4th March 2010: Macquarie Edge

‘Pair of hands’ project finishes: debriefs for process improvements and advice provision.

Tonight, I attended a Melbourne Business School (MBS) talk on the changing investment landscape. In reality, it was a case study and walkthrough of Macquarie Group’s online retail trading platform Macquarie Edge, with speaker James Leplaw, head of Direct Investing at Macquarie Direct. The talk was far more than a sales pitch though, due to the Leplaw”s candour and willingness to talk about the decision traps and execution mistakes.

Some highlights from Leplaw’s talk and vibrant Q&A session:

1. Prototype Platform Failure: Leplaw and a top trader with
25 years experience conceived a prototype platform: a blank screen with
movable widgets and components. Their ‘make or buy’ decision was to
outsource production, hire a web development company for $A100k+ and
have a 60-90 day timeline. The prototype ‘bombed’ during beta testing:
no-one had asked customers and end-users what they really wanted.

This revelation stunned several audience members. After a decade of online broker
competitors, and in a mature market, how was this decision financially
justifiable? Why were client needs not identified at the outset? Some audience members felt the prototype likely wasted several hundred thousand dollars worth of
investment capital and management time.

2. Agile Development and User Personas: Macquarie’s project team
ended up being 8-12 people, including developers, testers, and user
experience specialists. Leplaw and the development team regrouped and decided to
gather feedback from customers and end-users. To do so, they developed
user personas like ‘George’, a midlife retail investor, to articulate
what the platform might do. In an agile development process, the team
used Vignette for content management and Drools
open source software for a business rules engine. The team made
decisions on what not to focus on: retail investors would not be
high-frequency traders that wanted mobile applications, nor would the
platform deeply integrate with other institutions, beyond data export
tools. The platform would also initially focus only on ASX equities
rather than international markets. Leplaw revealed that features currently in-development
include a margin-lending tool for derivatives and warrants, and
co-integration with the Macquarie Prime software for active investors and day traders.

3. Market Justification: Investment Trends
forecasts Australia’s online brokerage market to grow from 525,000
clients to 600,000 clients over the next 12 months; in a domestic
market of 2 million investors. Clients are defined as investors who
have made at least one trade in the past 12 months and who intend to
make another in the next 12 months. At least 100,000 of these clients
are dissatisfied with their current provider. Investment Trends’ custom research is described here. For Macquarie Edge, client conversion rates are: 30-40% of site visitors become registered
members, and 5-10% of members become full-service clients.

Macquarie Edge thus targets new investors, dissatisfied clients who
will switch, and ia growth strategy that relies on mature market
momentum. The platform also provides an on-ramp to Macquarie’s
research, stockbroking and wealth management services.

The views in the MBS lecture theatrette were mixed about this. Some audience members felt that Macquarie was a late entrant to a market dominated by
the major retail banks and specialist online brokerage firms. Others
felt the limitations above meant that the target market segment was
actually quite narrow, compared with Commsec and ETrade, which allowed Wall Street trading. Google Finance offered some similar features for stock watchlists and market technical analysis; what differentiated Macquarie Edge was its integration with Macquarie’s research analysis, in which finance editors rewrote 20-30 page investor briefings into ‘actionable’ 1-page summaries for retail investors.

4. Career Advice: James Leplaw gave some great, succinct advice: Be able to articulate how you can add value to a company and what differentiates you from other applicants. Tap the ‘hidden’ job market. Hire a search agent who has knowledge and expertise in the sector you are looking at. Identify what experience and skills you have that are transferrable or portable across different industries and knowledge domains. Look for a manager who seeks to diversify their team with different talent, from another industry or context. HR managers often make the mistake of hiring people who have followed the traditional pathway — a business undergraduate degree and bank/finance institutional experience — and then wonder why the employees have the same kind of thinking as existing team members.