, and firms are afraid to innovate. Every bulge bracket says behind close doors won’t pony up again. It hasn’t expanded coverage to new names. It was a grand experiment that failed. “This is a drug.” Has failed to expand coverae.

The audience member asked what are usage statistics for the independent research that had to be posted. 5% of retail hits are on the indie research, the rest is from the main provider. The only success from the agreement is focusing people on the problem – Wall St research has greater integrity today.

Teten: There is one pressing, highly important public policy goal that the Spitzer settlement achieved: Spitzer won the primary.

Question: Comment on future consolidation in independent research firms. Is pace likely to quicken? A panelist said there are over 400 firms today.

Michael Mayhew: 450 firms in N. America. We certainly believe in consolidation but not across the board. Restricted providers will do quite well. Fundamental data-based research will consolidate. My partner has argued that research is frankly a lifestyle business for many. If you have a dozen clients paying $100K each, you can have a nice business for a few analysts. I suspect the number therefore will be unusually high, but fundamental traditional research will find it increasingly difficult to get paid.

David Teten: Consolidation per se doesn’t concern us. I would be worried if the overall pie shrinking dramatically. But to my knowledge, expert networks are the fastest growing sector in the research business. Consolidation means we buy or get bought, and there are worse things that can happen.

Eric Alexander: For full disclosure, my business partner in the audience asked the consolidation question. The alternative to a lifestyle approach to making some money in research is being part of collaborative effort. When someone like Monsanto wants to do a deal, they can turn to one of our deal specialists.

Richard Lipstein Question: What about the idea of a corporate rollup, e.g. how Eric Alexander got Foresight.

Eric Alexander: That wasn’t an acquisition but a subset of analysts were attracted to our platform.

David Weild IV: Question for Michael–What # of firms have > 5m revenues?

Michael Mayhew: Quite small, < 10% of 450. Lot of folks with $1m revenue. Some consolidation when firms go out of business, other when firms get bought.

Question: Going back to the value of research, how is the way investment firms are compensated linked to value? In an unbundled world, mutual funds are asset-based profit-makers, not performance based, so they should worry less about costs. Hedge funds are compensated by assets and performance, so they are looking for research value. Would mutuals prefer bundled research?

Michael Mayhew: The audience member asks analysts how they judge good research. They say, “I’ll know it when I see it.” This means, many buy-side people don’t know what makes good research to them. That only has a chance of working if they get research for free, use it, then decide later on if they liked it, but its still subjective.

David Teten: There are 3 reasons why hedge funds are desirable clients. They have a lot of money compared to cash/overhead requirements, they don’t usually have an easy way to measure the value of your unique product (compared with tools available to measure ROI if you are selling, e.g., bottled water to them), and they are paying with soft dollars, i.e., other peoples’ money. I have problems with how soft dollars are used when applied too broadly, but the system works to the benefit of research firms.

Eric Alexander: It’s a lot harder for a research firm to penetrate/develop business with large mutual fund. “I’m sitting with a fire hose of info” says one large-fund portfolio manager. They need barriers to access, not more info.

Question: What are new models on how to pay for research: Is it arbitrary or still predominantly through trades?

Paul Spillane: 85-90% is still via soft dollar. It will take a lot longer to wean off than anyone thinks. If a large mutual fund company wanted to separate costs, it could be 3% of their management fee. For a smaller firm, its entire management fee could be allocated to research cost.

Richard Lipstein Question: Last question. For someone looking to get in the research business, what does this business mean for the up-and-coming professional?

Eric Alexander: Paul Spillane and I say same thing. Be good, and be entrepreneurial. If you have been a salesperson, bone up on analytics. If you are an analyst, participate in selling.

Michael Mayhew: Ample opportunities for good and great analysts. A lot of analysts have spun off with high expectations.

Paul Spillane: If you love it and are passionate about it, there’s never been a better time. If you don’t love it, join a bulge bracket firm. You get real motivated when you wake up thinking “how am I going to make money for my family?”

David Teten: Be focused to add value. There is a story, true I believe, of one analyst making over 2 million covering one stock (McDonald’s). Pick a domain you can own, then become the recognized expert in that domain.

