Amazonisation is a double-edged force investment firms cannot afford to ignore
When Amazon launched in 1994, it was billed as “the world’s biggest bookstore.” It turned out to be the template for a new kind of business—an online marketplace that could bring together a fragmented, far-flung assortment of buyers and sellers around a product category.
Since then, the power of the online platform model has proved to be far greater than anyone might have imagined. Amazon remains a poster child for the “network effect,” the phenomenon whereby a product or service becomes increasingly more valuable as more people use it. Having morphed into “the everything store,” Amazon is the undisputed e-commerce leader in the US and in the UK, where it currently claims about 25 percent of the online retail market. (It is also now set to broaden its grocery delivery service in the UK , partnering with the Morrisons chain for fresh food supply.)
Meanwhile, a multitude of online marketplaces have sprung up across a number of business sectors, investments and banking included. Charles Schwab’s OneSource fund “supermarket,” which revolutionised the US mutual fund business when it was introduced back in 1992, was an early forerunner of the platform trend as it is unfolding in our industry. Amazonisation now presents investment managers with a mix of threats and opportunities alike.
Let’s start with the e-commerce giants, which could be either competitors or partners for existing investment firms. A high-margin business like financial services is a natural target for the Googles and Amazons of the world. Amazon already has an active lending program for the merchants in its networks. And don’t forget Alibaba, which is expanding aggressively into financial services and aims to become one of China’s full-service banks. By leveraging its global e-commerce network, Alibaba was able to grow its Yu’e Bao fund into the world’s fourth largest money market fund within ten months of its launch in 2013.
Of course, bigger isn’t always better, especially in Europe, where regulators have repeatedly expressed concerns that large global tech firms may be gaining excessive market share. Their ongoing probes suggest that some regulatory curbs may be in the offing. But while it’s true that bigger players are advantaged by scale and are tending to dominate their markets—think of AirBnB, Spotify, and Uber—tech-based startups can be competitive, too. The platform model has disrupted traditional industries in part by lowering barriers to entry.
So called “robo-advisers” have already created a stir among investment firms, and hundreds more well-funded Silicon Valley startups are busy innovating in the realm of financial services. Among recent “fintech” launches are platforms offering peer-to-peer loans, credit-card refinancing, streamlined private-equity transactions, auctions of pre-IPO investments, and more.
With today’s technology tools, investment firms can easily create an online presence without having to build their own infrastructure from scratch. Sophisticated small players can appear alongside bulge-bracket firms in search results and listings, affording them the chance to impress investors with novel strategies or original insights. The doors are open both to expansion-minded investment managers and to the startups that want to compete with them.
Growth aspirations aside, there are other aspects of the platform trend that no investment firm should overlook—namely, the way online marketplaces are empowering consumers and elevating their expectations. Consumers are already accustomed to the personalisation, convenience, and multi-faceted user experience that Amazon helped pioneer with features such as product reviews, one-click ordering, and customised purchase recommendations. In today’s e-commerce ecosystem, consumers can comparison-shop more easily and in greater depth than ever before. They have come to expect retail-type transparency and full technical information to support purchase decisions of all kinds.
To compete for investors going forward, investment firms will need infrastructure that delivers instant access to account data and documents, rapid information processing, and effective tools for self-service. If they want to grow into new areas of business, asset managers will also need operating platforms that are flexible and vehicle-agnostic.
But let’s not forget how online platforms empower businesses, too, enabling new strategies for engaging and educating customers, learning about their preferences, and differentiating from competitors. Platform technology permits asset managers to target the kinds of investors they want and build investor relationships in a more individualised way than ever before. It also brings new discipline and quantification to sales, marketing, and product development.
Amazon has shown what can be built by working backward from what customers need and want. We have also seen how quickly Amazonisation can reshape an industry’s landscape. Now it is up to each investment firm to decide whether, and how, it will plug into the power of the platform.
Amazonisation is one of five sweeping technology trends discussed in SEI’s new paper, The Upside of Disruption: Why the future of asset management depends on innovation. If you wish to download a PDF of the each trend or the complete report, please visit www.seic.com/disruption.
Joe Henkel is managing director of SEI Investment Manager Services