I think there has never been a better time (well in at least 100 years or so) to build a new bank. A new sort of bank. I’ve been meaning to post (some of) my ideas on this since last spring but have never had the time. Plus given that this is something I would love to actively drive and participate in, I probably sub-consciously was a bit loathe to spell it all out. Until I get a day or so free to translate my vision and copious notes into something coherent, here are a couple articles that might give you a taste of how I am thinking:
- Take full advantage of a blank canvas (cf “Silo but deadly”); and
- Embrace the possibilities offered by 21st century ICT (cf “Doing IT wrong”)
It also seems I’m not alone in this thinking, at least not in the UK, with first Tesco and now Virgin Money aggressively entering the (retail) banking space.
(via The Guardian) Virgin Money has made its much-anticipated move into the retail banking sector by taking over a small private bank.
The £50m deal to buy Church House Trust was announced to the City this morning. It is a key part of Sir Richard Branson’s attempt to challenge the UK’s major high street banks, and comes two years after Virgin failed to win control of Northern Rock.
“Virgin Money aims to bring simplicity to the UK banking market, which has traditionally been a complex sector,” said Branson, who believes the move gives Virgin “a strong platform for growth”.
I’d love to meet the leaders of these two firms as I think a lot of what we are working on would resonate with them. That is, unless we decide to start a competitor!
I thought I’d play a little markets jeopardy with the headline to this post. The question of course is: “what would happen if Google stopped mucking around and just came out and said it?” Said they were going to take their massive dataset, brilliant algorithms and (hire) all the smartest people in all the lands and offer a free service to “do anything anyone anywhere might conceivably want to do.” That should be enough to cast a pall over even the most profitable or promising companies. Sell everything (else) and buy Google
, right?
Many of you are of course thinking no, not right: the premise is far-fetched (not to say ridiculous) and even if you accept it in the spirit of the thought experiment it so obviously is, the conclusion – that they take out every other competitor at the kneecaps – is not a given by any stretch of the imagination. And yet, when Google announced that they were going to launch a free property listing plug-in to enhance their UK maps product, the market reacted pretty much as if Google were indeed Merlin the Magician and just by waving it’s googly wand it could take over any market at will just by unleashing its fierce intellect and sizzling technology on the hapless incumbents. In this particular instance, Rightmove’s (the leading UK property portal) shares collapsed on the news trading down 10% on the day and c. 15% in all since the story broke. Now to be fair, having traded as low as 156p at the start of the year, RMV shares have had a pretty solid 2009, hitting a high of just over 600p and trading around 550p before the Google ‘news’ hit the market. And since investing (and especially trading) is not about picking the prettiest asset but picking the asset you think most others will find prettiest, I don’t blame any fund manager for selling first and asking questions later. And I have much sympathy for those that think that Rightmove’s market leadership is vulnerable in the medium term; only I don’t harbor much fear that this threat will come from Mountainview. The competitor that Rightmove’s shareholders should be keeping a close eye on isn’t Google, but Zoopla of course. (Reminder: we are investors in Zoopla.) Ah, but Zoopla
has a silly name, it can’t be a real threat. Google however…
And it’s not just UK property where I think the mainstream markets and pundits breathlessly get it wrong about Google. In area after area they have proven not to be a very successful or threatening competitor and in other areas their entry has often been a boon for specialist competitors in the segment due to the legitimizing power Google brings to the table. They are able to (implicitly) validate new business models in ways a smaller, more specialist start-up could never dream of, and yet this market validation very often plays right into the hands of folks who, well, know what the hell they are doing.
Don’t believe me? Let’s take just a couple areas where – if you believe the logic in the argument used to justify Rightmove’s downtrade – Google should be causing wholesale panic and disruption:
- Financial Information: maybe I’m wrong but I don’t exactly see Thomson Reuters or Bloomberg shaking in their boots, and yet here is a sector that is tailor made for Google’s engineering, distribution and technology assets, and one where they have had years to refine the value proposition; and yet Google Finance remains essentially a working prototype of a back-of-the-napkin sketch of what a Google financial information portal could become. Umair challenged CEO Schmidt to take up this challenge a couple months ago but I’m not convinced it would be as easy as it looks.