David Weild IV: 1) Being a research analyst is a wonderful thing, whether starting independent and or bulge bracket. You learn a real discipline in a dynamic market (securities). You can switch to private equity or corporate side. It’s a great training ground. I’d like my kid to do this.

2) Just to mention separately, this is anniversary of 9/11. There is a wonderful organization on that was on 60 Minutes called Tuesday’s Children, which provides services to kids who lost parents. Helps them get through college. Annual event at Cipriani’s 9/27. They placed kids on take-your-child-to-work day. I’m on the board of directors. Please consider supporting them.

This post was written by David Teten, source: The State of Independent Research, at NY Society of Security Analysts

Users of online dating sites often struggle to find love because the sites themselves make it more difficult than it needs to be. To the rescue: Virtual Dates, an online ice-breaker from Jeana Frost of Boston University, Michael Norton of HBS, and Dan Ariely of MIT.

More: http://hbswk.hbs.edu/item/5478.html

Their advice about online dating (which also applies to winning business online):

“Remove yourself as much as possible and don’t invest your ego in one particular date,” Frost offers. “Remember that it’s very easy to get carried away and imbue a profile with overly favorable qualities. My advice is to try to stay calm and resist being invested in one person until you’ve actually gotten to know them. Avoid long e-mail correspondences because they tend to heighten expectations.”

“It also takes resilience to go on a lot of dates and spend time actually arranging to meet rather than spending hours a week just searching. The people who go on a lot of dates are the people who find someone. In some sense it’s a numbers game.”

New users especially should keep in mind that online dating is not in the end so fundamentally different from regular dating, adds Norton. You try to find people, you try to meet them. “It’s the people who think it will be quite different from their regular experiences who end up being the most disappointed …. In online dating, the same sorts of people who are online are also out there offline. It can help you sort, but ultimately it takes work, effort, and a little luck.”

This post was written by David Teten, source: Online Match-Making with Virtual Dates

According to the NY Times:

The amount of Internet buzz a movie generates is a strong predictor of its box-office take. But it hardly matters whether that buzz is good or bad, according to a study by Yong Liu, an assistant professor of marketing at the Eller College of Business at the University of Arizona.

I’d love to hear from the folks at trend-tracking companies such as Trendum, Intelliseek, Cymfony, and Brandimensions if they a) agree that people’s positive or negative feelings are irrelevant for movies, and b) if this is true, does this pattern hold for other product categories?

This post was written by David Teten, source: What Counts at the Box Office Is the Buzz

HBS Professor Andrei Hagiu is an expert on multi-sided markets, and recently interviewed me on that topic: Market Platform Dynamics–Catalyst Conversation: Conversation with David Teten. His site requires that you submit an email address to read the article (but I should note that he doesn’t actually test if the email address is functional.)

This post was written by David Teten, source: Multi-sided markets, online

Following up on my draft post on ‘Business Models for User-Generated Media‘, I wrote some notes on this morning’s iBreakfast.

Shawn Gold, SVP, MySpace: Marketing in a Networked Culture

MySpace has 100m users projected by july

84m registered users, 2m new registered users per week (size of Houston), 48m unique visitors per month in US

2^nd most popular site for content consumption on the Internet, as defined by page views. 29000 indie film profiles. 1.8m music profiles.

#1 video viewing site

#1 referrer to Google—8.19% of Google’s traffic

42% of YouTube viewing is happening on MySpace.

Goal:

MySpace will become THE full service community portal

Introduce innovative advertising solutions while being at forefront of pop culture

DNA of Myspace Generation : MySpace is their place. Where youth culture gathers to express themselves, connect with friends, and discover popular culture.

Big differentiator from competition is the way MySpace is used to discover popular culture, i.e., bands/TV shows.

All the growth is viral—they market to influencers not to audience members.

Nielsen: Myspace reaches 51% of 13-17 year olds online (which is 85% of all 13-17 year olds).

79% of the site is 18+, and 25M users who are 30+.

Why so successful:

-A user’s profile is a metaphor for their room or apt.

- The Internet generation has grown up sharing their lives

- The profile is a characterization of who they are

- They want to express themselves creatively.

Children lack a ‘their space’. 7-11 doesn’t let them hang out in front; the mall security guards kick them out. They’re used to being in public. MySpace is a form of identity production.

