Wikinvest

Parker Conrad and Michael Sha launched Wikinvest in 2006 to gather user-generated security analysis. The project collates wiki profiles on investment concepts, fundamental analysis of companies and technical analysis of market price movements. It also appeals to MBA students with sections on personal investing, investment concepts and funds management. Conrad and Sha have graduated from Harvard dorm day traders to Web 2.0 knowledge entrepreneurs.

Claire Cain Miller’s New York Times profile makes the obligatory link with Wikipedia, the online encyclopedia. Conrad and Sha go into some detail of their verification process for data and public sources. Actually, the wiki has some specific applications for the pooling or crowdsourcing of investor insights. Sell-side analysts in the research departments of investment banks can have dual allegiances if the underwriting departments incentivise their research products to drive sales revenues. The best will gravitate to portfolio managers, dynamic asset allocation and hedge funds that use event/risk arbitrage and short-sell strategies. An investor wiki could provide a counterbalance to these influences through a broader snapshot of investor sentiment, and strategies to delimit analyst biases and groupthink. A side-effect however is that investor views are more likely to converge to a mean, and the market efficiencies may thwart value investing strategies that require information asymmetries.

In fact, the Wikipedia analogy has some limitations because analysts, traders and portfolio managers all structure and use market information in different ways to online encyclopedias. This was one of wiki creator Ward Cunningham‘s insights when he devised the Portland Patterns Repository in 1995: the value of a repository to capture domain knowledge and processes, and to codify them from tacit to explicit form using a methodology such as design patterns or object oriented programming structures. If it stays within Wikimedia’s online encyclopedia model then Wikinvest will be suited to fundamental analysis and introductory investing topics. However, it could evolve into a different form if it adopts insights from behavioural finance and tactical asset allocation into the wiki process. These areas augment Cunningham’s original schema with strategies to deal explicitly with how information quality and source selection can affect investor decisions, judgment and verification. Even these vary depending on the end-user, their self-awareness, the intended contexts of use, and what potential outcomes may occur (a normative stance on the superiority of user-generated content over ‘traditional’ media is not sufficient alone to address the concerns that these processes are meant to anticipate and solve). The pressure to change and evolve may come from sell-side brokerages which now use Wikinvest as a cost-efficient data source for market commentaries. Alternatively, it may come from Wikinvest’s end-users as the wiki gains more public prominence, and attracts a range of investor styles with knowledge of asset classes, inter-market volatilities and global dynamics. If this occurs then Wikinvest and other wikis could have a pivotal role in the democratisation of finance beyond London, New York and Chicago.

Just don’t be surprised if Icahn Reports maven Carl Icahn (video) launches a wiki raid.

Duelling Web 2.0 Scenarios: Boom/Bust

Has Tim O’Reilly’s Web 2.0 meme become a high-tech bubble about to burst?

Origins of the Web 2.0 Boom

O’Reilly’s vision of a new Web platform originally fused two developments.

The first development: C, Smalltalk and object oriented programmers devised design patterns in the early 1990s to reuse software code and workaround solutions across projects.  A 1995 catalog catapulted its four authors to software engineering fame.  To capture the rapidly growing number of design patterns programmer Ward Cunningham created the first wiki: the Portland Patterns Repository.

The second development: a re-evaluation of dotcom era business models to encompass new technologies that enhanced the end-user experience including the site interface and information architecture.  Industry buzz around News Corporation’s acquisition of MySpace (18th July 2005), Yahoo!’s purchase of Flickr (21st March 2005) and del.ico.us (9th December 2005), and Google’s stock-for-stock deal for YouTube (9th October 2006) made O’Reilly’s vision the ‘default’ vision for Web pundits and investors.

The media’s buzz cycle soon went into warp speed as Facebook frenzy replaced MySpace mania.  In a move that exemplified the pivotal role of complementors O’Reilly & Associates morphed into the juggernaut O’Reilly Media.  Ajax and Ruby Rails soon replaced Java and C# as the languages for new programmers to learn.  For activists in community-based media, angel investors investing in scalable programming prototypes and international conglomerates seeking to control their industry white-spaces Web 2.0 provided an all-encompassing answer to venture capitalists on how they would change the world.