- News aggregators: Google News is all we need right? (Perhaps supplemented with Google Reader…) There’s no reason for sites like Digg or Daylife or the Huffington Post to exist. I mean what are these guys thinking: some of them even started after Google News went into public beta. Crazy. Except they actually work, they have customers willing to use them despite Google News existing. But really, how long can this last?
- Advertising: I must be joking now. After all advertising is the one market Google owns; the market that gave them their billions that allowed them to hire all the smart (non-evil) people and enter and take any other market at will. Right? Well if you think so, have a look at this recent post from Paul Kedrosky. It’s why vertical search and specialist sites exist. It’s why you (usually) go to Amazon.com if you know you are searching for a book, and not necessarily via Google.
And I could go on. But the point of this post is not to say that Google are useless, yesterday’s game, past their prime. In fact my best Google-fanboy guess would be that they are far from the point of diminishing returns and structural foolishness. My point is rather that they are not – or at least not universally – the ‘destroyers of all economic worlds’; that as they grow to become a company of thousands of employees in dozens of locations they will inevitably have to deal with some of the structural pathologies that this involves, including rising mediocracy and products looking more like camels than horses. Oh yeah and evil too. Yes they are a fierce competitor and certainly there is some risk that they could destroy your business model and take your business with it. But this is far from certain. They are human. They make mistakes. They execute poorly. They don’t always (or even often) win. And best of all, once you’ve proven that you can beat them, they just might buy your company.
Update:
I forgot to send you to a great essay by John Borthwick, thinking about the challenges Google faces going forward and highlighting the structural shortcomings of trying to regulate behavior in the fast moving world of technology, inspired by Ken Auletta’s book Googled: The End of the World As We Know It.
And of course Jeff Jarvis wrote a book about the opening premise of this post (which perhaps Santa will bring me) called What Would Google Do?
My friend Alex wrote a great post on how the current UK government just doesn’t get it. And it’s not about policy per se – upon which intelligent people can disagree – but more fundamentally on how the whole socio-economic-institutional paradigm is shifting, massively, below their feet. And there’s not a damn thing they can do about it. And therein lies the rub. The fact that they are powerless to change this despite commanding the heights of power does not compute.
To be fair, they aren’t alone – the instincts of many (most) politicians is to try to stuff the genie back in the bottle. Just look at the surreal-if-it-wasn’t-real going ons in France as just one example. The same is true of many Fortune 1000 business leaders.
And when I look at this through a demographic prism – as I am wont to do 
– I see a distinct pattern. I suspect that a propensity to cling to the historical norms of power and control is a cultural pathology that is particularly acute in the Baby Boom generation. This is partly a coincidence of timing – ie the power paradigm is changing on their watch – and exacerbated by their generational self-image: they are not old and reactionary, they are not “the man”. They are the vibrant transformational free-spirited children of the 60s and 70s, they are the ones that “get it”. Sixty is the new thirty right? But they worked hard to climb up the greasy pole of success, to make it to the corner office, to the top of the hierarchy. And it was bloody hard work. And they deserve to now be able to wield the levers of power as their predecessors did for generations beforehand. Besides as a more enlightened generation they would do this with even more wisdom. So it is unsurprising that they are not bloody happy to see the rules change. They are in charge. They set the rules. It’s their turn. It’s only fair.
Spot the odd one out.
Gordon Brown: 58. Peter Mandelson: 55. Michael Martin: 63. Barrack Obama: 47.
Age at start of mobile phone/internet mass adoption (1995)
Gordon Brown: 44. Peter Mandelson: 41. Michael Martin: 49. Barrack Obama: 33.
Clearly this is a generalization. Not everyone over 50, not every baby boomer is at odds with the changing world. In fact there are a fair number (many of whom we have to thank for building the technological foundations of this new age) who are leaders – in their actions and thought – in this transformation. However – and this is completely anecdotal and a personal view – I suspect that they are rarely found and disproportionately under-represented in the halls of traditional power.
It’s time for a change. But it won’t be easy. And given increasing life expectancies these guys are going to be around and healthy for another 20 or 30 years so nature isn’t going to help because we don’t have that long. The funny thing is I think if they overcame their fears and actually “let go” many of these leaders would find it incredibly liberating and empowering at the same time. Interesting times indeed.