Everyone takes pride in their medium. It’s ‘vested media’ because they created it.

When people say the pages are unwieldy, just think of a teenager’s room.

Social networks/blogs serve as a publishing platform for early adopters. Word of Mouth has turned into ‘citizen journalism’, which people trust more than traditional media.

MySpace allows brands to become living, breathing entities that consumers can interact with.

Best brand programs tie into self-expression, facilitate connections between people, or is centered around the discovery of popular culture.

87m stories in the database, and a lot of that content is professional. Every nightclub, every major Christian band, every celebrity brand, is in the database. They’re now slicing the database by professional type, e.g., if you want to reach all the comedians.

Basic idea of marketing: "Tell a Friend"

Average page is visited 30 times a day. If you’re in the top 8, your exposure is exponential. XMen has 3.2m friends. If you friend them, you can have top 16 friends, instead of top 8.

Core: identification and individuality. Don’t separate them—that’s Geocities. Understand core needs (identification and individuality), and address their core needs: recognition, knowledge, self-expression, belonging, access, discovery, appreciation, and confidence.

We facilitate this on a social networking platform.

Next speaker—-Shelly Palmer, author, Television Disrupted

Five buzzwords you can use right now. You will sound like a genius if you use these.

- Mobile video: clipcasts or streamcasts. He dislikes the term ‘cellphone video’, because not all mobile video (e.g., ipod video) is via a cell tower. Why does ESPN Mobile have only 2400 subscribers—because it’s $30-$400/month. It’s a MVNO—they own the handset and customer experience. They’re $30M in the hole. All the vanity cell services will meet the same fate. ESPN invested a lot of money into the technology. Behaviors change glacially. In the last century, fastest time to market for an electronic tool was Xerox machine. It killed carbon paper extremely quickly. Instantly successful. Normally new tools take 5-100 years—fax machine took 100 years.

- IPTV—Internet Protocol Television

- Broadband Video—call it ‘IP Video’. ‘Streaming Video’ is a silly term.

- Podcasting—he hates this word. A use of the RSS spec—it has nothing to do with IPods or broadcasting. Coined by Adam Curry. Based on XML spec. Blogging is the most popular use of RSS.

- Mesh Networks—each node connects or two or more nodes. No central server. Self-healing. Hard to shut down. Napster was a file-sharing network, therefore easy to shut down. If they’re wireless they’re a swarm. BitTorrent is best example of a mesh network. Cant be used in real-time streaming.

Oct. 12, 2005: the date that Steve Jobs and Eiger unilaterally decided to put TV shows on ipod—Desperate HouseWives. Very controversial with affiliates. The day the TV world changed.

"Contact is King!"

Different words for all of you in the audience:

Cable companies call customers ’subscribers’

Phone companies call them ‘access lines’

TV cos. Call them ‘Viewers’

Computer cos. Call them ‘users’

2/17/2009: all analog TV spectrum will go digital. Your old analog TV won’t work. The good news: all the old analog frequencies will be reclaimed by the gov’t and auctioned off. Most likely it will be used to create a large broadband cloud—WiMAX? No longer will you use a little local wifi network—you’ll use the large broadband cloud. Hermistown, OR has largest broadband cloud in America: 700 sq miles, 5 megabits. It’s like living in Star Trek. Cant handle lots of streaming video/VOIP, but it’s enough for email. Intel is banking heavily on WiMAX.

Every cell phone call ends with ‘hello’, instead of ‘goodbye’, because of connectivity problems

Q&A

Shawn: They review every photo/video uploaded to myspace

Any member can report objectionable content

25000 volunteers police school site

Algorithms that search for underage kids—e.g., mentioning 12 candles on a birthday cake. They kick off 5000 underage kids/day.

Myspace is the size of two Californias—and the crime on the site is equivalent to 5 blocks in NYC

This post was written by David Teten, source: Shawn Gold, SVP, MySpace: Marketing in a Networked Culture

I’m happy to report that, after two years of successful partnership, I have sold Teten Executive Recruiting to Accolo. I’ll be continuing in my current role running Nitron Advisors, which is a separate company. Here’s the press release:

Press Release
For Immediate Release
June 21, 2006

Accolo acquires Teten Executive Recruiting; combined firm is innovator in using social software and online networks for recruiting.

