15.963 Electronic Commerce & Marketing
Wendolyn Burnett
Dale Galvin
March 12, 1998
Electronic Publishing: The Evolution of Online Financial News
OUTLINE
The purpose of this paper is to understand the evolution of electronic publishing on the Internet, particularly relating to the provision of financial news, market information and data, and personal financial asset management. Traditionally, the sharing of financial knowledge has occurred via newspapers, journals, conferences and libraries; however, with the increasing popularity of the Internet, consumers, analysts, and managers are increasingly turning to this integral tool to access vast amounts of financial knowledge.
Overview of Electronic Publishing
Initially, the advancement of the Internet was driven by new technologies and interesting applications with little thought to the actual business value behind the effort. Although this was an acceptable model to spur the development of the initial infrastructure, now businesses are searching for the "killer business application" that will bring them into the online world and at some point result in profits. Financial news and information services have consequently emerged as such key business needs, to the point where experts are saying, "[financial] news is among the top three reasons users connect their PCs to the Internet."
Though the traditional "publisher" has often been responsible for not only the production of information but also its content, because of the ease of controlling digital information over the Internet and because of the extraordinary market for financial data, many "non-traditional" financial service firms have become electronic publishers. As a result, it has become increasingly difficult to distinguish the content producers from content accumulators and distributors. We expect some consolidation, however, as customers become more interested in the overall value proposition offered by an information provider rather than technical or other expertise.
According to Clifford Stoll, the author of Silicon Snake Oil, what's missing in cyberspace is "anyone who will say, 'hey, this is no good' . . . Editors serve as barometers of quality, and most of an editor's time is spent saying 'no'." To date, the Web has been about delivering data rather than information, the latter having some inherent, imbedded utility and purpose. In the print world it is often the publishers who are responsible for turning data into information - and an equivalent resource is needed in the electronic world. We are, however, beginning to see the evolution of processing raw data into information on the Web, and later in this paper we will examine how these changes are occurring within the electronic providers of various financial services, including news, portfolio tracking, and research.
Key Issues and Trends
News-oriented publishing has traditionally been funded through advertising dollars. In the initial move to an online paradigm many publishers have adopted that same advertising funding model. This was necessary in a newly emerging industry because (in addition to money transfer issues) customers did not understand the cost-benefit analysis of web-based information and therefore were not willing to risk their own money. Many businesses, on the other hand, understood that they could not ignore this new medium, and they were willing to spend the required initial advertising dollars. Next, many publishers moved to the "long-distance telephone business" model of pay-for-use. The problem with this model was that users paid for the amount of time they were online rather than paying for the information they retrieved, and of course this disincentive substantially inhibited adoption. Finally, with the increasing popularity of the Web, we are seeing a change in customers' willingness to pay for online services. The most current financial or payment model takes this into account by giving users the ability to browse freely and pay only when a specific, additional product or service is desired. An alternative approach is the standard publishing model of advertising revenues plus subscription fees. Although this runs contrary to the mental model of many Internet end users - which is that everything should be free - this model is begging to work for some highly value-added publishing organizations.
Another driving force of online publishing is the ability to tailor or personalize information and services, increasingly down to the individual user. Traditionally, large publishers focused on mass media - reaching as many customers as possible with a single edition. While in the print world there are obviously some technological constraints, a dramatic shift becomes possible as we move into the electronic world. Suddenly, publishers can use automation to tailor their media to individual recipients as desired. The resulting electronic world of news publishing allows "customers to access information services and people in an infinite multiplicity of sources," and this further enhances the dissemination of information rather than raw data.
In order for the abundant financial knowledge and information to benefit the financial community, they must have access to it. The issue of access has long been a concern of financial professionals because of the sensitive nature of their business and the risk of misuse of such information. Additionally, there is concern among the financial community about their private financial information being accessed and used without permission. Many of these problems are being addressed by Internet security systems that will allow for specified documents to be accessible only through password protection or other such security measures.
Intellectual access to information is always a concern and is particularly difficult with the new online environments. Intellectual access concerns the user retrieving a relevant set of information from a collection. There is an incredible amount of information on the Internet and sifting through sets of information can be extremely time-consuming and frustrating for the user. However, there are still problems and concerns regarding both physical and intellectual access.
