New York-Reflecting the growing prevalence of investment research derived from the internet, we have added a new sector to our primary research category-Search-Based Research. Search-Based Research firms, such as Relegence, firstRain, Connotate, are focused on providing investors with insights derived from internet search technology. This fast-growing segment has attracted a number of new entrants over the last few years.
Like most types of primary research, Search-Based firms provide capabilities which are customized to investor requirements. In this case, investors specify companies, sectors and/or topics of interest and search driven research firms will set up processes to mine the web and online services for insights.
Diversity of Search-Based Approaches
Different firms have different approaches. The spectrum of Search-Based Research ranges from news filtering at one end to data-mining at the other end. One of the pioneers in this niche was Relegence, which targeted traders and trading-oriented portfolio managers with low-latency filtered news. One of the value propositions was to provide targeted news quickly so that traders could take positions before the news was fully digested by the market. Relegence collaborated with Credit Suisse’s equity research group to map industry relationships such as upstream suppliers and downstream key clients, adding additional value to the company level filters. Relegence was recently acquired by AOL Time Warner.
A different value proposition is to exploit the diversity of the web. This approach is to sift through local media, trade journals, blogs, non-U.S. content and other obscure sources to find relevant information which has not been picked up by the mainstream. Examples include firstRain, Monitor 110, and Collective Intellect. firstRain primarily focuses on the buy-side, targeting analysts and research directors rather than traders. firstRain is a California-based firm which has begin focusing on the investment community over the last few years with growing success. [Note: Sandy Bragg is a member of firstRain’s advisory board.] NY-based Monitor 110 launched its service two years ago, and, like firstRain, is primarily targeted to the buy-side. Collective Intellect, which is based in Boulder Co, has a more diverse client base including pharma, consumer goods as well as the sell side.
The other end of the spectrum is to use the web for data mining. Connotate Technologies focuses on setting up customized spiders for clients, and specializes in data mining applications. An example would be collecting airline fare information from online travel sites to determine whether a price increase is sticking. The grand-daddy of this approach is Clear Forest, which offers enterprise level applications for government agencies as well as the private sector.
A key driver behind the growth of primary research is the increased hiring of research staff by investment managers. We estimate that the buy-side is spending is $ billion and shows no signs of slowing. Hedge funds are another growth engine. Hedge funds value research which is not widely distributed and the customized nature of primary research appeals greatly. The largest segment of primary research is the expert networks such as GLG, Vista Research, Clinical Advisors, Nitron. Channel Checkers, such as OTR, Farmhouse, Retail Intelligence Group, are also popular forms of primary research. Also included in the category are firms specializing in access to company management and market research firms which specialize in performing custom research projects for investors.
By adding Search-Based Research to the primary research category we are acknowledging the fast-changing nature of investment research, as the market continues to find new and innovative ways to deliver investment insights.