Larkspur, CA – June 22, 2006 – Accolo, Inc. today announced the acquisition of Teten Executive Recruiting, a retained executive search firm that specializes in using online networks to reach and recruit the most qualified candidates. The firm focuses on the hedge fund, private equity, and strategy consulting industries. Founder and author David Teten joins Accolo’s Advisory Board.

David Teten said, "I first discovered Accolo ( www.Accolo.com) in my research for my book about social software and online networks, became a client, and then created a partnership with them. When I learned how they had re-engineered the recruiting process to incorporate the power of online networks, I thought: this is the way recruiting should be. I think that the traditional recruiting model is broken and painfully inefficient, and I am excited to have the privilege of working with a team that understands the logical way that companies should manage the process of finding great people."

In this cash and stock deal, Accolo gains access to Teten Executive Recruiting ( www.TetenCo.com) clients such as American Real Estate Partners, Net2Phone, OfficeTiger, The Trium Group, Zacks Investment Research, and IDT Entertainment. Teten Executive Recruiting is known as a thought leader in using blogs, listservs, online communities, social network software, relationship capital management software, and biography analysis software for recruiting. Accolo has acquired the proprietary tools that Teten Executive Recruiting has developed.

John Younger, CEO of Accolo, commented, "We were excited about Teten Executive Recruiting’s list of lighthouse clients and its deep expertise in social software and online networks. This acquisition is the logical culmination of a mutually beneficial relationship. The company is providing us with new strategies to continue raising the bar, as well as new clients to take advantage of our growing senior executive search capabilities. Just in the past year, we have recruited CIOs, CEOs, CFOs, and Vice Presidents for companies with revenues of $5 million to $1.5 billion."

Jon Weber, President of American Real Estate Partners (NYSE: ACP), commented, "Finding top talent quickly and efficiently is a high priority for us. We’ve been pleased with the way Teten Executive Recruiting and Accolo combine their talents to save us time and money to hire the best people. Their solution has worked well for several of our companies”

Martin Babinec, CEO of TriNet ( www.TriNet.com ), emphasized, “TriNet’s long association with Accolo has been borne out of a deep faith and confidence in the company’s innovative approach to sourcing and recruiting. The fact that Accolo’s team continues to seek out partners that will expand and deepen its already impressive service delivery is proof that the company won’t rest on its laurels. TriNet is enthusiastic about Accolo’s latest milestone and looks forward to its future successes.”

David Teten, founder of Teten Executive Recruiting, is coauthor of the first business book on these strategies and technologies, The Virtual Handshake: Opening Doors and Closing Deals Online. He runs a business resource guide and blog about social software and online networks at www.TheVirtualHandshake.com . David also co-writes a monthly column about online networks for www.FastCompany.com, and was recently honored as a "Future HR Leader" by Human Capital magazine for his innovative use of online networks. David is a member of the Advisory Board of the Word of Mouth Marketing Association (www.Womma.org), which is also an Accolo client.

David Teten will continue in his current role as CEO of Nitron Advisors, LLC (www.NitronAdvisors.com ). Nitron Advisors provides hedge funds, venture capitalists, other institutional investors, and law firms with direct insight from a broad network of senior industry experts, located at www.CircleofExperts.com.

About Accolo

Accolo has built proprietary, patented software and processes that automate roughly 80% of the recruiting process. Accolo leverages this toolkit to provide Recruitment Process Outsourcing services, becoming part of a company’s internal recruitment function. Accolo’s unique application of the “art” of recruiting within a highly automated framework, along with a network of over 300,000 past and present candidates, delivers quantifiable improvements in recruiting quality, efficiency and cost. Our clients meet the top performer they will hire in an average of 13 days. The average company spends 15.9% of an employee’s salary on recruiting; Accolo clients spend less than 9%.

Accolo is profitable and revenues more than doubled last year. The company is the HRO World 2005 Recruitment Process Outsourcer of the Year and a founding member of the Recruitment Process Outsourcing Association (www.RPOAssociation.org). The Company was founded in 2000 and its investors include Vedior (Amsterdam: VDR, www.Vedior.com ) and TriNet ( www.TriNet.com ). Accolo works with such leading customers as JDS Uniphase, Blue Shield of California, Starmine, CMP United Business Media, ValueClick, Verity, and PRNewsWire. For more information, visit www.Accolo.com.