(Call it.)
It’s lovely that you have a website and that you even allow Companies to file (some) documents online. And wait until Google and others find out about your revolutionary business model of paid search! (Imagine if Google caught on and started charging a pound for every search! I can’t believe they didn’t think of this, but think I should buy some shares in case they see this. Just imagine – they would make billions!) Isn’t modern technology wonderful? But although you do seem to be quite ‘au fait’ with this whole internet thingy, there are a couple really neat newfangled things that could make your site even better. Things like relational databases for example. And if you really want to live on the edge, check out what the crazy kids at places like LinkedIn and Facebook have done. And then there’s this stuff called UI and UX, but I understand if you think this is perhaps a step to far. Maybe in 2015. In any event, the blue is very nice. Most people like blue. Very clever! Best regards, – A. Director
Say you are a Director of a UK limited company. Say you are a Director of many UK limited companies. You would think that in 2009, you’d be able to go to the Companies House website and ‘manage your profile’, no? (Address, contact details, present and former Directorships, qualifications, etc.) Well, you’d be wrong. You can’t even search on a person. Only on Companies. God help the poor bastard who is Director of 50 companies and has the stupidity to move: 50 change of address forms to fill in and submit. Online. Sort of. (Only for Limited companies, by post for LLP’s.) Aaaarrgh! I mean c’mon! WTF?!? Just because it is a government organization doesn’t mean it needs to be devoid of innovation, especially since:
The Minister responsible for Companies House is Ian Pearson MP, Minister of State for Science and Innovation. The agency also has Trading Fund status which allows the agency to directly manage its own finances.
Maybe next time he’s in the UK, Reid Hoffman might want to spend an hour with the Companies House Board…(could be mistaken but a cursory google search would suggest that none of the Companies House directors are on LinkedIn so perhaps they do think they are on top of their game…)
In the ten minutes I’ve taken to write this one could sketch out the business model for Companies House 2.0 and given it’s key monopoly status, I’m sure you could build a killer revenue model (without fleecing your customers.) Better service. More revenues. Smarter business.
Please?
(from the FT:)
A plethora of groups left empty-handed by the Budget are queuing up in Whitehall to lobby the government over the £750m cash pot allocated towards the vaguely defined strategic investment fund.
Well since I don’t know Lord Mandelson and I’m admittedly a neophyte when it comes to navigating public sector bureaucracies, I thought that rather than go stand in line of what is certainly a very longish queue, I’d make our case from this little soapbox in case one of my readers has the Minister’s ear! (That way I’ll have no regrets, you never know until you ask and all that…) So here goes:
Over the next decade and beyond, a tremendous opportunity exists to profit from the emergence of a new paradigm in financial services and markets. Disruptive business models, products and services – enabled by exponential improvements in technology – will fundamentally challenge incumbent firms and market structures. These new approaches will drive a reconfiguration of the financial industry and the structure of many markets within the wider economy.
Nauiokas Park was created in order to take advantage of this opportunity. Marrying patient long-term growth capital with expert operational and strategic advice, we seek to create wealth for all of our stakeholders by anticipating and catalyzing change through investments in entrepreneurs and companies that will lead and shape the new industry paradigm.
Given the importance of the financial services sector to the UK economy, the relative dearth of venture capital focused on supporting and developing innovative start-ups in this sector threatens the long term health and competitiveness of the UK financial industry. The lack of a vibrant ecosystem of entrepreneurs in financial services*, hobbles the forces of competition and creative destruction and will ultimately undermine the long term competitiveness of the UK as a modern 21st century financial centre. Nauiokas Park is ideally positioned to address this and as such is an obvious partner for the UK’s Strategic Investment Fund.
Of course, one would also have to carefully consider what constraints such an investor would bring but at least to begin with, we’d come into any discussions with an open mind.
[Waiting for the phone to ring.]
* I have excluded hedge funds from this definition – not because they are not entrepreneurs, they most certainly are, but because their talents are focused on novel and unique strategies for investing and trading and not on developing new, innovative and disruptive business models or approaches to providing services.
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