A common complaint regarding the WWW is the lack of indexing and the inability to find useful information. This criticism applies to financial information sources as well. For example, wading through long lists and directories of potential sites can be extremely time consuming. Search engines are improving the process, but are not there yet. This becomes a tremendous problem when looking for financial information because of the enormous number of sites geared toward all different types of users with varying needs.
The Market for Online Financial Information
Users desire access to financial information on the Internet for a variety of reasons. Many desire information to track their investments in the debt and equity markets. These customers can range from extremely sophisticated to novice investors. For the latter group, services that provide easy access to the news that affects their portfolio, in addition to some level of interpretation, would be most attractive. There are also many business-to-business uses of financial data. Consultants, bankers, and analysts often search exhaustively for financial or company-specific information in their daily activities. Within this group there are also some firms (eg large Wall Street banks) that have significant financial news sources already in house and use either extensive direct connect news services (eg Reuters) or pay-for-use research services (eg Dow Jones News Retrieval). Even so, the Internet makes this same information available more cheaply and widely.
One of the affects of this commoditization of financial news is the huge increase in financial market efficiencies, competitive information, and the lowering of transaction costs. For instance, the ability of the small player to enter into securities trading or equity research is now much more feasible, and the result is that even more information is required for differentiation.
Online Financial Information Providers
In this section we will examine the business models used by various financial news providers. Each of them provides some mix of products and services depending to some extent on their core business. Following is a description of commonly available online products:
· Personalization/Customization of News: Users can select
among a list of categories, industries, market data, or specific companies
to receive information tailored to only what most interests them.
· Alerts: Notify users when relevant or urgent information
becomes available.
· Archiving: Ability to access and search amongst historical
or recent news articles or information (often for an extra fee).
· Delivery: Ability to receive and disseminate information
when, where, and however needed - eg by email, fax-back service, or web
site.
· Portfolio management:allows tracking, graphing and analysis
on a user-selected portfolio of market securities.
· Personal Investing Services:including securities trading,
account management, and retirement planning.
· Other: access to annual reports, securities filings, and
links to additional research capabilities.
Different firms who provide the services above utilize various revenue-generating models that seem to have little bearing to any industry standard or traditional publishing ideals. Below are categories of financial news providers and a summary of their product offerings and revenue model:
· Financial newspapers and business magazines: The Wall Street Journal Online provides extensive daily business news, allows for personalization, and offers a myriad of additional services such as career help and stock market quotes. The WSJ Online is unique in its model of charging a significant subscription fee and having no web site advertising. The other model which is much more prolific currently (see online versions of the Financial Times, New York Times, Business Week, and The Economist) all offer essentially the identical hardcopy product in digital form free of charge, and have some small number of advertisements dotting their web pages. Many offer search functions, personalization, and archives, though some "premium" services may be charged for additionally. A notable exception to this model is The Economist, which only offers a small sampling of each issue for free online. In this way there is still some value retained in the original hard copy magazine.
· Financial News Networks: Television networks have also devised complimentary web sites to their business telecasts. Major players are CNN-FN and MSNBC, who both provide multimedia world, financial, and business news free of charge over their web sites, in combination with relatively unintrusive advertisements. CNN-FN, for example, has many additional features such as portfolio management and sections on small business, new deals, and travel. Similar to the online newspapers, these firms can only differentiate their Internet products with the quality of editorial content and presentation.
· Electronic Banks: Fidelity.com had over one million "hits" per month as far back as 1996. As a full-service brokerage web site, Fidelity offers the gamut of personal investing, asset management tools and personalized news from sources such as Reuters and the Thomson Investors Network. Though some information is available to all web surfers, the most valuable information (such as company news based on a selected portfolio and industry updates) is available only to current Fidelity customers. Though the business news provided comes directly from wire services or other consolidators, it is easy to see why this site is a valuable "one-stop shopping" for a fidelity customer looking for information relevant to his holdings. Charles Schwab operates under a similar model, also offering analyst's research reports for selected companies.