Contact
Diane Hassett
dhassett at accolo.com
1-415-785-7833 x220

David Teten
press at teten.com
1-212-682-6676

This post was written by David Teten, source: Accolo acquires Teten Executive Recruiting

Great story in the NY Times on a very active—and passionate–Yahoo! group for moms in the LA area, Peachhead. This is an example of how non-technical people for non-technical purposes are heavy users of an online community—and the small orbit of businesses around that community that are benefiting from this activity.

This post was written by David Teten (admin), source: The Web Site of All Mothers

The New Yorker magazine has an interesting profile of online (and offline) terrorist-hunter Rita Katz:

There are hundreds of extremist Web sites, but there is also a hierarchy: sites on which terrorist groups release statements and videos have the most devoted audiences. As soon as something appears, users post it on dozens of message boards, chat rooms, and blogs. For much of the past two years, activity centered on a board called Ansar; once it was shut down, with its British-based Webmaster imprisoned for his part in a bomb plot, users shifted to a board called Al Hesbah. “There was absolutely no disruption,” Katz said.

more on Rita Katz…

Rita runs a very small research group. By contrast, the IHT reports on the phenomenon of online mobs of vigilante Chinese chasing alleged evil-doers: more

This post was written by David Teten, source: Chasing terrorists and evil-doers online

Technology has made it possible for teams with members around the world to work on virtual projects. A monthly budget for such a project can easily exceed $1.2 million and involve more than 60 team members worldwide. Although email and other communication tools make this possible, what happens when team effectiveness is hampered by the same technology? Dominic M. Thomas, a visiting assistant professor of decision and information analysis at Emory University’s Goizueta Business School, and colleagues studied the failure of large virtual projects to learn what went wrong. Their findings are presented in a new paper titled “Making Knowledge Work Successful in Virtual Teams via Technology Facilitation.”

http://knowledge.emory.edu/index.cfm?fa=viewArticle&ID=945

This post was written by David Teten, source: How to Prevent Technology From Impeding Communication and Wrecking Your Virtual Project

You Play World of Warcraft? You’re Hired!

Why multiplayer games may be the best kind of job training.
By John Seely Brown and Douglas Thomas

In late 2004, Stephen Gillett was in the running for a choice job at Yahoo! - a senior management position in engineering. He was a strong contender. Gillett had been responsible for CNET’s backend, and he had helped launch a number of successful startups. But he had an additional qualification his prospective employer wasn’t aware of, one that gave him a decisive edge: He was one of the top guild masters in the online role-playing game World of Warcraft.

more….

This post was written by David Teten, source: You Play World of Warcraft? Youre Hired!

Podcast: What Makes an Online Community Tick? Ask Craigslist, Yahoo and Pheedo

“Online communities have become not just a major social force, but a significant driver of business activity both online and offline. Facilitating, nurturing and benefiting from those communities, however, is not a simple task. To explore what makes these communities tick, Kevin Werbach, a professor of legal studies and business ethics at Wharton, spoke with Craig Newmark, founder of Craigslist.com, Julie Herendeen, vice president of Network Products at Yahoo, and William Flitter, CEO of Pheedo. “

Via: Knowledge @ Wharton

http://knowledge.wharton.upenn.edu/article/1433.cfm

This post was written by David Teten (admin), source: Podcast: What Makes an Online Community Tick? Ask Craigslist, Yahoo and Pheedo

Here’s the draft of an article we’re working on about how to raise capital with online networks. We welcome feedback!

Raising Capital with Online Networks

by David Teten and Harish Venkatesh

Imagine Roger Nusbaum’s surprise when he returned to his Prescott, Arizona home to find several unsolicited messages from potential investors on his voice mail. Nusbaum, a portfolio manager at Your Source Financial in Arizona, received those phone calls because of a "blog", a journal published on the Internet.

Nusbaum is a frequent contributor to many online blogs. When Barron’s magazine recently profiled David Jackson’s network of finance blogs (including SeekingAlpha.com, ETFinvestor.com, and various industry specific blogs), they mentioned Nusbaum’s contributions about exchange-traded funds. That mention directly resulted in phone calls from some highly qualified investors, and Nusbaum is currently discussing investment terms with some of those leads. “My blog really has evolved into a good source of leads, which is more than I expected when I first started,” Nusbaum commented in an e-mail to us.

