First is the idea of analysts blogging. This is not a change in the business model, but rather a change in the way analysts publish their information. All analysts currently publish via email which, while less than optimal, is available to me anywhere. So, more analysts publishing via RSS would be great. I’ve told James this, and I encourage him to encourage other firms to do the same!

The second point about the whole idea of sell-side analysts verses independent firms is also an interesting point. Om, you point out that a bubble is getting ready to burst - it burst when the SEC and Spitzer came down on the industry. Sell-side analysts used to make millions of dollars a year and there were a lot of them.

Now the number has been reduced, the salaries have been cut, and a number of banks are wondering why they are in the business at all. Add to that companies like Fidelity asking that research and trading be unbundled - and you’ve got a real problem on your hands. We’ve also seen the rise of numerous independent firms as well. Anyway you look at it, the sell-side analyst is having difficulty.

But blogs are, really, just independent research without the cost. Most are supported by other income - either from a bank like James, or from publishing like you, Om. Some may be supported by advertising, but I think this is a tough road to go. So what value to blogs bring? Well, they don’t provide business models like the sell-side (as you pointed out), which is sometime useful for comparing with your own model or getting a quick idea of the metrics of a company. They generally provide, rather, a high-level view of an industry and the issues affecting that industry. And often times, as is the case with you, Om, the visitors leave comments that in some cases are more useful than the entry itself (no offense - and I’m also not counting my own in this category).

For me personally, I find blogs provide interesting information but that it is often not actionable. Most people in the buy-side learn about news items well ahead of most bloggers (thanks to ready access to Bloomberg or the like) - so just highlighting news items isn’t that useful. A great deal of blogging focuses future companies (many of which are not public), or focus on issues that may or may not affect the current or near-term financial status of a company.

I guess my whole point in this overly long diatribe is that the blogging research company isn’t a unique business model - independent research is everywhere - they just need to start using new publishing tools. The reality is that most people in the financial community are slow to change - have you ever used a Bloomberg terminal? It’s like something from the 70s. But if they change it everyone will get upset….so change is slow to come to community. If you started an independent research company and were going to publish your ideas only via RSS, you’d have a very small group of customers! I will highlight that a few forward looking companies are publishing via RSS (regardless of what you think of them as a source): theStreet.com, Schaeffersresearch.com and MotleyFool.com. As a result, they usually get a read in the mornings - as does James’ EuroTelcoblog.

1. Sell-side research and independent research needs to be differentiated. There is too much of the same analysis going on around the sell-side community where they work up the financials, attach some P/E multiples to the numbers to determine fair value, and put out a recommendation. If you want to get a sense of the value of this type of product, realize that many people use analyst rating as a contrary indicator. That is, if every analyst thinks it’s a buy, it might, in fact, be a sell. This is actually where blogs do the best - looking at the larger picture.

What is needed is differentiated research which brings something else to the table. For instance, Majestic Research, which I’ve mentioned before, combines the comScore web traffic data with financial models to produce a unique research product.

2. What is also needed are standardized formats for research reports. RSS is great for headlines, but it would be great to have the entire flow broken down into an XML stream. One company that I know that is working on this is BlueMatrix (www.bluematrix.com). They provide an ASP publishing system targeting the research community. More importantly, they are working on an XML specification for publishing data call RIXML (www.rixml.com). Now if we could only get companies to publish their financials according to standardized rules and in an XML format, we’d be all set.

Skibare

What I think I just described is already in practice at RealMoney.com, which is something another person commented on your post.

I believe true value add equity research requires a blending of real hands-on knowledge packaged and filtered in a way that can help investors make investment decisions. But any true hands-on knowledge could be interpreted as insider information. A business model that does work this way, using inside information on a collection of companies, is known as venture capital. There’s no harm in trading on inside information when there is no public market for the stock.

Perhaps then equity research is doomed to always suck. But if the line can be found somewhere that can straddle access to real, useful information while legally reporting it to investors without running regulatory risk, that would certainly be a great business model to pursue.

Good luck and keep up the good work.

The core MBA student management team discussed our possible roles. A detailed Microsoft Excel 2003 model of Level 3 Communications may become the first “kernel” to be shared with the open source community. Two more working professional offered to sign on as club advisors. Continuing progress is being made on acquiring a faculty advisor. We are exploring a variety of online collaborative alternatives. One suggestion was that start we a BMERC wiki discussion.

: This is a very interesting post by James Enck of Daiwa Securities SMBC Europe, on how high-quality research and information sources are being developed by blogs such as Om’s (and mine’s…though Om and James focus mainly on telco/software, and…

Since I switched to the RSS reader I seem to be finding more articles and posts worth pointing to but not that I have something significant to say on. I’m going to start just listing groups of these articles. These…

Ross Mayfield puts together some (I’m writing this while listening to Fusion of the Five Elements from the album