· News Wire Services: Though these firms are the source of raw news information for almost all of the above firms, AP, Bloomberg, and Reuters all have their own free news sites, some with limited advertising (though note AP's site has no advertising at all, but rather joins automatically with a regional AP member such as Bostonglobe.com). These sites offer in-depth business and financial multimedia news (eg Bloomberg Radio) and a range of other services such as stock quotes, news by company, and annual reports.
· Other Providers: Even stock market exchanges (Nasdaq, NYSE) provide a web site with stock price information and some market news. This is offered free of charge with no advertising. Also, many individual firms in general industry (eg Microsoft) are a source for comprehensive news, press releases, and technological developments industry wide. Lastly, there are many value-added commentary business news services, such as "The Street" (now owned by ABC news), which bring opinions and commentary to the raw (or allegedly unbiased) news data provided by many of the other services.
Though it is still not clear on which markets all of these financial news providers are focusing, there seems to be such a great amount of overlap and such minimal revenue generation that unless many of these web sites prove to have some marketing value or become more cost-effective to maintain, we would expect the industry to consolidate in the future to those services that are truly value-added from a customer perspective.
Role of an Information Technology Manager
Now that there is a combination of interest, usage, and investment in online publishing, companies need to establish a large-scale plan in order to secure their role in the information age. As we look toward the future in defining such a strategy, there are three key issues that information professionals must address: defining the needs of their customers, evaluating the technology, and creating the standards for usage.
The goals must be defined early in the process. The IT professionals must work closely with internal business users and customers in order to understand the structure, internal workings, and goals of the organization. The needs of the organization must be clearly laid out before any discussions are held regarding the technology and implementation of an electronic publishing plan. It must be recognized that years of success and infrastructure in print media does not translate automatically to success with online news.
Clearly electronic publishing will have a large impact on the products and services that companies offer, and as in any new field, not much is known about the implications of this technology. The IT specialist should play an integral role in understanding the effects of new technologies in addition to closely monitoring how well such technologies are meeting the needs of the business and the customers. This will entail surveying the users to determine satisfaction levels, as well as keeping up with the latest developments in electronic commerce technologies.
In order to enable widespread adoption of all electronic commerce applications, as well as electronic financial news publishing, standards must be in place to ensure interoperability and interconnection is possible. Since electronic commerce applications are still emerging, there are many technology-related issues that have yet to be resolved. It is true that progress has been made, but there is still much that needs to be agreed upon. IT professionals can be instrumental in setting standards because of their deep understanding of both the technology and the needs of the end users.
It is clear that financial news information providers must focus on the needs of their customers as the electronic age drives competition and efficiency to new levels. As such, electronic news publishers are currently conducting tests to determine which products and services online customers value most. From the customers' perspective, however, the online medium represents more good news - the wired world requires constant innovation by companies to remain competitive, which means better and cheaper products and services for consumers. And because business news is a critical resource to many companies, firms are willing to pay substantially for better and faster information. This has allowed financial news services on the Internet to take off, with companies spending over $28 Billion in 1994 on business information services. However, not one online publisher has turned a profit yet, and it is still unclear if and how many of these publishers are going to make money on the Internet. Publishers have been able to demonstrate a need for electronic financial news and investment services, now they must focus on developing a business model that allows for profits and long-term survival.
BIBLIOGRAPHY OF RESOURCES
Caruso, Denise. "Technology: Digital Commerce." New York Times. August 7, 1995, p. D5.
Girishankar, Saroja. "Media and Message," Communications Week. February 15, 1993, p. 50-52.
Hammer, Michael and James Champy. Reengineering the Corporation: A Manifesto for Business Revolution. New York, NY. Harper Business. 1993.
Kalakota, Ravi & Whinston, Andrew. "Electronic Commerce." Addison-Wesley Publishing Company. 1996.
Lyall, Sarah. "Publishing." New York Times. March 28, 1994, p. D6.
Negroponte, Nicholas. Being Digital. New York, NY. Alfred A. Knopf. 1995.
Stoll, Clifford. Silicon Snake Oil. New York, NY. Doubleday. 1995.
Tapscott, Don. "The Digital Economy." McGraw Hill Publishing Company. 1996.
Electronic Commerce Course. Class notes. 1998.
Multiple Web Sites. WWW. 1998.