Success stories like Nusbaum’s are becoming a common phenomenon as blogs and online networks are becoming a more and more important part of the business world. Using this technology, professional money managers are finding sources of capital from the far corners of the Web.

Of course, many investment vehicles are only open to accredited investors, and managers of these vehicles should not be perceived as advertising to unaccredited investors. However, there is nothing wrong with opining on market-related issues, and increasing your own visibility and investability in the process.

With new blogs appearing at the rate of 30,000 a day, and the increasing popularity of social network sites such as LinkedIn, more and more business relationships are being started and deals are being closed online. Even money managers, members of an industry known for its discretion, have been taking advantage of this new technology. LinkedIn reports numerous success stories from companies using the tool for due diligence.

Blogging (the activity of updating a blog) can significantly increase your professional profile. Greater Internet visibility results in you meeting more people, some of them potential investors. Another major advantage to blogging is that it provides a digital trail establishing your professional competence. Money managers who document their opinions of the capital markets and individual companies have made their opinions public knowledge. A potential investor is able to evaluate the ideas put forth and can determine his confidence in the money manager.

Consider the August 17^th, 2005 edition of "Power Lunch" on CNBC. Jeff Matthews, a hedge fund manager at Ram Partners, and Patrick Byrne, the CEO of Overstock.com, faced off over Mr. Matthew’s criticism of Overstock.com’s strategy on his blog. Mr. Byrne has been in the media lately over his allegations that certain segments of the media, specifically the online community, are conspiring to devalue Overstock. This example shows the perceived (and actual) power of the Internet in the investment community. Mr. Matthews, by writing his opinions in a blog, is able to discuss business strategy, news and company behavior without needing one of the few scarce speaking platforms in the mainstream news media. Mr. Matthews said in an e-mail to us that, “I view my job as being to bring interesting facts to light, positive or negative, in order to generate intelligent discussion and feedback that might be useful to investors as they look for ways to make money.” Mr. Matthews plan is working, as his blog has become very popular in the online investment community.

“Social software” – the family of software that people use to analyze, leverage, and enable communication in their networks – isn’t limited to just blogs. Online network tools such as LinkedIn allow business professionals to increase the scope of their network by adding second and third degree connections they might not have known existed. Without these tools, you would not know that your friend’s friend works at a fund of funds. These social network sites allow you to search a database of people you have some connection with through your own contacts. This allows you to approach people with a warm introduction instead of a cold one.

Being more visible to the right type of people increases your chances of finding people who can be relevant to your goals. Also, making yourself easily accessible allows you to be approached by potential business partners with no marginal effort, once you create a strong online presence.

Online communities are another affective way of increasing your online presence. For example, Albourne Village and the Value Investors Club are both valuable resources for professional investors.

Albourne Village, run by hedge fund consultancy Albourne Partners, is an unusual example of an online community successfully serving a busy, time-sensitive group: hedge fund investors and others interested in the sector. About 25% of their members visit the site at least once a day, which is an extremely high usage rate versus other online communities. About 85% of their members visit the site at least once per month.

The Value Investors Club (“VIC”) is another example of an online community with extremely high quality content and an intensely engaged audience. Founded in 1999 by hedge-fund managers Joel Greenblatt and John Petry of Gotham Capital, Value Investors Club is a highly exclusive club for discussion of value-based investment ideas and of “special situations” (ie. spin-offs and recapitalizations). It currently has 220 members out of a maximum allowed of 250. It is free to join, and the club management even pays a $5,000 reward every week to the member with the top investment idea.

The requirements for entry are twofold: first, write an “A+” description of an investment idea, in keeping with the site’s Buffett/Graham investment style. VIC is primarily interested in opportunities based on value or special situations. VIC receives about 100 member applications per month, of which only about 1 in 15 are accepted. Second, assuming you are accepted, you must provide between two and six investment ideas per year. The reason for the six-idea maximum is that VIC only wants your very best investment ideas.