Two Scenarios: Web 2.0 Boom & Bust

For industry pundits Google’s decision in October 2008 not to acquire Digg may signal the Web 2.0 boom has become a bubble.  If true Google’s decision could be the mirror of News Corporation and Yahoo!’s acquisitions in 2005.  Slate‘s Chris Anderson points to several factors: no tech IPOs in the second quarter of 2008, the cyclical nature of the digital consumer market, the exit of Yahoo! as a potential buyer due to internal problems, market noise due to low barriers of entry for startups, and a smaller “window of opportunity in which startups can think of a new neat trick, generate buzz, and cash out.”  YouTube’s co-founder Jawed Karim adamently believes that Silicon Valley is in a bubble.

Twitter is the latest startup in the duelling scenarios of Web 2.0 boom versus bust. New York Times journalist Adam Lashinsky experiences a similar euphoria to Facebook and YouTube when he visits Twitter’s co-founder Jack Dorsey.  Sceptics counter that Facebook and YouTube have not ‘monetised’ their business models into profitable revenues.  Portfolio‘s Sam Gustin raises the ‘monetisation’ problem with Twitter co-founder Biz Stone who believes that service reliability is a priority over the “distraction” of revenue pressures.  In support of Stone’s position Anderson observes that cloud computing and open source software are lowering the operational costs and slowing the burn rates of startups.

Yet monetisation remains a primary concern for Sand Hill Road entrepreneurs and other venture capitalists.  They differ in their decision-making criteria to Web 2.0 pundits and high-tech futurists: for angel investors and first round VC funding the entrepreneurs will demand a solid management team, the execution ability to control an industry whitespace, and viable sources of future revenue growth.  This is the realm of financial ratios and mark-to-market valuation rather than normative beliefs and ideals which probably influenced the acquiring firm’s decisions and valuation models in 2005-06.

Furthermore, if a Web 2.0 bust scenario is in play, the ‘contrarian’ sceptics will look to Charles Mackay, Charles P. Kindleberger, Joseph Stiglitz and other chroniclers of past bubbles, contagion and manias for guidance.  With different frames and time horizons the Web 2.0 pundits, high-tech futurists and venture capitalists will continue to talk past each other, creating still more Twitter microblogging, blog posts and media coverage.

Several preliminary conclusions can be drawn from the Web 2.0 boom/bust debate.  In a powerful case of futures thinking O’Reilly’s original Web 2.0 definition envisioned the conceptual frontier which enabled the social network or user-generated site of your choice to come into being.  The successful Web 2.0 startups in Silicon Valley have a distinctive strategy comparable to their dotcom era counterparts in Los Angeles and New York’s Silicon Alley.  Web 2.0 advocates who justify their stance with MySpace, YouTube and del.icio.us are still vulnerable to hindsight and survivorship biases. There’s a middle ground here to integrate the deep conceptual insights
of high-tech futurists with the quantitative precision of valuation
models.

It’s possible that the high-visibility Web 2.0 acquisitions in 2005-06 were due to a consolidation wave and strategic moves/counter-moves by their acquirers in a larger competitive game.  There are two precedents for this view.  Industry deregulation sparked a mergers and acquisitions boom in Europe’s telecommunications sector in the late 1990s comparable to the mid-1980s leveraged buyout wave in the United States.  Several factors including pension fund managers, day trading culture and the 1999 repeal of the US Glass-Steagall Act combined to accelerate the 1995-2000 dotcom bubble.  Thus, analysts who want to understand the boom/bust dynamics need to combine elements and factors from Web 2.0 pundits, high tech futurists and venture capitalists.

If the Web 2.0 boom has become a bubble then all is not lost.  Future entrepreneurs can take their cue from Newsweek journalist Daniel Gross and his book Pop! Why Bubbles Are Great for the Economy (Collins, New York, 2007): the wreckage from near-future busts may become the foundation of future bubbles.  Web 3.0 debates are already in play and will soon be eclipsed by Ray Kurzweil‘s Transhumanist agenda for Web 23.0.