The advantages of being known and trusted by relevant people are well documented in the academic literature. Online networks and social software are an extension of the traditional ways in which people have connected with one another face to face. Something as simple as blogging is helping Roger Nusbaum to raise capital and allowed Jeff Matthews to gain national exposure. You can do the same.

For definitions of terms related to social software please visit http://www.thevirtualhandshake.com/glossary.htm.

David Teten is CEO of Nitron Advisors (www.nitronadvisors.com), which helps hedge funds and other institutional investors make profitable decisions by giving them direct access to industry experts. You can access our Circle of Experts by phone, survey, or in-person meetings, and talk with industry executives, front-line managers, researchers, regulatory advisors, customers, and competitors from a wide range of industries, particularly technology and energy. To qualify for a free initial expert consultation, contact us at NitronAdvisors.com. David is coauthor of The Virtual Handshake: Opening Doors and Closing Deals Online, the first book on how to use online networks to find your next investor, business partner, next client, or next job. He runs a detailed blog and resource site about online networks at TheVirtualHandshake.com, and his personal blog is "Brain Food" (www.Teten.com/blog).

Harish Venkatesh is currently a student at the Richard Ivey School of Business, Canada’s top-ranked business school. He recently interned as a research analyst with Nitron Advisors. At Ivey, Harish is actively involved in the University Student’s Council, Investment Club, and is an avid tennis player.

This post was written by David Teten, source: Raising Capital with Online Network

Think there’s no “real money” in blogging? When it’s a marketing tool for big-ticket products and services it sure can be.

J. Craig Williams is quoted in the latest U.S. News and World Report:

“Attorney Craig Williams says his blog (mayitpleasethecourt.com) and podcast have generated close to $1 million worth of client referrals since they started three years ago. He thinks of his site as ‘my handshake to the world.’ ” (nice choice of metaphor)

Now that’s what I call ROI!

You should know that Williams puts a ton of time and money into his site, and it shows. I presume he doesn’t do the web design himself, but he personally writes 1-2 posts a day and podcasts each and every one.

via Stephanie West Allen via Lisa Stone

This post was written by Scott Allen, source: The Million-Dollar Blog

Jim Stroud, a technical recruiter at Microsoft, author, and blogger, has podcasted two interviews with me. The first podcast is about The Virtual Handshake: Opening Doors and Closing Deals Online, and the second podcast is about the Nitron Advisors Circle of Experts.

One of the themes of our book is that the success of online dating is a model for the ongoing success of online business matchmaking. Online dating is not only a more efficient way to find a partner, but it has significant ancillary benefits. First, more people getting married/partnered up certainly contributes to a more stable society. Second, and to my surprise, some are crediting online dating specialty sites just for HIV-positive people with combating the spread of AIDS.

More…

Rosa Wu of Weston Presidio informed of a report by Wildbit on best practices in online network design.

This report is the result of an in depth analysis on social networks for a web community project at Wildbit. The report aimed to discover how to attract members, define structure, influence participation, and manage the community in order to design the web site prototypes. The progress of this project will be posted occasionally on our blog.

For anyone concerned about how best to structure a successful online network, this paper is worth reviewing. If anything, I would suggest that the report would benefit by criticizing more severely some of the poorer design decisions out there. (e.g., the Orkut rating system of who’s “Cool” creates huge opportunities for tension.)

Valdis Krebs wrote on the Socnet mailing list: “Face-to-Face still rules in Word-of-Mouth according to this marketing research…”

> “Despite widespread technology adoption, marketers must understand
> that the majority of word-of-mouth is still done at the coffee house,
> in the mall, over brunch or at the gym,” [SNIP] “Although
> technology and the Internet play a significant role in spreading
> word-of-mouth, live discussions are still driving the trend.”

http://www.nopworld.com/news.asp?go=news_item&key=159

But I’m forced to disagree. The same article says:

40% of consumers use e-mail to make recommendations to others, including via personal e-mail (37%), by e-mail forwarding (32%) or through mass e-mails (12%). While slightly higher percentages of Influentials use e-mail (personal e-mail 53%, e-mail forwarding 39% and mass e-mails 18%), face-to-face communication still far outweighs this medium.

For such a new medium, that sounds like very high penetration to me!

This post was written by David Teten, source: 40% of consumers use e-mail to make recommendations to others